Foot Locker 2009 Annual Report Download - page 43

The weighted-average long-term rate of return used to determine 2009 pension expense was 7.63 percent. A
decrease of 50 basis points in the weighted-average expected long-term rate of return would have increased 2009
pension expense by approximately $3 million. The actual return on plan assets in a given year typically differs
from the expected long-term rate of return, and the resulting gain or loss is deferred and amortized into the
plans’ expense over time.
Discount Rate - An assumed discount rate is used to measure the present value of future cash flow
obligations of the plans and the interest cost component of pension expense and postretirement income. The
discount rate selected to measure the present value of the Company’s U.S. benefit obligations at January 30,
2010 was derived using a cash flow matching method whereby the Company matches the plans’ projected
payment obligations by year with the corresponding yield on the Citibank Pension Discount Curve. The cash flows
are then discounted to their present value and an overall discount rate is determined. The discount rate selected
to measure the present value of the Company’s Canadian benefit obligations at January 30, 2010 was developed
by using the plan’s bond portfolio indices, which match the benefit obligations.
The weighted-average discount rates used to determine the 2009 benefit obligations related to the
Company’s pension and postretirement plans were 5.25 percent and 4.90 percent, respectively. A decrease of
50 basis points in the weighted-average discount rate would have increased the accumulated benefit obligation
of the pension plans at January 30, 2010 by approximately $26 million, while the effect on the postretirement
plan would not have been significant. Such a decrease would not have significantly changed 2009 pension
expense or postretirement income.
There is limited risk to the Company for increases in health care costs related to the postretirement plan as,
beginning in 2001, new retirees have assumed the full expected costs and then-existing retirees have assumed all
increases in such costs.
The Company expects to record postretirement income of approximately $6 million and pension expense of
approximately $23 million in 2010.
Income Taxes
In accordance with GAAP, deferred tax assets are recognized for tax credit and net operating loss
carryforwards, reduced by a valuation allowance, which is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management is required to estimate taxable income
for future years by taxing jurisdiction and to use its judgment to determine whether or not to record a valuation
allowance for part or all of a deferred tax asset. Estimates of taxable income are based upon the Company’s
three-year strategic plans. A one percent change in the Company’s overall statutory tax rate for 2009 would have
resulted in a $10 million change in the carrying value of the net deferred tax asset and a corresponding charge or
credit to income tax expense depending on whether such tax rate change was a decrease or an increase.
The Company has operations in multiple taxing jurisdictions and is subject to audit in these jurisdictions.
Tax audits by their nature are often complex and can require several years to resolve. Accruals of tax
contingencies require management to make estimates and judgments with respect to the ultimate outcome of
tax audits. Actual results could vary from these estimates.
The Company expects its 2010 effective tax rate to range from 36 to 37 percent. The actual rate will
primarily depend upon the percentage of the Company’s income earned in the United States as compared with
international operations.
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