Foot Locker 2009 Annual Report Download - page 24

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Material changes in the market value of the securities we hold may adversely affect our results of
operations and financial condition.
At January 30, 2010, our cash, cash equivalents and short-term investments totaled $589 million. The
majority of our investments were short-term deposits in highly-rated banking institutions. We regularly monitor
our counterparty credit risk and mitigate our exposure by making short-term investments only in highly-rated
institutions and by limiting the amount we invest in any one institution. The Company continually monitors the
creditworthiness of its counterparties. At January 30, 2010, most of the investments were in institutions rated A
or better from a major credit rating agency. Despite those ratings, it is possible that the value or liquidity of our
investments may decline due to any number of factors, including general market conditions and bank-specific
credit issues.
The trust which holds the assets of our U.S. pension plan has assets totaling $465 million at January 30,
2010. The fair values of these assets held in the trust are compared to the plan’s projected benefit obligation to
determine the pension funding liability. We attempt to mitigate risk through diversification, and we regularly
monitor investment risk on our portfolio through quarterly investment portfolio reviews and periodic asset and
liability studies. Despite these measures, it is possible that the value of our portfolio may decline in the future
due to any number of factors, including general market conditions and credit issues. Such declines could have an
impact on the funded status of our pension plans and future funding requirements.
Complications in our distribution centers and other factors affecting the distribution of merchandise may
affect our business.
We operate four distribution centers worldwide to support our businesses. In addition to the distribution
centers that we operate, we have third-party arrangements to support our operations in the U.S., Canada,
Australia and New Zealand. If complications arise with any facility or any facility is severely damaged or
destroyed, the Company’s other distribution centers may not be able to support the resulting additional
distribution demands. This may adversely affect our ability to deliver inventory on a timely basis. We depend
upon UPS for shipment of a significant amount of merchandise. An interruption in service by UPS for any reason
could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.
Our freight cost is affected by changes in fuel prices through surcharges. Increases in fuel prices and
surcharges and other factors may increase freight costs and thereby increase our cost of sales. We enter into
diesel fuel forward and option contracts to mitigate a portion of the risk associated with the variability caused by
these surcharges.
A major failure of our information systems could harm our business.
We depend on information systems to process transactions, manage inventory, operate our websites,
purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. Any material disruption or
slowdown of our systems could cause information to be lost or delayed, which could have a negative effect on our
business. We may experience operational problems with our information systems as a result of system failures,
viruses, computer ‘‘hackers’’ or other causes. We cannot be assured that our systems will be adequate to support
future growth.
Risks associated with Internet operations.
Our Internet operations are subject to numerous risks, including risks related to the failure of the computer
systems that operate our websites and their related support systems, including computer viruses,
telecommunications failures and similar disruptions. Also, we may require additional capital in the future to
sustain or grow our online commerce.
Business risks related to online commerce include risks associated with the need to keep pace with rapid
technological change, Internet security risks, risks of system failure or inadequacy, governmental regulation and
legal uncertainties with respect to the Internet, and collection of sales or other taxes by additional states or
foreign jurisdictions. If any of these risks materializes, it could have a material adverse effect on the Company’s
business.
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