Foot Locker 2013 Annual Report Download - page 67

Foot Locker, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies − (continued)
tax-planning strategies, and results of recent operations. If the Company determines that it would be able to
realize their deferred tax assets in the future in excess of their net recorded amount, the Company would make
an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
A taxing authority may challenge positions that the Company 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 when considered necessary. Tax positions are recognized only when it is more likely than
not, based on technical merits, that the positions will be sustained upon examination. Tax positions that meet
the more-likely-than-not threshold are measured using a probability weighted approach as the largest amount
of tax benefit that is greater than fifty percent likely of being realized upon settlement. Whether the more-likely-
than-not recognition threshold is met for a tax position is a matter of judgment based on the individual facts
and circumstances of that position evaluated in light of all available evidence. The Company recognizes interest
and penalties related to unrecognized tax benefits within income tax expense in the accompanying consoli-
dated statement of operations. Accrued interest and penalties are included within the related tax liability line
in the consolidated balance sheet. Provision for U.S. income taxes on undistributed earnings of foreign subsid-
iaries is made only on those amounts in excess of the funds considered to be permanently reinvested.
Pension and Postretirement Obligations
The discount rate for the U.S. plans is determined by reference to the Bond:Link interest rate model based
upon a portfolio of highly rated U.S. corporate bonds with individual bonds that are theoretically purchased to
settle the plan’s anticipated cash outflows. The cash flows are 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 Cana-
dian benefit obligations was developed by using the plan’s bond portfolio indices, which match the benefit
obligations.
Insurance Liabilities
The Company is primarily self-insured for health care, workers’ compensation, and general liability costs.
Accordingly, provisions are made for the Company’s actuarially determined estimates of discounted future
claim costs for such risks, for the aggregate of claims reported and claims incurred but not yet reported. Self-
insured liabilities totaled $11 million and $14 million at February 1, 2014 and February 2, 2013, respectively. The
Company discounts its workers’ compensation and general liability reserves using a risk-free interest rate.
Imputed interest expense related to these liabilities was not significant for 2013, 2012, and 2011.
Accounting for Leases
The Company recognizes rent expense for operating leases as of the possession date for store leases or the
commencement of the agreement for a non-store lease. Rental expense, inclusive of rent holidays, conces-
sions, and tenant allowances are recognized over the lease term on a straight-line basis. Contingent payments
based upon sales and future increases determined by inflation related indices cannot be estimated at the
inception of the lease and accordingly, are charged to operations as incurred.
Foreign Currency Translation
The functional currency of the Company’s international operations is the applicable local currency. The transla-
tion of the applicable foreign currency into U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted-
average rates of exchange prevailing during the year. The unearned gains and losses resulting from such
translation are included as a separate component of accumulated other comprehensive loss within sharehold-
ers’ equity.
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