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These excerpts taken from the FL 10-K filed Mar 30, 2009. Derivative Financial Instruments All derivative financial instruments are recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded each period in earnings, other comprehensive gain or loss, or as a basis adjustment to the underlying hedged item, depending on whether a derivative is designated and effective as part of a hedge transaction. The effective portion of the gain or loss on the hedging derivative instrument is reported as a component of other comprehensive income/loss or as a basis adjustment to the underlying hedged item and reclassified to earnings in the period in which the hedged item affects earnings. The effective portion of the gain or loss on hedges of foreign net investments is generally not reclassified to earnings unless the net investment is disposed of. To the extent derivatives do not qualify as hedges, or are ineffective, their changes in fair value are recorded in earnings immediately, which may subject the Company to increased earnings volatility. The changes in the fair value of the Company’s hedges of net investments in various foreign subsidiaries is computed using the spot method. Derivative Financial All The Derivative Financial All The This excerpt taken from the FL 10-Q filed Dec 10, 2008. 6. Derivative Financial Instruments Derivative Holdings Designated as Hedges Net changes in the fair value of foreign exchange derivative financial instruments designated as cash flow hedges of the purchase of inventory and income/losses recognized in the income statement were not significant for the thirteen and thirty-nine weeks ended November 1, 2008 and November 3, 2007. The Company has numerous investments in foreign subsidiaries, and the net assets of those subsidiaries are exposed to foreign currency exchange-rate volatility. The Company has previously entered into two net investment hedges for its European and Canadian subsidiaries. During the third quarter of 2008, the Company entered into an offset to its European net investment hedge, fixing the amount recorded within the foreign currency translation adjustment to $24 million or $15 million after-tax. Gains and losses due to foreign exchange fluctuations will partially offset gains and losses in the net investments in the Company’s Canadian subsidiaries. The gains and losses, net of tax, will be recorded within the foreign currency translation adjustment included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheet. The amount recorded within the foreign currency translation adjustment related to these net investment hedges for the period ended November 1, 2008 was $22 million, or $14 million after-tax, which represents an after-tax decrease of $6 million from the beginning of the year. The amount recorded as of November 3, 2007 was $30 million, or $19 million after-tax. Derivative Holdings Designated as Non-Hedges The Company had foreign currency option contracts with a total notional amount of $26 million outstanding at the end of the third quarter of 2008. These contracts are designed to mitigate the effect of fluctuating foreign exchange rates on the reporting of a portion of its expected 2008 foreign currency denominated earnings. Changes in the fair value of these foreign currency option contracts, which are designated as non-hedges, are recorded in earnings immediately. Mark-to-market, realized gains and premiums paid for the thirteen and thirty-nine weeks ended November 1, 2008 were $5 million and $4 million, respectively. The premiums paid and changes in the fair market value were not significant for the thirteen weeks ended November 3, 2007, and were $1 million for the thirty-nine weeks ended November 3, 2007. In addition, the Company entered into forward foreign exchange contracts to hedge foreign currency denominated merchandise purchases and intercompany transactions. At November 1, 2008, the USD equivalent notional amount for outstanding forward foreign exchange contracts totaled $51 million. Net changes in the fair value of foreign exchange derivative financial instruments designated as non-hedges were not significant and were substantially offset by the changes in value of the underlying transactions, which were recorded in selling, general and administrative expenses in the current period. Page 10 of 30 During the first nine months of 2008, the Company entered into a series of monthly 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. The notional value of the contracts outstanding as of November 1, 2008 was $2.3 million and these contracts extend through November 2009. Changes in the fair value of these contracts are recorded in earnings immediately. The effect was not significant for the thirteen weeks and thirty-nine weeks ended November 1, 2008. The Company also had fuel forward contracts in place as of November 3, 2007 and the effect was not significant for the thirteen and thirty-nine weeks ended November 3, 2007. Interest Rate Management The Company has employed various interest rate swaps to minimize its exposure to interest rate fluctuations. These swaps, which mature in 2022, have been designated as a fair value hedge of the changes in fair value of $100 million of the Company’s 8.50 percent debentures payable in 2022 attributable to changes in interest rates, and effectively convert the interest rate on the debentures from 8.50 percent to a 1-month variable rate of LIBOR plus 3.45 percent, which totaled 6.03 percent and 8.13 percent at November 1, 2008 and November 3, 2007, respectively. This excerpt taken from the FL 10-Q filed Sep 10, 2008. Derivative Financial Instruments The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility. Page 14 of 28 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS OVERVIEW Foot Locker, Inc., through its subsidiaries, operates in two reportable segments – Athletic Stores and Direct-to-Customers. The Athletic Stores segment is one of the largest athletic footwear and apparel retailers in the world, whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports and Footaction. The Direct-to-Customers segment reflects Footlocker.com, Inc., which sells, through its affiliates, including Eastbay, Inc., to customers through catalogs and Internet websites. The Company also operated the Family Footwear segment which included the retail format under the Footquarters brand name during the second quarter of 2007. During the third quarter of 2007, the Company converted the Footquarters stores, which were the only stores reported under the Family Footwear segment, to Foot Locker and Champs Sports outlet stores. STORE COUNT At August 2, 2008, the Company operated 3,728 stores as compared with 3,785 at February 2, 2008. During the first half of 2008, the Company opened 40 stores, remodeled or relocated 162 stores and closed 97 stores. In March of 2006, the Company entered into a ten-year area development agreement with the Alshaya Trading Co. W.L.L., in which the Company agreed to enter into separate license agreements for the operation of Foot Locker stores located within the Middle East. Additionally in March 2007, the Company entered into a ten-year agreement with another third party for the exclusive right to open and operate Foot Locker stores in the Republic of South Korea. A total of 14 franchised stores were operational at August 2, 2008. Revenue from the 14 franchised stores was not significant for the thirteen and twenty-six weeks ended August 2, 2008 or August 4, 2007. These stores are not included in the Company’s operating store count above. SALES AND OPERATING RESULTS All references to comparable-store sales for a given period relate to sales of stores that are open at the period-end and that have been open for more than one year. Accordingly, stores opened and closed during the period are not included. Sales from the Direct-to-Customers segment are included in the calculation of comparable-store sales for all periods presented. Division profit (loss) reflects income (loss) before income taxes, corporate expense, non-operating income and net interest expense. The following table summarizes sales and operating results by segment: Sales
This excerpt taken from the FL 10-Q filed Jun 11, 2008. Derivative Financial Instruments The Company’s derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility. These excerpts taken from the FL 10-K filed Mar 31, 2008. Derivative Financial Instruments All derivative financial instruments are recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded each period in earnings, other comprehensive gain or loss, or as a basis adjustment to the underlying hedged item, depending on whether a derivative is designated and effective as part of a hedge transaction. The effective portion of the gain or loss on the hedging derivative instrument is reported as a component of other comprehensive income/loss or as a basis adjustment to the underlying hedged item and reclassified to earnings in the period in which the hedged item affects earnings. 36 The effective portion of the gain or loss on hedges of foreign net investments is generally not reclassified to earnings unless the net investment is disposed of. To the extent derivatives do not qualify as hedges, or are ineffective, their changes in fair value are recorded in earnings immediately, which may subject the Company to increased earnings volatility. The changes in the fair value of the Company’s hedges of net investments in various foreign subsidiaries is computed using the spot method. Derivative Financial All 36 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The This excerpt taken from the FL 10-K filed Apr 2, 2007. Derivative Financial Instruments All derivative financial instruments are recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded each period in earnings, other comprehensive gain or loss or as a basis adjustment to the underlying hedged item, depending on whether a derivative is designated and effective as part of a hedge transaction. The effective portion of the gain or loss on the hedging derivative instrument is reported as a component of other comprehensive income/loss or as a basis adjustment to the underlying hedged item and reclassified to earnings in the period in which the hedged item affects earnings. 35 The effective portion of the gain or loss on hedges of foreign net investments is generally not reclassified to earnings unless the net investment is disposed of. To the extent derivatives do not qualify as hedges, or are ineffective, their changes in fair value are recorded in earnings immediately, which may subject the Company to increased earnings volatility. The changes in the fair value of the Company’s hedges of net investments in various foreign subsidiaries is computed using the spot method. This excerpt taken from the FL 10-K filed Mar 29, 2005. Derivative Financial Instruments All derivative financial instruments are recorded in
the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded each period in earnings or other comprehensive
loss, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. The
effective portion of the gain or loss on the hedging derivative instrument is reported as a component of other comprehensive loss and reclassified to
earnings in the period in which the hedged item affects earnings. To the extent derivatives do not qualify as hedges, or are ineffective, their changes
in fair value are recorded in earnings immediately, which may subject the Company to increased earnings volatility.
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