Foot Locker 2008 Annual Report Download - page 67

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Items that gave rise to significant portions of the deferred tax accounts are as follows:
2008 2007
(in millions)
Deferred tax assets:
Tax loss/credit carryforwards and capital loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 64
Employee benefits ................................................... 102 33
Reserve for discontinued operations ...................................... 5 5
Repositioning and restructuring reserves .................................. 1 1
Property and equipment ............................................... 184 167
Allowance for returns and doubtful accounts ............................... 1 3
Straight-line rent .................................................... 25 24
Goodwill........................................................... 25 —
Other ............................................................. 28 16
Total deferred tax assets ................................................. 408 313
Valuation allowance .................................................. (13) (14)
Total deferred tax assets, net ......................................... $395 $299
Deferred tax liabilities:
Inventories ........................................................ $ 22 $ 13
Goodwill........................................................... — 13
Other ............................................................. 8 4
Total deferred tax liabilities .............................................. $ 30 $ 30
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $365$269
Balance Sheet caption reported in:
Deferred taxes ...................................................... $358 $239
Other current assets .................................................. 29 53
Other current liabilities ............................................... (10) (13)
Other liabilities ..................................................... (12) (10)
$365 $269
The Company operates in multiple taxing jurisdictions and is subject to audit. Audits can involve complex issues
that 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 2007. The Company is participating in the IRS’s Compliance Assurance Process (“CAP”) for 2008, which is
expected to conclude during 2009. The Company has started the CAP for 2009. Due to the recent utilization of net
operating loss carryforwards, the Company is subject to state and local tax examinations effectively including years
from 1996 to the present. To date, no adjustments have been proposed in any audits that will have a material effect
on the Company’s financial position or results of operations.
As of January 31, 2009, the Company has a valuation allowance of $13 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 a capital loss associated with the impairment of the Northern Group note receivable, state tax
loss carryforwards, and state tax credits. A full valuation allowance was established for the capital loss because the
Company does not anticipate recognizing sufficient capital gains to utilize this loss. The valuation allowance for state
tax loss carryforwards decreased, principally due to anticipated expirations of those losses.