Foot Locker 2010 Annual Report Download - page 25

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.
Material changes in the market value of the securities we hold may adversely affect our results of
operations and financial condition.
At January 29, 2011, our cash and cash equivalents totaled $696 million. The majority of our investments
were short-term deposits in highly-rated banking institutions. We retain a substantial portion of our cash in
foreign jurisdictions for future reinvestment. We regularly monitor our counterparty credit risk and mitigate our
exposure by making short-term investments only in highly-rated institutions and by limiting the amount we
invest in any one institution. The Company continually monitors the creditworthiness of its counterparties. At
January 29, 2011, most of the investments were in institutions rated A or better from a major credit rating
agency. Despite those ratings, it is possible that the value or liquidity of our investments may decline due to any
number of factors, including general market conditions and bank-specific credit issues.
The trust which holds the assets of our U.S. pension plan has assets totaling $511 million at January 29,
2011. The fair values of these assets held in the trust are compared to the plan’s projected benefit obligation to
determine the pension funding liability. We attempt to mitigate risk through diversification, and we regularly
monitor investment risk on our portfolio through quarterly investment portfolio reviews and periodic asset and
liability studies. Despite these measures, it is possible that the value of our portfolio may decline in the future
due to any number of factors, including general market conditions and credit issues. Such declines could have an
impact on the funded status of our pension plans and future funding requirements.
Our financial results may be adversely impacted by higher-than-expected tax rates or exposure to
additional tax liabilities.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our
provision for income taxes is based on a jurisdictional mix of earnings, statutory rates, and enacted tax rules,
including transfer pricing. Significant judgment is required in determining our provision for income taxes and in
evaluating our tax positions on a worldwide basis. Our effective tax rate could be adversely affected by a number
of factors, including shifts in the mix of pretax profits and losses by tax jurisdiction, our ability to use tax credits,
changes in tax laws or related interpretations in the jurisdictions in which we operate, and tax assessments and
related interest and penalties resulting from income tax audits.
A substantial portion of our cash and investments is invested outside of the U.S. As we plan to permanently
reinvest our foreign earnings, in accordance with U.S. GAAP, we have not provided for U.S. federal and state
income taxes or foreign withholding taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries. Recent proposals to reform U.S. tax rules may result in a reduction or elimination of the
deferral of U.S. income tax on our foreign earnings, which could adversely affect our effective tax rate. Any of
these changes could have an adverse effect on our results of operations and financial condition.
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