Foot Locker 2006 Annual Report Download - page 64

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Items that gave rise to significant portions of the deferred tax accounts are as follows:
2006 2005
(in millions)
Deferred tax assets:
Tax loss/credit carryforwards .................................. $ 56 $ 71
Employee benefits .......................................... 26 75
Reserve for discontinued operations ............................. 6 8
Repositioning and restructuring reserves ......................... 2 3
Property and equipment ...................................... 116 108
Allowance for returns and doubtful accounts ...................... 4 4
Straight-line rent ........................................... 24 22
Other .................................................... 21 19
Total deferred tax assets ........................................ 255 310
Valuation allowance ......................................... (105) (123)
Total deferred tax assets, net ................................ $ 150 $ 187
2006 2005
(in millions)
Deferred tax liabilities:
Inventories ................................................ $ 24 $ 18
Goodwill................................................... 13 12
Other ..................................................... 8 10
Total deferred tax liabilities....................................... 45 40
Net deferred tax asset ........................................... $105 $147
Balance Sheet caption reported in:
Deferred taxes .............................................. $109 $147
Other current assets .......................................... 21 28
Other current liabilities ....................................... (4) (3)
Other liabilities ............................................. (21) (25)
$105 $147
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 positions
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 2005. The Company participated in the IRS’ Compliance Assurance Process (“CAP”) for 2006, which is expected
to conclude during 2007. The Company has started the CAP for 2007.
As of February 3, 2007, the Company has a valuation allowance of $105 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 currency fluctuations and other
adjustments.