Foot Locker 2007 Annual Report Download - page 65

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A reconciliation of the significant differences between the federal statutory income tax rate and the effective
income tax rate on pre-tax (loss) income from continuing operations is as follows:
2007 2006 2005
Federal statutory income tax rate .............................. (35.0)% 35.0%35.0%
State and local income taxes, net of federal tax benefit . . . . . . . . . . . . . (13.8) 3.3 2.8
International income taxed at varying rates ...................... 8.3 (0.9) 0.8
Foreign tax credit utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53.1) (1.2) (3.1)
(Decrease) increase in valuation allowance ....................... (125.7) 0.1 (1.5)
Federal/foreign tax settlements ............................... — (0.1) 0.4
Tax exempt obligations ...................................... (3.7) (0.5) (0.4)
Federal tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.6) (0.2) (0.2)
Foreign dividends and gross-up ................................ 25.4 — —
Other, net ................................................ 1.2 1.4 1.2
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198.0)% 36.9%35.0%
Items that gave rise to significant portions of the deferred tax accounts are as follows:
2007 2006
(in millions)
Deferred tax assets:
Tax loss/credit carryforwards ....................................... $ 68 $ 56
Employee benefits ............................................... 33 26
Reserve for discontinued operations .................................. 5 6
Repositioning and restructuring reserves .............................. 1 2
Property and equipment ........................................... 165 116
Allowance for returns and doubtful accounts ........................... 3 4
Straight-line rent ................................................ 25 24
Other ......................................................... 17 21
Total deferred tax assets ............................................. 317 255
Valuation allowance .............................................. (14) (105)
Total deferred tax assets, net ..................................... $303 $150
Deferred tax liabilities:
Inventories .................................................... $19 $24
Goodwill....................................................... 11 13
Other ......................................................... 5 8
Total deferred tax liabilities .......................................... $35 $45
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $268 $105
Balance Sheet caption reported in:
Deferred taxes .................................................. $243 $109
Other current assets .............................................. 53 21
Other current liabilities ........................................... (13) (4)
Other liabilities ................................................. (15) (21)
$268 $105
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.