Foot Locker 2006 Annual Report Download - page 28

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12
Income Taxes
The effective tax rate for 2006 was 36.9 percent as compared with 35.0 percent in the prior year. The increase
in the rate is primarily due to the change in the mix of U.S. and international profits and the $17 million impairment
charge relating to the Company’s European operations, as well as a $6 million valuation allowance adjustment recorded
in 2005.
The effective tax rate for 2005 was 35.0 percent as compared with 31.7 percent in 2004. The increase was
attributable to less benefit from non-recurring items than in 2004 and a higher percentage of the Company’s income
earned in the United States, rather than from lower-taxed international operations. During 2005, the Company
restructured its Canadian continuing business, which resulted in a $6 million reduction to its income tax valuation
allowance related to Canadian tax loss carry-forwards and unclaimed tax depreciation. Additionally, the Company
recorded an income tax benefit of $3 million in discontinued operations related to its former Canadian operations.
During 2004, the Company settled foreign and domestic income tax examinations and reviews that resulted in reductions
of its income tax provision for continuing operations by $14 million and discontinued operations by $37 million.
Segment Information
The Company evaluates performance based on several factors, the primary financial measure of which is division
profit. Division profit reflects income from continuing operations before income taxes, corporate expense, non-
operating income, and net interest expense.
Athletic Stores
2006 2005 2004
(in millions)
Sales ................................................. $ 5,370 $5,272 $4,989
Division profit ......................................... $ 405 $ 419 $ 420
Sales as a percentage of consolidated total .................... 93% 93% 93%
Division profit margin .................................... 7.5% 7.9% 8.4%
Number of stores at year end ............................... 3,942 3,921 3,967
Selling square footage (in millions) .......................... 8.74 8.71 8.89
Gross square footage (in millions) ........................... 14.55 14.48 14.78
2006 compared with 2005
Athletic Stores sales of $5,370 million increased 1.9 percent in 2006, as compared with $5,272 million in 2005.
Excluding the effect of foreign currency fluctuations, primarily related to the euro, and the effect of the 53rd week, sales
from athletic store formats decreased by 0.6 percent in 2006. Footaction and Champs Sports significantly increased
sales, primarily from the sales of marquee basketball and running footwear. This was offset primarily by decreased sales
in Foot Locker Europe. Foot Locker Europe’s sales declined due to the continued difficult athletic retail environment,
particularly in France, the U.K and Italy. Comparable-store sales decreased by 1.1 percent in 2006.
Division profit from Athletic Stores decreased by 3.3 percent to $405 million in 2006 from $419 million in 2005.
Division profit as a percentage of sales decreased to 7.5 percent. The decrease in division profit is primarily attributable
to the Foot Locker Europe division due to the fashion shift from higher priced marquee footwear to lower priced low-
profile footwear styles and a highly competitive retail environment, particularly for the sale of low-profile footwear
styles. Included in the Athletic Stores division profit for 2006 is an impairment charge of $17 million related to the
Company’s European operations, consistent with the Company’s recoverability of long-lived assets policy. The charge
was comprised primarily of stores located in the U.K. and France. As previously disclosed in 2005, the Company was
monitoring the progress of the European operations and the possible analysis of recoverability of store long-lived assets
pursuant to SFAS No. 144. Excluding the impairment charge, Athletic Stores division profit increased by 0.7 percent as
compared with the corresponding prior-year period. The decline in Foot Locker Europe were offset by increases in all
other divisions.