Foot Locker 2005 Annual Report Download - page 61

2005 2004
(in millions)
Deferred tax liabilities:
Inventories ............................................................. $ 18 $ 8
Goodwill ................................................................ 12 2
Other ................................................................... 10 1
Total deferred tax liabilities ............................................... 40 11
Net deferred tax asset ..................................................... $147 $210
Balance Sheet caption reported in:
Deferred taxes .......................................................... $147 $180
Other current assets .................................................... 28 53
Other current liabilities ................................................. (3) (1)
Other liabilities ......................................................... (25) (22)
$147 $210
The Company operates in multiple taxing jurisdictions and is subject to audit. Audits can involve complex issues and
may require an extended period of time to resolve. A taxing authority may challenge positions that the Company has
adopted in its income tax filings. Accordingly, the Company may apply different tax treatments for transactions in filing
its income tax returns than for income tax financial reporting. The Company regularly assesses its tax position for such
transactions and records reserves for those differences.
The Company’s U.S. Federal income tax filings have been examined by the Internal Revenue Service (the “IRS”)
through 2004. The Company participated in the IRS’ Compliance Assurance Process (“CAP”) for 2005, which is expected
to conclude during 2006. The Company has started the Compliance Assurance Process for 2006.
As of January 28, 2006, the Company has a valuation allowance of $123 million to reduce its deferred tax assets to
an amount that is more likely than not to be realized. The valuation allowance primarily relates to the deferred tax assets
arising from state tax loss carryforwards, tax loss carryforwards of certain foreign operations and capital loss carryforwards
and unclaimed tax depreciation of the Canadian operations. The valuation allowance for state tax loss carryforwards
decreased, principally due to anticipated expirations of those losses. The valuation allowance for Canadian tax loss
carryforwards and tax depreciation decreased as a result of a reorganization of the Company’s Canadian operations that
increased the amount of deferred tax assets the Company expects to benefit from, offset in part by an increase in the
valuation allowance attributable to currency fluctuations and other adjustments.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which
the temporary differences are anticipated to reverse, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences, net of the valuation allowances at January 28, 2006. However,
the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income
are revised.
At January 28, 2006, the Company’s tax loss/credit carryforwards included international operating loss carryforwards
with a potential tax benefit of $35 million. Those expiring between 2006 and 2013 total $33 million and those that do
not expire total $2 million. The Company also has state net operating loss carryforwards with a potential tax benefit of
$25 million, which principally relate to the 16 states where the Company does not file a combined return. These loss
carryforwards expire between 2006 and 2025. The Company has Canadian capital loss carryforwards of approximately
$11 million that do not expire.
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