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INCOME TAXES
 12 Months Ended
Dec. 28, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 5. INCOME TAXES

The components of income from continuing operations before income taxes consisted of the following:

 

(In millions)

 

2024

 

 

2023

 

 

2022

 

United States

 

$

127

 

 

$

305

 

 

$

289

 

Foreign

 

 

19

 

 

 

24

 

 

 

16

 

Total income from continuing operations before
 income taxes

 

$

146

 

 

$

329

 

 

$

305

 

The income tax expense related to income from continuing operations consisted of the following:

 

(In millions)

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

3

 

 

$

31

 

 

$

38

 

State

 

 

(5

)

 

 

—

 

 

 

(1

)

Foreign

 

 

2

 

 

 

10

 

 

 

7

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

33

 

 

 

32

 

 

 

27

 

State

 

 

8

 

 

 

7

 

 

 

10

 

Foreign

 

 

(1

)

 

 

2

 

 

 

(2

)

Total income tax expense

 

$

40

 

 

$

82

 

 

$

79

 

The following is a reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes:

 

(In millions)

 

2024

 

 

2023

 

 

2022

 

Federal tax computed at the statutory rate

 

$

31

 

 

$

69

 

 

$

64

 

State taxes, net of federal benefit

 

 

6

 

 

 

16

 

 

 

13

 

Foreign income taxed at rates other than federal

 

 

2

 

 

 

3

 

 

 

2

 

Increase in valuation allowance

 

 

5

 

 

 

—

 

 

 

—

 

Other non-deductible expenses and settlements

 

 

3

 

 

 

4

 

 

 

4

 

FIN 48 adjustments

 

 

(2

)

 

 

4

 

 

 

(2

)

Non-taxable income and additional deductible expenses

 

 

(2

)

 

 

(2

)

 

 

(1

)

Impact of stock compensation windfall

 

 

(2

)

 

 

(5

)

 

 

(3

)

State NOL expirations (additions)

 

 

—

 

 

 

(1

)

 

 

2

 

Tax credits

 

 

(5

)

 

 

(8

)

 

 

—

 

Reduction of capital loss carryback

 

 

—

 

 

 

3

 

 

 

—

 

Other items, net

 

 

4

 

 

 

(1

)

 

 

—

 

Income tax expense

 

$

40

 

 

$

82

 

 

$

79

 

During 2024 and 2023, the mix of income and losses across jurisdictions, although still applicable, has become less of a factor in influencing the Company’s effective tax rates due to limited international operations. The Company’s effective tax rates were 27%, 25% and 26% in 2024, 2023 and 2022, respectively. In 2024, the Company’s effective tax rate was primarily impacted by the recognition of a tax benefit associated with stock-based compensation awards, the settlement of an uncertain tax position for less than the reserve, and the recognition of 2020 Research and Development tax credits, offset by additional valuation allowance on state NOLs. These factors, along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused the Company’s effective tax rate for 2024 to differ from the statutory rate of 21%. The Company’s effective tax rate for prior periods was impacted by the recognition of a tax windfall associated with stock-based compensation awards, recognition of 2022 and 2023 Research and Development tax credits, certain nondeductible items, and the mix of income and losses across U.S. and non-U.S. jurisdictions. Changes in pretax income projections and the mix of income across jurisdictions could impact the effective tax rates in future quarters.

The Company continues to have a U.S. valuation allowance for certain U.S. federal credits and state tax attributes, which relates to deferred tax assets that require certain types of income or for income to be earned in certain jurisdictions in order to be realized. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods.

The Company operates in several foreign jurisdictions with income tax rates that differ from the U.S. federal statutory rate, which resulted in an expense for 2024 presented in the effective tax rate reconciliation. Significant foreign tax jurisdictions for which the Company realized such expense are Canada and Puerto Rico.

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

 

 

 

December 28,

 

 

December 30,

 

(In millions)

 

2024

 

 

2023

 

U.S. and foreign loss carryforwards

 

$

227

 

 

$

272

 

Operating lease right-of-use assets

 

 

268

 

 

 

259

 

Pension and other accrued compensation

 

 

11

 

 

 

19

 

Accruals for facility closings

 

 

1

 

 

 

1

 

Inventory

 

 

7

 

 

 

10

 

Self-insurance accruals

 

 

1

 

 

 

12

 

Deferred revenue

 

 

6

 

 

 

7

 

U.S. and foreign income tax credit carryforwards

 

 

8

 

 

 

6

 

Allowance for bad debts

 

 

3

 

 

 

5

 

Accrued expenses

 

 

12

 

 

 

13

 

Basis difference in fixed assets

 

 

42

 

 

 

44

 

Internally developed software

 

 

5

 

 

 

—

 

Gross deferred tax assets

 

 

591

 

 

 

648

 

Valuation allowance

 

 

(227

)

 

 

(244

)

Deferred tax assets

 

 

364

 

 

 

404

 

Operating lease liabilities

 

 

248

 

 

 

243

 

Intangibles

 

 

13

 

 

 

16

 

Undistributed foreign earnings

 

 

5

 

 

 

7

 

Deferred tax liabilities

 

 

266

 

 

 

266

 

Net deferred tax assets

 

$

98

 

 

$

138

 

As of December 28, 2024, and December 30, 2023, deferred income tax liabilities of $4 million and $4 million, respectively, are included in deferred income taxes and other long-term liabilities.

As of December 28, 2024, the Company has utilized all of its U.S. federal net operating loss (“NOL”) carryforwards. The Company has $217 million of foreign and $564 million of state NOL carryforwards. Of the state NOL carryforwards, $11 million will expire in 2025 and the remaining balance will expire between 2026 and 2042. In 2022, the Company recognized a capital loss on the sale of CompuCom of $841 million, $94 million of which will be carried back to 2020 and 2021 resulting in an expected federal refund of $20 million. The remaining capital loss carryforward of $747 million will be offset by a valuation allowance until such time as the Company is able to utilize the losses.

Additionally, the Company has $5 million of U.S. federal tax credit carryforwards, which expire in 2025, and $3 million of state tax credit carryforwards which can be carried forward indefinitely.

As of December 28, 2024, the Company has not triggered an “ownership change” as defined in Internal Revenue Code Section 382 or other similar provisions that would limit the use of NOL and tax credit carryforwards. However, if the Company were to experience an ownership change in future periods, its deferred tax assets and income tax expense may be negatively impacted. Deferred income taxes have been provided on all undistributed earnings of foreign subsidiaries.

The following summarizes the activity related to valuation allowances for deferred tax assets:

 

(In millions)

 

2024

 

 

2023

 

 

2022

 

Beginning balance

 

$

244

 

 

$

266

 

 

$

93

 

Additions, charged to expense

 

 

5

 

 

 

—

 

 

 

184

 

Reductions

 

 

(22

)

 

 

(22

)

 

 

(11

)

Ending balance

 

$

227

 

 

$

244

 

 

$

266

 

 

The Company’s valuation allowance increased in 2022 due to the valuation allowance related to the capital loss on the sale of CompuCom, decreased during 2023 due to the expiration of certain credits for which a valuation allowance had been established, and decreased in 2024 due to the Company’s exit from Luxembourg and additional valuation allowance on certain state NOLs due to a shift in income. As of December 28, 2024, the Company continues to have a U.S. valuation allowance for certain U.S. federal credits and certain state tax attributes, which relate to deferred tax assets that require either certain types of income or for income to be earned in certain jurisdictions in order to be realized. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods.

The following table summarizes the activity related to unrecognized tax benefits:

 

(In millions)

 

2024

 

 

2023

 

 

2022

 

Beginning balance

 

$

16

 

 

$

10

 

 

$

13

 

Increase (decrease) related to prior year tax positions

 

 

(4

)

 

 

6

 

 

 

(3

)

Ending balance

 

$

12

 

 

$

16

 

 

$

10

 

Included in the balance of $12 million at December 28, 2024, is $11 million of unrecognized tax benefits that, if recognized, would impact the effective tax rate. The other $1 million primarily results from tax positions that, if sustained, would be offset by changes in deferred tax assets. During 2024, the Company decreased the unrecognized tax benefits by $4 million related to the settlement of tax audits. It is anticipated that $2 million of tax positions will be resolved within the next 12 months. Additionally, the Company anticipates that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits; however, an estimate of such changes cannot be reasonably made at this time.

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in the provision for income taxes. The Company recognized immaterial interest and penalty expense in 2024, 2023 and 2022. The Company had $4 million accrued for the payment of interest and penalties as of December 28, 2024.

The Company files a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state and local income tax examinations for years before 2020 and 2017, respectively. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. federal income tax examination and with few exceptions, is no longer subject to U.S. state and local income tax examinations for years before 2017. The U.S. federal income tax returns for 2021 through 2023 are currently under review. Generally, the Company is subject to routine examination for years 2017 and forward in its international tax jurisdictions.