Foot Locker (FL)

Liquidity

     Generally, the Company’s primary source of cash has been from operations. The Company generally finances real estate with operating leases. The principal uses of cash have been to finance inventory requirements, capital expenditures related to store openings, store remodelings, management information systems and other support facilities, and to fund general working capital requirements.

     Management believes its cash, cash equivalents and future operating cash flow from operations will be adequate to fund its working capital requirements, capital expenditures, retirement plan contributions, anticipated quarterly dividend payments, interest payments, potential share repurchases, and other cash requirements to support the development of its short-term and long-term operating strategies. The Company may also from time to time seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

     During 2008 the Company had $75 million of cash from its international operations invested in the Reserve International Liquidity Fund, Ltd., a money market fund (the “Fund”). This surplus cash was not required or used for daily operations. The Company requested a full redemption on September 16, 2008. At that time, the Company was informed by the Reserve Management Company, the Fund’s investment advisor, that the redemption trades would be honored at a $1.00 per share net asset value. Although the Company received a partial distribution of $49 million in the fourth quarter of 2008, the Company has not received information as to when the remaining amount of its redemption request will be paid. Litigation, to which the Company is not a party, exists that involves how the remaining assets of the Fund should be distributed. Therefore, there is a risk that the Company could receive less than the $1.00 per share net asset value. As a result, during the third quarter of 2008, the Company recognized an impairment loss of $3 million to reflect a decline in fair value that is other-than-temporary. Based on the maturities of the underlying investments in the Fund and the current status of the redemption process, the Company reclassified $23 million (net of the impairment charge of $3 million) from “Cash and cash equivalents” to “Short-term investments” in the Consolidated Balance Sheet as of January 31, 2009. We believe that we have adequate liquidity to meet our business needs through our existing cash balances, our ability to generate cash flows through operations, and the amounts available to borrow under our revolving credit facility.

     Maintaining access to merchandise that the Company considers appropriate for its business may be subject to the policies and practices of its key vendors. Therefore, the Company believes that it is critical to continue to maintain satisfactory relationships with its key vendors. The Company purchased approximately 80 percent in 2008 and 77 percent in 2007 of its merchandise from its top five vendors and expects to continue to obtain a significant percentage of its athletic product from these vendors in future periods. Approximately 64 percent in 2008 and 56 percent in 2007 was purchased from one vendor — Nike, Inc.

     Planned capital expenditures for 2009 are approximately $100 million,of which $77 million relates to modernizations of existing stores and new store openings, and $23 million reflects the development of information systems and other support facilities. The Company has the ability to revise and reschedule the anticipated capital expenditure program, should the Company’s financial position require it.

     The Company has contributed $8 million to its U.S. pension plan in February 2009. Due to the pension plan asset performance experienced for the year ended January 31, 2009, the Company may make additional contributions during 2009 to its U.S. qualified pension plan. The Company is in the process of evaluating the amount and timing of the contribution. The contribution amount will depend on the plan asset performance for the balance of the year and any statutory or regulatory changes that may occur.

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Liquidity

     Generally, the Company’s primary source of cash has been from operations.
The Company generally finances real estate with operating leases. The principal
uses of cash have been to finance inventory requirements, capital expenditures
related to store openings, store remodelings, management information systems and
other support facilities, and to fund general working capital
requirements.

     Management believes its cash, cash equivalents and future operating cash
flow from operations will be adequate to fund its working capital requirements,
capital expenditures, retirement plan contributions, anticipated quarterly
dividend payments, interest payments, potential share repurchases, and other
cash requirements to support the development of its short-term and long-term
operating strategies. The Company may also from time to time seek to retire or
purchase outstanding debt through open market purchases, privately negotiated
transactions or otherwise. Such repurchases, if any, will depend on prevailing
market conditions, liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.

     During 2008 the Company had $75 million of cash from its international
operations invested in the Reserve International Liquidity Fund, Ltd., a money
market fund (the “Fund”). This surplus cash was not required or used for daily
operations. The Company requested a full redemption on September 16, 2008. At
that time, the Company was informed by the Reserve Management Company, the
Fund’s investment advisor, that the redemption trades would be honored at a
$1.00 per share net asset value. Although the Company received a partial
distribution of $49 million in the fourth quarter of 2008, the Company has not
received information as to when the remaining amount of its redemption request
will be paid. Litigation, to which the Company is not a party, exists that
involves how the remaining assets of the Fund should be distributed. Therefore,
there is a risk that the Company could receive less than the $1.00 per share net
asset value. As a result, during the third quarter of 2008, the Company
recognized an impairment loss of $3 million to reflect a decline in fair value
that is other-than-temporary. Based on the maturities of the underlying
investments in the Fund and the current status of the redemption process, the
Company reclassified $23 million (net of the impairment charge of $3 million)
from “Cash and cash equivalents” to “Short-term investments” in the Consolidated
Balance Sheet as of January 31, 2009. We believe that we have adequate liquidity
to meet our business needs through our existing cash balances, our ability to
generate cash flows through operations, and the amounts available to borrow
under our revolving credit facility.

     Maintaining access to merchandise that the Company considers appropriate
for its business may be subject to the policies and practices of its key
vendors. Therefore, the Company believes that it is critical to continue to
maintain satisfactory relationships with its key vendors. The Company purchased
approximately 80 percent in 2008 and 77 percent in 2007 of its merchandise from
its top five vendors and expects to continue to obtain a significant percentage
of its athletic product from these vendors in future periods. Approximately 64
percent in 2008 and 56 percent in 2007 was purchased from one vendor — Nike,
Inc.

     Planned capital expenditures for 2009 are approximately $100 million,of
which $77 million relates to modernizations of existing stores and new store
openings, and $23 million reflects the development of information systems and
other support facilities. The Company has the ability to revise and reschedule
the anticipated capital expenditure program, should the Company’s financial
position require it.

     The
Company has contributed $8 million to its U.S. pension plan in February 2009.
Due to the pension plan asset performance experienced for the year ended January
31, 2009, the Company may make additional contributions during 2009 to its U.S.
qualified pension plan. The Company is in the process of evaluating the amount
and timing of the contribution. The contribution amount will depend on the plan
asset performance for the balance of the year and any statutory or regulatory
changes that may occur.

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