Foot Locker 2014 Annual Report Download - page 68

FOOT LOCKER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies − (continued)
Income Taxes
The Company accounts for its income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis
of the differences between the financial statements and the tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Deferred tax assets are recognized for tax credits 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that it believes these assets are more likely than
not to be realized. In making such a determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
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 consolidated 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 subsidiaries 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
Canadian 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 $13 million and $11 million at January 31, 2015 and February 1, 2014, 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 any of the periods presented.
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