Foot Locker 2012 Annual Report Download - page 64

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FOOT LOCKER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies − (continued)
Recoverability of Long-Lived Assets
The Company recognizes impairment losses 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 strategic long-range 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 reviews goodwill and intangible assets with indefinite lives for impairment annually during
the first quarter of its fiscal year or more frequently if impairment indicators arise. 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 Company’s Consolidated Balance Sheets at their
fair values. For derivatives designated as a hedge, 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 or are not designated as hedges, or are ineffective, their changes in fair
value are recorded in earnings immediately, which may subject the Company to increased earnings volatility.
Fair Value
The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value
hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value
fall within different levels of the hierarchy, the category level is based on the lowest priority level input
that is significant to the fair value measurement of the instrument. Fair value is determined based upon the
exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants exclusive of any transaction costs.
The Company’s financial assets recorded at fair value are categorized as follows:
Level 1 − Quoted prices for identical instruments in active markets.
Level 2 − Quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived valuations in which all
significant inputs or significant value-drivers are observable in active markets.
Level 3 − Model-derived valuations in which one or more significant inputs or significant
value-drivers are unobservable.
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