Office Depot 2000 Annual Report Download - page 43

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Office Depot, Inc. and Subsidiaries
a yield to maturity, computed on a semi-annual bond equivalent
basis, of 5%.
On November 1, 1993, we issued to the public LYONsTwith
principal amounts totaling $345.0 million and proceeds of
$190.5 million (the “1993 LYONsT”). We issued each 1993
LYONTfor a price of $552.07, and we are not required to make
periodic interest payments on the notes. Our 1993 LYONsT
will mature on November 1, 2008 at $1,000 per LYONT, repre-
senting a yield to maturity, computed on a semi-annual bond
equivalent basis, of 4%.
All LYONsTare subordinated to all of our existing and future
senior indebtedness.
Each LYONTis convertible at the option of the holder at any
time on or prior to maturity into our common stock at a conver-
sion rate of 43.895 shares per 1992 LYONTand 31.851 shares
per 1993 LYONT. On November 1, 2000, the majority of the
holders of our 1993 LYONsTrequired us to purchase the LYONsT
from them at the issue price plus accrued original issue discount.
We paid the holders $249.2 million in connection with this repur-
chase, and reclassified the remaining 1993 LYONsTobligation
to long-term on our balance sheet. Our 1992 LYONsThave a
similar provision, where our holders may require us to purchase
these notes at the issue price plus accrued original issue discount,
on December 11, 2002. If the holders decide to exercise their
put option, we have the choice of paying the holders in cash,
common stock or a combination of the two. The total outstanding
amounts of the 1992 and 1993 LYONsTas of December 30,
2000, including accrued interest, approximated $222.3 million
and $2.1 million, respectively.
Beginning on December 11, 1996 for the 1992 LYONsTand on
November 1, 2000 for the 1993 LYONsT, we can redeem all or
part of these notes at any time from the holders for cash equal
to the issue price plus accrued original issue discount through
the date of redemption. As of December 30, 2000, we have
reserved 13,844,869 shares of unissued common stock for con-
version of the zero coupon, convertible subordinated notes.
Note H—Income Taxes
Our income tax provision consisted of the following:
2000 1999 1998
Current provision:
Federal $ 71,407 $114,800 $147,031
State 22,616 15,561 23,975
Foreign 30,918 26,318 22,769
Deferred tax benefit (81,814) (430) (38,244)
Total provision for
income taxes $ 43,127 $156,249 $155,531
The tax-effected components of deferred income tax assets and
liabilities consisted of the following:
December 30, December 25,
2000 1999
Self insurance accruals $ 23,702 $ 18,366
Inventory 17,790 16,650
Vacation pay and other
accrued compensation 27,762 14,997
Reserve for bad debts 7,493 6,589
Reserve for facility closings 67,563 16,537
Merger costs 6,117 9,011
Unrealized loss on investments 17,499 —
Foreign and state net operating
loss carry forwards 91,037 74,645
Other items, net 27,343 21,958
Gross deferred tax assets 286,306 178,753
Valuation allowance (91,037) (74,645)
Deferred tax assets 195,269 104,108
Basis difference in fixed assets 51,797 42,806
Unrealized gain on
investment securities —39,222
Capitalized leases 5,757 5,275
Excess of tax over book amortization 1,214 1,172
Other items, net 16,294 16,460
Deferred tax liabilities 75,062 104,935
Net deferred tax assets (liabilities) $120,207 $ (827)
As of December 30, 2000, we had approximately $143 million
of foreign and $419 million of state net operating loss carry-
forwards. Of these carryforwards, $38 million will expire in 2001
and the balance will expire between 2002 and 2020. The valua-
tion 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 foreign
and state deferred tax assets relating to net operating loss
carryforwards.
The following is a reconciliation of income taxes at the Federal
statutory rate of 35% to our provision for income taxes:
2000 1999 1998
Federal tax computed at
the statutory rate $32,361 $144,862 $136,054
State taxes, net of
Federal benefit 6,899 12,383 14,978
Nondeductible
goodwill amortization 1,744 1,964 1,990
Merger costs 969 2,920 11,044
Foreign income taxed at
rates other than Federal (667) (6,508) (10,061)
Other items, net 1,821 628 1,526
Provision for income taxes $43,127 $156,249 $155,531