Foot Locker 2009 Annual Report Download - page 23

The current global economic conditions have adversely affected, and may continue to adversely affect our
business and results of operations.
The Company’s performance is subject to global economic conditions and the related impact on consumer
spending levels, which have declined recently due to the current economic slowdown. Some of the factors
affecting consumer spending are employment, levels of consumer debt, reductions in net worth as a result of
market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, and
consumer confidence, as well as other macroeconomic factors. Consumer purchases of discretionary items,
including merchandise we sell, generally decline during recessionary periods and other periods where disposable
income is adversely affected and customers may be hesitant to use available credit. The downturn in the global
economy may continue to affect customer purchases for the foreseeable future and may adversely impact our
business, financial condition and results of operations. In addition, declines in our profitability could result in a
charge to earnings for the impairment of long-lived assets, goodwill and other intangible assets, which would not
affect our cash flow but could decrease our earnings, and our stock price could be adversely affected.
Instability in the financial markets may adversely affect our business.
The distress in the financial markets over the past 12−18 months has resulted in volatility in security prices
and diminished liquidity and credit availability. There can be no assurance that our liquidity will not be affected
by changes in the financial markets and the global economy. Although we currently do not have any borrowings
under our revolving credit facility (other than amounts used for standby letters of credit), tightening of credit
markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into
agreements for new indebtedness or obtain funding through the issuance of the Company’s securities.
Additionally, our borrowing costs can be affected by independent rating agencies’ ratings, which are based largely
on our performance as measured by credit metrics, including lease-adjusted leverage ratios. As of November 23,
2009, our credit rating from Standard & Poor’s was reduced to B+. This decrease would likely increase our cost of
borrowing and make it more difficult for us to obtain credit.
In addition, instability in the financial markets may have a negative affect on businesses around the world,
and the impact on our major suppliers cannot be predicted. The Company relies on a few key vendors for a
majority of its merchandise purchases (including a significant portion from one key vendor). The inability of key
suppliers to access liquidity, or the insolvency of key suppliers, could lead to their failure to deliver our
merchandise. Our inability to obtain merchandise in a timely manner from major suppliers could have a material
adverse effect on our business, financial condition, and results of operations.
If our long-lived assets, goodwill or other intangible assets become impaired, we may need to record
significant non-cash impairment charges.
We review our long-lived assets, goodwill and other intangible assets when events indicate that the carrying
value of such assets may be impaired. Goodwill and other indefinite lived intangible assets are reviewed for
impairment if impairment indicators arise and, at a minimum, annually. We determine fair value based on a
combination of a discounted cash flow approach and market-based approach. If an impairment trigger is
identified, the carrying value is compared to its estimated fair value and provisions for impairment are recorded
as appropriate. Impairment losses are significantly affected by estimates of future operating cash flows and
estimates of fair value. Our estimates of future operating cash flows are identified from our three-year plans,
which are based upon our experience, knowledge and expectations; however, these estimates can be affected by
such factors as our future operating results, future store profitability, and future economic conditions, all of
which can be difficult to predict. Similar to others in our industry, the recent macroeconomic conditions have
affected our performance and it is difficult to predict how long these economic conditions will continue and
which aspects of our business may be adversely affected. The continuation of these conditions could affect the
fair value of our long-lived assets, goodwill and other intangible assets and could result in future impairment
charges, which would adversely affect our results of operations.
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