Office Depot 2010 Annual Report Download - page 52

The components of deferred income tax assets and liabilities consisted of the following:
(Dollars in thousands)
December 25,
2010
December 26,
2009
U.S. and foreign net operating loss carryforwards .................. $ 344,878 $ 343,343
Deferred rent credit .......................................... 107,673 104,292
Vacation pay and other accrued compensation .................... 71,496 85,912
Accruals for facility closings .................................. 41,896 54,122
Inventory .................................................. 17,165 23,912
Self-insurance accruals ....................................... 20,622 19,387
Deferred revenue ........................................... 10,764 13,787
State credit carryforwards, net of Federal benefit .................. 12,739 10,698
Allowance for bad debts ...................................... 9,005 9,475
Accrued rebates ............................................ 14,591 6,058
Other items, net ............................................. 65,768 75,553
Gross deferred tax assets ................................... 716,597 746,539
Valuation allowance ......................................... (648,869) (656,943)
Deferred tax assets ........................................ 67,728 89,596
Internal software ............................................ 1,003 23,857
Basis difference in fixed assets ................................. 53,391 17,098
Deferred tax liabilities ..................................... 54,394 40,955
Net deferred tax assets ....................................... $ 13,334 $ 48,641
As of December 25, 2010, we had approximately $179 million of U.S. Federal, $826 million of foreign, and $1
billion of state net operating loss carryforwards. The U.S. Federal carryforward will expire in 2030. Of the
foreign carryforwards, $640 million can be carried forward indefinitely, $15 million will expire in 2011, and the
balance will expire between 2012 and 2030. Of the state carryforwards, $26 million will expire in 2011, and the
balance will expire between 2012 and 2030. Additionally, the company has $1.73 billion of foreign capital loss
carryforwards ($468 million tax-effected) that resulted from a 2010 internal restructuring transaction that can be
carried forward indefinitely. Under the tax laws of the jurisdiction, the capital loss carryforward may only offset
a future capital gain resulting from an intercompany transaction between the specific subsidiaries of the company
involved in the 2010 transaction. Because the company believes that it is remote that the capital loss
carryforward will be realized in the foreseeable future, a full valuation allowance has been established against the
asset and the company has chosen to exclude the attribute from the above tabular rendition of deferred tax assets
and liabilities.
U.S. income taxes have not been provided on the undistributed earnings of foreign subsidiaries, which were
approximately $715 million as of December 25, 2010. We have reinvested such earnings overseas in foreign
operations indefinitely and expect that future earnings will also be reinvested overseas indefinitely.
Valuation allowances have been established to reduce our deferred asset to an amount that is more likely than not
to be realized and is based upon the uncertainty of the realization of certain deferred tax assets related to net
operating loss carryforwards and other tax attributes. Because of the downturn in our performance during this
recessionary period, as well as the significant restructuring activities and charges we have taken in response,
during the third quarter of 2009, the company established valuation allowances totaling $321.6 million, with
$279.1 million related to domestic deferred tax assets and $42.5 million related to foreign deferred tax assets.
The establishment of valuation allowances and development of projected annual effective tax rates requires
significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the
objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a
valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strong
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