Foot Locker 2011 Annual Report Download - page 26

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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 28, 2012, our cash and cash equivalents totaled $851 million. The majority of our investments
were short-term deposits in highly-rated banking institutions. As of January 28, 2012, the Company had
$498 million of cash and cash equivalents held in foreign jurisdictions. 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 28, 2012, almost all 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 $546 million at
January 28, 2012. 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.
Our financial results may be adversely impacted by higher-than-expected tax rates or exposure to
additional tax liabilities.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our
provision for income taxes is based on a jurisdictional mix of earnings, statutory rates, and enacted tax
rules, including transfer pricing. Significant judgment is required in determining our provision for income
taxes and in evaluating our tax positions on a worldwide basis. Our effective tax rate could be adversely
affected by a number of factors, including shifts in the mix of pretax profits and losses by tax jurisdiction,
our ability to use tax credits, changes in tax laws or related interpretations in the jurisdictions in which we
operate, and tax assessments and related interest and penalties resulting from income tax audits.
A substantial portion of our cash and investments is invested outside of the U.S. As we plan to permanently
reinvest our foreign earnings, in accordance with U.S. GAAP, we have not provided for U.S. federal and state
income taxes or foreign withholding taxes that may result from future remittances of undistributed
earnings of foreign subsidiaries. Recent proposals to reform U.S. tax rules may result in a reduction or
elimination of the deferral of U.S. income tax on our foreign earnings, which could adversely affect our
effective tax rate. Any of these changes could have an adverse effect on our results of operations and
financial condition.
In addition, our products are subject to import and excise duties and/or sales or value-added taxes in
many jurisdictions. Fluctuations in tax rates and duties and changes in tax legislation or regulation could
have a material adverse effect on our results of operations and financial condition.
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 third-party carriers for shipment of a significant amount of merchandise. An interruption in
service by these carriers for any reason could cause temporary disruptions in our business, a loss of sales
and profits, and other material adverse effects.
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