Foot Locker 2014 Annual Report Download - page 81

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FOOT LOCKER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Financial Instruments and Risk Management − (continued)
For option and foreign exchange forward contracts designated as cash flow hedges of the purchase of
inventory, the effective portion of gains and losses is deferred as a component of Accumulated Other
Comprehensive Loss (‘‘AOCL’’) and is recognized as a component of cost of sales when the related inventory is
sold. The amount reclassified to cost of sales related to such contracts was not significant for any of the periods
presented. The effective portion of gains or losses associated with other forward contracts is deferred as a
component of AOCL until the underlying transaction is reported in earnings. The ineffective portion of gains
and losses related to cash flow hedges recorded to earnings was also not significant for any of the periods
presented. When using a forward contract as a hedging instrument, the Company excludes the time value of
the contract from the assessment of effectiveness. For all years presented, all of the Company’s hedged
forecasted transactions are less than twelve months, and the Company expects all derivative-related amounts
reported in AOCL to be reclassified to earnings within twelve months. During 2014, the net change in the fair
value of the foreign exchange derivative financial instruments designated as cash flow hedges of the purchase
of inventory resulted in a loss of $1 million and therefore increased AOCL. At January 31, 2015 there was a
$3 million loss included in AOCL.
The notional value of the contracts outstanding at January 31, 2015 was $63 million and these contracts extend
through January 2016.
Derivative Holdings Designated as Non-Hedges
The Company enters into foreign exchange forward contracts that are not designated as hedges in order to
manage the costs of certain foreign currency-denominated merchandise purchases and intercompany
transactions. Changes in the fair value of these foreign exchange forward contracts are recorded in earnings
immediately within selling, general and administrative expenses. The net change in fair value was not significant
for 2014, was $1 million for 2013, and was not significant for 2012. The notional value of the contracts
outstanding at January 31, 2015 was $34 million, and these contracts extend through October 2015.
The Company may mitigate the effect of fluctuating foreign exchange rates on the reporting of foreign
currency-denominated earnings by entering into currency option 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. During 2014, the Company recorded realized gains of $1 million, net of premiums paid, in
connection with such contracts. The amounts recorded in prior years were not significant. There were no
contracts outstanding at January 31, 2015.
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:
(in millions) Balance Sheet Caption 2014 2013
Hedging Instruments:
Foreign exchange forward contracts Current liabilities $4 $2
Non-hedging Instruments:
Foreign exchange forward contracts Current liabilities $1 $—
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