OfficeMax 2007 Annual Report Download - page 70

benefits. The reconciliation of the beginning and ending gross unrecognized tax benefits is as
follows:
Balance at December 30, 2006 .......................................... $70,567
Increase related to prior year tax positions .................................. 4,513
Decrease related to prior year tax positions ................................. (33,717)
Increase related to current year positions ................................... 1,915
Settlements ........................................................ (10,150)
Lapse of Statute ..................................................... —
Balance at December 29, 2007 .......................................... 33,128
Of the total gross unrecognized tax benefits, approximately $20 million (net of the federal
benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized,
would favorably affect the effective income tax rate in any future periods. The remaining balance of
approximately $13 million, if recognized, would be recorded as an adjustment to goodwill and
would not affect the effective tax rate. It is possible that the Company’s liability for uncertain tax
positions will be reduced by as much as $15.9 million by the end of 2008. Approximately
$6.8 million of this amount would impact the Company’s effective tax rate, and the remaining
$9.1 million would affect goodwill. Such reductions would result from the effective settlement of tax
positions with various tax authorities.
The Company or its subsidiaries file income tax returns in the U.S. Federal jurisdiction, and
multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. Federal
income tax matters for 2002 and prior years. Years prior to 2003 are no longer subject to U.S.
Federal income tax examination. The Company is no longer subject to state income tax
examinations by tax authorities in its major state jurisdictions for years before 2002.
The Company recognizes accrued interest and penalties associated with uncertain tax positions
as part of income tax expense. As of December 29, 2007, the Company had $5.5 million of accrued
interest and penalties associated with uncertain tax positions. Income tax expense for 2007 includes
a benefit of $0.4 million related to interest and penalties, reflecting interest accrued less the effect of
adjustments on settlement.
7. Leases
The Company leases its retail stores as well as certain other property and equipment under
operating leases. These leases are noncancelable and generally contain multiple renewal options
for periods ranging from three to five years, and require the Company to pay all executory costs
such as maintenance and insurance. Rental payments include minimum rentals plus, in some
cases, contingent rentals based on a percentage of sales above specified minimums. Rental
expense for operating leases included the following components:
2007 2006 2005
(thousands)
Minimum rentals ................................... $341,067 $ 343,203 $ 365,880
Contingent rentals ................................. 908 763 752
Sublease rentals ................................... (1,258) (1,660) (2,021)
$340,717 $342,306 $364,611
For operating leases with remaining terms of more than one year, the minimum lease payment
requirements are: $371.8 million for 2008, $338.6 million for 2009, $301.2 million for 2010,
$256.7 million for 2011, $211.5 million for 2012 and $583.3 million thereafter. These minimum lease
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