Foot Locker 2013 Annual Report Download - page 81

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Foot Locker, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Financial Instruments and Risk Management − (continued)
Derivative Holdings Designated as Non-Hedges
The Company enters into foreign exchange forward contracts to hedge foreign-currency denominated mer-
chandise purchases and intercompany transactions that are not designated as hedges. The net change in fair
value was $1 million for 2013 and was not significant in any of the other periods presented. The notional value
of the contracts outstanding at February 1, 2014 was $42 million and these contracts extend through June 2014.
Additionally, the Company enters into diesel fuel forward 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. Changes in the
fair value of these contracts are recorded in earnings immediately. The effect was not significant for any of the
periods presented. The notional value of the contracts outstanding at February 1, 2014 was not significant.
Fair Value of Derivative Contracts
The following represents the fair value of the Company’s derivative contracts. Many of the Company’s agree-
ments allow for a netting arrangement. The following is presented on a gross basis, by type of contract:
(in millions) Balance Sheet Caption 2013 2012
Hedging Instruments:
Foreign exchange forward contracts Current assets $— $4
Foreign exchange forward contracts Current liabilities $2 $—
Non-hedging Instruments:
Foreign exchange forward contracts Current assets $— $2
Notional Values and Foreign Currency Exchange Rates
The table below presents the notional amounts for all outstanding derivatives and the weighted-average
exchange rates of foreign exchange forward contracts at February 1, 2014: Contract Value
(U.S. in millions) Weighted-Average
Exchange Rate
Inventory
Buy €/Sell British £ $ 73 .8479
Buy £/Sell € (3) 1.2060
Buy US/Sell € 3 .7373
Intercompany
Buy US/Sell € $ 25 1.3237
Buy €/Sell British £ 12 .8449
Buy US/Sell CAD $ 2 1.0717
Business Risk
The retailing business is highly competitive. Price, quality, selection of merchandise, reputation, store location,
advertising, and customer service are important competitive factors in the Company’s business. The Company
operates in 23 countries and purchased approximately 88 percent of its merchandise in 2013 from its top 5 vendors.
In 2013, the Company purchased approximately 68 percent of its athletic merchandise from one major vendor,
Nike, Inc. (‘‘Nike’’), and approximately 15 percent from another major vendor. Each of our operating divisions is
highly dependent on Nike; they individually purchased 39 to 80 percent of their merchandise from Nike.
Included in the Company’s Consolidated Balance Sheet at February 1, 2014, are the net assets of the Compa-
ny’s European operations, which total $869 million and which are located in 19 countries, 11 of which have
adopted the euro as their functional currency.
58