Office Depot 2001 Annual Report Download - page 47

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Note F—Income Taxes
Our income tax provision consisted of the following:
(Dollars in thousands) 2001 2000 1999
Current provision:
Federal $ 66,074 $ 71,407 $114,800
State 12,904 22,616 15,561
Foreign 33,913 30,918 26,318
Deferred expense (benefit) 196 (81,814) (430)
Total provision for income taxes $113,087 $ 43,127 $156,249
The tax-effected components of deferred income tax assets and liabilities
consisted of the following:
December 29, December 30,
(Dollars thousands) 2001 2000
Self-insurance accruals $ 28,020 $ 23,702
Inventory 25,150 17,790
Vacation pay and other accrued compensation 29,670 27,762
Reserve for bad debts 12,724 7,493
Reserve for facility closings 56,151 67,563
Merger costs 5,304 6,117
Unrealized loss on investments 19,266 17,499
Foreign and state net operating loss carryforwards 88,006 91,037
Other items, net 23,451 27,343
Gross deferred tax assets 287,742 286,306
Valuation allowance (72,605) (91,037)
Deferred tax assets 215,137 195,269
Basis difference in fixed assets 71,880 51,797
Capitalized leases 5,573 5,757
Excess of tax over book amortization 3,641 1,214
Other items, net 1,856 16,294
Deferred tax liabilities 82,950 75,062
Net deferred tax assets $132,187 $120,207
As of December 29, 2001, we had approximately $44 million of federal,
$105 million of foreign and $642 million of state net operating loss carry-
forwards. Of these carryforwards, approximately $28 million will expire in
2002, $12 million will carry over indefinitely, and the balance will expire
between 2003 and 2021. The valuation allowance has been developed to
reduce our deferred tax asset to an amount that is more likely than not to be
realized, and is based upon the uncertainty of the realization of certain for-
eign and state deferred tax assets relating to net operating loss carryforwards.
The federal net operating loss is subject to Internal Revenue Code Section 382
limitations, but is expected to be substantially realized.
The following is a reconciliation of income taxes at the Federal statutory
rate to the provision for income taxes:
(Dollars in thousands) 2001 2000 1999
Federal tax computed at the statutory rate $109,945 $32,361 $144,862
State taxes, net of Federal benefit 13,333 6,899 12,383
Nondeductible goodwill amortization 1,834 1,744 1,964
Merger costs —969 2,920
Foreign income taxed at rates other than Federal (13,743) (667) (6,508)
Other items, net 1,718 1,821 628
Provision for income taxes $113,087 $43,127 $156,249
Note G—Commitments and Contingencies
Operating Leases: Office Depot leases facilities and equipment under agree-
ments that expire in various years through 2021. Substantially all such leases
contain provisions for multiple renewal options. In addition to minimum
rentals, there are certain executory costs such as real estate taxes, insurance
and common area maintenance on most of our facility leases. Certain leases
contain provisions for additional rent to be paid if sales exceed a specified
amount. The table below shows future minimum lease payments due under
non-cancelable leases as of December 29, 2001. These minimum lease pay-
ments do not include facility leases that were accrued as merger and restruc-
turing costs or store closure and relocation costs (See Notes B and C).
(Dollars in thousands)
2002 $ 400,021
2003 345,876
2004 299,922
2005 251,804
2006 217,219
Thereafter 1,075,627
2,590,469
Less sublease income 59,526
$2,530,943
The Company is in the process of opening new stores and CSCs in the
ordinary course of business, and leases signed subsequent to December 29,
2001 are not included in the above described commitment amounts. Rent
expense, including equipment rental, was approximately $398.1 million, $393.5
million and $321.5 million in 2001, 2000 and 1999, respectively. Included in
this rent expense was approximately $0.7 million, $1.1 million, and $0.8 million
of contingent rent, otherwise known as percentage rent, in 2001, 2000, and
1999, respectively. Rent expense was reduced by sublease income of approxi-
mately $3.0 million in 2001 and 2000, and $3.2 million in 1999.