Foot Locker 2009 Annual Report Download - page 69

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Derivative Holdings Designated as Non-Hedges
The Company mitigates the effect of fluctuating foreign exchange rates on the reporting of foreign currency
denominated earnings by entering into a variety of derivative instruments, including option currency contracts.
Changes in the fair value of these foreign currency option contracts, which are designated as non-hedges, are
recorded in earnings immediately within other income. The realized gains, premiums paid and changes in the fair
market value recorded in the Consolidated Statements of Operations was not significant and was $4 million of
income for the years ended January 30, 2010 and January 31, 2009, respectively, and was not significant for the
year ended February 2, 2008. The notional value of the option currency contract outstanding at January 30, 2010
was $8 million.
The Company also enters into forward foreign exchange contracts to hedge foreign-currency denominated
merchandise purchases and intercompany transactions. Net changes in the fair value of foreign exchange
derivative financial instruments designated as non-hedges were substantially offset by the changes in value of
the underlying transactions, which were recorded in selling, general and administrative expenses. The amount
recorded for all the periods presented was not significant.
The Company enters into monthly diesel fuel forward and option contracts to mitigate a portion of the
Company’s freight expense due to the variability caused by fuel surcharges imposed by our third-party freight
carriers. The notional value of the contracts outstanding at January 30, 2010 was $4 million and these contracts
extend through November 2010. Changes in the fair value of these contracts are recorded in earnings
immediately. The effect was not significant for any of the periods presented.
As discussed above, the Company terminated its European net investment hedge during the third quarter of
2008. During the remaining term of the agreement, the Company will remit to its counterparty interest payments
based on one-month U.S. LIBOR rates on the $24 million liability. The agreement includes a provision that may
require the Company to settle this transaction in August 2010, at the option of the Company or the counterparty.
Fair Value of Derivative Contracts
The following represents the fair value of the Company’s derivative contracts. Many of the Company’s
agreements allow for a netting arrangement. The following is presented on a gross basis, by type of contract:
2009 2008
(in millions) Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value
Hedging Instruments:
Forward foreign exchange contracts . . . Current assets $ — Current assets $ 3
Interest rate swaps .............. Noncurrent assets — Non current assets 19
Total ........................ $— $22
Non Hedging Instruments:
Forward foreign exchange contracts . . . Current assets $ 1 Current assets $ 2
European cross currency swap ....... Noncurrent liability (24) Non current liability (24)
Fuel forwards and options contracts . . . Non current liability — Non current liability (1)
Total ........................ $(23) $(23)
Foreign Currency Exchange Rates
The table below presents the notional amounts and weighted-average exchange rates of foreign exchange
forward contracts outstanding at January 30, 2010. Contract Value
(U.S. in millions) Weighted-Average
Exchange Rate
Inventory
Buy €/Sell British £ ..................................... $30 .8664
Buy US/Sell €......................................... 9 .6864
Intercompany
Buy €/Sell British £ ...................................... $21 .8674
Buy US/Sell CAD$........................................ 7 1.0376
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