Foot Locker 2013 Annual Report Download - page 79

Foot Locker, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Income Taxes − (continued)
historical loss incurred by its branches in the Netherlands and Austria. Under German tax rules, these losses are
not deductible against the entity’s German profits. Based on the history of losses and the absence of prudent
and feasible business plans for generating future taxable income in the Netherlands and Austria, the Company
believes it is more likely than not that the benefit of these historical loss carryforwards will not be realized.
Additionally, the Company recorded an unrealized loss related to its investment in an auction rate security. This
loss, if and when recognized for tax purposes, would be a capital loss. The Company has not identified any
reliable sources of future capital gain that would be generated to absorb this potential loss. In recognition of
this risk, the Company has a valuation allowance of $1 million for any loss that would be recognized upon
disposition of this security.
Based upon the level of historical taxable income and projections for future taxable income, which are based
upon the Company’s strategic long-range plans, over the periods in which the temporary differences are antici-
pated to reverse, management believes it is more likely than not that the Company will realize the benefits of
these deductible differences, net of the valuation allowances at February 1, 2014. However, the amount of the
deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are
revised.
At February 1, 2014, the Company has state operating loss carryforwards with a potential tax benefit of $3
million that expire between 2014 and 2033. The Company will have, when realized, a capital loss with a poten-
tial benefit of $3 million arising from a note receivable. This loss will carryforward for 5 years after realization.
The Company has U.S. state credits of $1 million that expire in 2023. The Company has Canadian provincial
credit carryforwards of $1 million expiring between 2016 and 2017. The Company has international operating
loss carryforwards with a potential tax benefit of $4 million, a portion of which will expire between 2014 and
2033 and a portion of which will never expire.
At February 1, 2014 and February 2, 2013, the Company had $48 million and $54 million, respectively of gross
unrecognized tax benefits, and $46 million and $52 million, respectively, of net unrecognized tax benefits that
would, if recognized, affect the Company’s annual effective tax rate. The Company has classified certain income
tax liabilities as current or noncurrent based on management’s estimate of when these liabilities will be settled.
Interest expense and penalties related to unrecognized tax benefits are classified as income tax expense. The
Company recognized $1 million of interest income, in 2013 and 2012, and $1 million of interest expense in 2011.
The total amount of accrued interest and penalties was $2 million, $3 million, and $4 million in 2013, 2012, and
2011, respectively.
The following table summarizes the activity related to unrecognized tax benefits:
2013 2012 2011
(in millions)
Unrecognized tax benefits at beginning of year $54 $ 65 $62
Foreign currency translation adjustments (4) 1 (1)
Increases related to current year tax positions 347
Increases related to prior period tax positions 431
Decreases related to prior period tax positions (2) (3) —
Settlements (7) (15) (3)
Lapse of statute of limitations —(1) (1)
Unrecognized tax benefits at end of year $48 $ 54 $65
It is reasonably possible that the liability associated with the Company’s unrecognized tax benefits will increase
or decrease within the next twelve months. These changes may be the result of foreign currency fluctuations,
ongoing audits or the expiration of statutes of limitations.
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