Foot Locker 2008 Annual Report Download - page 52

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Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Significant
additions and improvements to property and equipment are capitalized. Maintenance and repairs are charged to
current operations as incurred. Major renewals or replacements that substantially extend the useful life of an asset
are capitalized and depreciated. Owned property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the assets: maximum of 50 years for buildings and 3 to 10 years for furniture, fixtures
and equipment. Property and equipment under capital leases and improvements to leased premises are generally
amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the remaining lease
term. Capitalized software reflects certain costs related to software developed for internal use that are capitalized
and amortized. After substantial completion of the project, the costs are amortized on a straight-line basis over a 2
to 7 year period. Capitalized software, net of accumulated amortization, is included in property and equipment and
was $23 million at January 31, 2009 and $22 million at February 2, 2008.
Recoverability of Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
No. 144”), an impairment loss is recognized whenever events or changes in circumstances indicate that the carrying
amounts of long-lived tangible and intangible assets with finite lives may not be recoverable. Management’s policy in
determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance
criteria at the division level, as well as qualitative measures. The Company considers historical performance and future
estimated results, which are predominately identified from the Company’s three-year strategic plans, in its evaluation
of potential store-level impairment and then compares the carrying amount of the asset with the estimated future cash
flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected
undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying
amount of the asset with its estimated fair value. The estimation of fair value is measured by discounting expected
future cash flows at the Company’s weighted-average cost of capital. The Company estimates fair value based on the
best information available using estimates, judgments and projections as considered necessary.
Goodwill and Other Intangible Assets
The Company accounts for goodwill and other intangibles in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets,” which requires that goodwill and other intangible assets with indefinite lives be reviewed for
impairment if impairment indicators arise and, at a minimum, annually. The Company performs its annual impairment
review as of the beginning of each fiscal year. The fair value of each reporting unit is determined using a combination
of market and discounted cash flow approaches.
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.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various market data and other valuation
techniques as appropriate. The carrying value of cash and cash equivalents, and other current receivables and payables,
approximates fair value due to the short-term nature of these assets and liabilities.