Home Depot 2010 Annual Report Download - page 53

The Company believes that the realization of the deferred tax assets is more likely than not, based upon the
expectation that it will generate the necessary taxable income in future periods, and except for certain net
operating and capital losses discussed below, no valuation reserves have been provided.
At January 30, 2011, the Company had state and foreign net operating loss carryforwards available to reduce
future taxable income, expiring at various dates from 2011 to 2028. Management has concluded that it is more
likely than not that the tax benefits related to the net operating losses will be realized. However, certain foreign
net operating losses are in jurisdictions where the expiration period is too short to be assured of utilization.
Therefore, a valuation allowance has been provided to reduce the deferred tax asset related to net operating losses
to an amount that is more likely than not to be realized. Total valuation allowances related to net operating losses
at January 30, 2011 and January 31, 2010 were $21 million and $15 million, respectively.
As a result of its sale of HD Supply, the Company incurred a tax loss, resulting in a net capital loss carryover of
approximately $397 million as of January 30, 2011. Portions of the net capital loss carryover will expire in fiscal
years 2013 through 2015 if not used. The Company has concluded that it is not more likely than not that all of the
tax benefits related to the capital loss carryover will be realized based on its ability to generate adequate capital
gain income during the carryover period. Therefore, a valuation allowance of $45 million has been provided.
The Company had foreign tax credit carryforwards of $30 million and $65 million as of January 30, 2011 and
January 31, 2010, respectively. The foreign tax credit carryforwards will expire in 2020. Management has
concluded that it is more likely than not that the tax benefits related to the foreign tax credit carryforwards will be
realized based on the Company’s ability to generate foreign source income during the carryforward period.
Therefore, no valuation allowance has been provided.
The Company has not provided for U.S. deferred income taxes on approximately $2.0 billion of undistributed
earnings of international subsidiaries because of its intention to indefinitely reinvest these earnings outside the
U.S. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the
undistributed earnings is not practicable; however, unrecognized foreign income tax credits would be available to
reduce a portion of this liability.
The Company’s income tax returns are routinely examined by domestic and foreign tax authorities. The
Company’s U.S. federal and Canadian tax returns for fiscal years 2005 through 2007 are currently under audit by
the IRS and the Canadian tax authorities. There are also ongoing U.S. state and local and other foreign audits
covering tax years 2003 to 2009. The Company does not expect the results from any income tax audit to have a
material impact on the Company’s financial statements.
The Company believes that certain adjustments under examination by the IRS and in certain states will be agreed
upon within the next twelve months. The Company has classified approximately $63 million of the reserve for
unrecognized tax benefits as a short-term liability in the accompanying Consolidated Balance Sheets. Final
settlement of these audit issues may result in payments that are more or less than these amounts, but the
Company does not anticipate the resolution of these matters will result in a material change to its consolidated
financial position or results of operations.
Reconciliations of the beginning and ending amount of gross unrecognized tax benefits for continuing operations
for fiscal 2010, 2009 and 2008 were as follows (amounts in millions):
January 30,
2011 January 31, 2010 February 1, 2009
Unrecognized tax benefits balance at beginning of fiscal year $ 659 $695 $ 608
Additions based on tax positions related to the current year 174 55 67
Additions for tax positions of prior years 84 33 231
Reductions for tax positions of prior years (181) (28) (142)
Reductions due to settlements (65) (94) (65)
Reductions due to lapse of statute of limitations (9) (2) (4)
Unrecognized tax benefits balance at end of fiscal year $ 662 $659 $ 695
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