Note F — Income Taxes

Our income tax provision consisted of the following:

The tax-effected components of deferred income tax assets and liabilities consisted of the following:

As of December 29, 2001, we had approximately $44 million of federal, $105 million of foreign and $642 million of state net operating loss carryforwards. 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 foreign 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:

Note G — Commitments and Contingencies

Operating Leases: Office Depot leases facilities and equipment under agreements 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 payments do not include facility leases that were accrued as merger and restructuring costs or store closure and relocation costs (See Notes B and C).

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 approximately $3.0 million in 2001 and 2000, and $3.2 million in 1999.