Foot Locker (FL)

Money Market
Impairment

     On
September 16, 2008, the Company requested redemption of its shares in the
Reserve International Liquidity Fund, Ltd., a money market fund (the “Fund”),
totaling $75 million. At the time the redemption request was made, the Company
was informed by the Reserve Management Company, the Fund’s investment advisor,
that the Company’s 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. This
charge was recorded with no tax benefit. This impairment is primarily related to
the underlying securities of Lehman Brothers Holdings Inc. held in the Fund.
Based on the maturities of the underlying investments in the Fund and the
current status of the redemption process, the Company has 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.

Impairment of Goodwill and
Other Intangible Assets

     The
Company has seven reporting units, as defined under SFAS No. 142, “Goodwill and
Other Intangible Assets.” A reporting unit is defined as an operating segment or
one level below an operating segment. Only four of the reporting units contain
goodwill, $118 million was allocated to the Foot Locker, Kids Foot Locker and
Footaction reporting unit, $49 million was allocated to the Champs Sports
reporting unit, $17 million was allocated to the Foot Locker Europe reporting
unit, and $127 million was allocated to the Direct-to-Customers reporting unit.
Although we have seven reporting units, they have been aggregated into two
operating segments for segment reporting purposes, in accordance with SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information.”

     The Company performs its annual
impairment test as of the beginning of each year; however, due to the
significant decline in the Company’s common stock and market capitalization, in
relation to the book value during the fourth quarter of 2008, the Company
determined that a triggering event had occurred and performed an interim
impairment test. The first step in this process compares the fair value of the
reporting unit to its carrying value. If the carrying value of the reporting
unit exceeds its fair value, the second step of the impairment test is performed
to measure the impairment. In the second step, the fair value of the reporting
unit is allocated to all of the assets and liabilities of the reporting unit to
determine an implied goodwill value. This allocation is similar to a purchase
price allocation performed in purchase accounting. If the carrying amount of the
reporting unit’s goodwill exceeds the implied goodwill value, an impairment loss
should be recognized in an amount equal to that excess. The fair value of the
four reporting units containing goodwill was determined under step 1 of the
goodwill impairment test based on an equal weighting of a discounted cash flow
analysis using forward-looking projections of estimated future operating results
and a guideline company methodology under the market approach. Based on this
testing, the Company determined that the fair values, as determined under step 1
as described above, was less than the carrying values of the Foot Locker, Kids
Foot Locker and Footaction reporting unit and the Champs Sports reporting unit.
Accordingly, the Company performed a step 2 analysis to determine the extent of
the goodwill impairment and concluded that the carrying value of these two
reporting units was fully impaired, resulting in a non-cash impairment charge of
$167 million. There were no goodwill impairment charges in 2007 or
2006.

     Intangible assets that are determined to have finite lives are amortized
over their useful lives and are measured for impairment only when events or
circumstances indicate that the carrying value may be impaired. Intangible
assets with indefinite lives are tested for impairment if impairment indicators
arise and, at a minimum, annually. As a result of the impairment review related
to long-lived assets and goodwill, the Company performed a review of its other
intangible assets and recorded impairment charges in 2008 totaling $2 million
related to trademarks of Footaction in the U.S. and Foot Locker in the Republic
of Ireland, reflecting decreases in projected revenues.

41

Impairment of Assets and Store
Closing Program

     In
connection with the review of goodwill and other intangibles, the Company
performed a store long-lived impairment test pursuant to SFAS No. 144 for its
Foot Locker, Kids Foot Locker, and Footaction divisions. Additionally, in
accordance with the Company’s store long-lived assets policy, the Company
determined that triggering events had occurred during the fourth quarter of 2008
at its Lady Foot Locker and Champs Sports divisions. Accordingly, the Company
evaluated the long-lived assets of those operations for impairment and recorded
non-cash impairment charges of $67 million primarily to write-down long-lived
assets such as store fixtures and leasehold improvements for 868 stores at the
Company’s U.S. store operations.

     During the year ended January 31, 2009, the Company closed 21
unproductive stores as part of the store closing program announced in 2007. Exit
costs of $5 million for the year ended January 31, 2009, comprising primarily
lease termination costs, were recognized in accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities.”

     During 2007, the Company concluded that triggering events had occurred at
its U.S. retail store divisions, comprising Foot Locker, Lady Foot Locker, Kids
Foot Locker, Footaction, and Champs Sports. Accordingly, the Company evaluated
the long-lived assets of those operations for impairment and recorded non-cash
impairment charges of $117 million primarily to write-down long-lived assets
such as store fixtures and leasehold improvements for 1,395 stores at the
Company’s U.S. store operations pursuant to SFAS No. 144. The Company recorded
an additional non-cash impairment charge of $7 million in 2007 as a result of
the decision to close 66 unproductive stores as part of a store closing program.
Exit costs related to 33 stores, which closed during 2007, comprising primarily
lease termination costs of $4 million, were recognized in accordance with SFAS
No. 146.

     Under SFAS No. 144, store closings may constitute discontinued operations
if migration of customers and cash flows are not expected. The Company has
concluded that no store closings have met the criteria for discontinued
operations treatment.

Money Market
Impairment

     On
September 16, 2008, the Company requested redemption of its shares in the
Reserve International Liquidity Fund, Ltd., a money market fund (the “Fund”),
totaling $75 million. At the time the redemption request was made, the Company
was informed by the Reserve Management Company, the Fund’s investment advisor,
that the Company’s 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. This
charge was recorded with no tax benefit. This impairment is primarily related to
the underlying securities of Lehman Brothers Holdings Inc. held in the Fund.
Based on the maturities of the underlying investments in the Fund and the
current status of the redemption process, the Company has 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.

Impairment of Goodwill and
Other Intangible Assets

     The
Company has seven reporting units, as defined under SFAS No. 142, “Goodwill and
Other Intangible Assets.” A reporting unit is defined as an operating segment or
one level below an operating segment. Only four of the reporting units contain
goodwill, $118 million was allocated to the Foot Locker, Kids Foot Locker and
Footaction reporting unit, $49 million was allocated to the Champs Sports
reporting unit, $17 million was allocated to the Foot Locker Europe reporting
unit, and $127 million was allocated to the Direct-to-Customers reporting unit.
Although we have seven reporting units, they have been aggregated into two
operating segments for segment reporting purposes, in accordance with SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information.”

     The Company performs its annual
impairment test as of the beginning of each year; however, due to the
significant decline in the Company’s common stock and market capitalization, in
relation to the book value during the fourth quarter of 2008, the Company
determined that a triggering event had occurred and performed an interim
impairment test. The first step in this process compares the fair value of the
reporting unit to its carrying value. If the carrying value of the reporting
unit exceeds its fair value, the second step of the impairment test is performed
to measure the impairment. In the second step, the fair value of the reporting
unit is allocated to all of the assets and liabilities of the reporting unit to
determine an implied goodwill value. This allocation is similar to a purchase
price allocation performed in purchase accounting. If the carrying amount of the
reporting unit’s goodwill exceeds the implied goodwill value, an impairment loss
should be recognized in an amount equal to that excess. The fair value of the
four reporting units containing goodwill was determined under step 1 of the
goodwill impairment test based on an equal weighting of a discounted cash flow
analysis using forward-looking projections of estimated future operating results
and a guideline company methodology under the market approach. Based on this
testing, the Company determined that the fair values, as determined under step 1
as described above, was less than the carrying values of the Foot Locker, Kids
Foot Locker and Footaction reporting unit and the Champs Sports reporting unit.
Accordingly, the Company performed a step 2 analysis to determine the extent of
the goodwill impairment and concluded that the carrying value of these two
reporting units was fully impaired, resulting in a non-cash impairment charge of
$167 million. There were no goodwill impairment charges in 2007 or
2006.

     Intangible assets that are determined to have finite lives are amortized
over their useful lives and are measured for impairment only when events or
circumstances indicate that the carrying value may be impaired. Intangible
assets with indefinite lives are tested for impairment if impairment indicators
arise and, at a minimum, annually. As a result of the impairment review related
to long-lived assets and goodwill, the Company performed a review of its other
intangible assets and recorded impairment charges in 2008 totaling $2 million
related to trademarks of Footaction in the U.S. and Foot Locker in the Republic
of Ireland, reflecting decreases in projected revenues.

41

Impairment of Assets and Store
Closing Program

     In
connection with the review of goodwill and other intangibles, the Company
performed a store long-lived impairment test pursuant to SFAS No. 144 for its
Foot Locker, Kids Foot Locker, and Footaction divisions. Additionally, in
accordance with the Company’s store long-lived assets policy, the Company
determined that triggering events had occurred during the fourth quarter of 2008
at its Lady Foot Locker and Champs Sports divisions. Accordingly, the Company
evaluated the long-lived assets of those operations for impairment and recorded
non-cash impairment charges of $67 million primarily to write-down long-lived
assets such as store fixtures and leasehold improvements for 868 stores at the
Company’s U.S. store operations.

     During the year ended January 31, 2009, the Company closed 21
unproductive stores as part of the store closing program announced in 2007. Exit
costs of $5 million for the year ended January 31, 2009, comprising primarily
lease termination costs, were recognized in accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities.”

     During 2007, the Company concluded that triggering events had occurred at
its U.S. retail store divisions, comprising Foot Locker, Lady Foot Locker, Kids
Foot Locker, Footaction, and Champs Sports. Accordingly, the Company evaluated
the long-lived assets of those operations for impairment and recorded non-cash
impairment charges of $117 million primarily to write-down long-lived assets
such as store fixtures and leasehold improvements for 1,395 stores at the
Company’s U.S. store operations pursuant to SFAS No. 144. The Company recorded
an additional non-cash impairment charge of $7 million in 2007 as a result of
the decision to close 66 unproductive stores as part of a store closing program.
Exit costs related to 33 stores, which closed during 2007, comprising primarily
lease termination costs of $4 million, were recognized in accordance with SFAS
No. 146.

     Under SFAS No. 144, store closings may constitute discontinued operations
if migration of customers and cash flows are not expected. The Company has
concluded that no store closings have met the criteria for discontinued
operations treatment.