OfficeMax 2009 Annual Report Download - page 47

In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making the assessment of whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Significant judgment is required in determining our uncertain tax positions. We have
established accruals for uncertain tax positions using management’s best judgment and adjust
these liabilities as warranted by changing facts and circumstances. A change in our uncertain tax
positions, in any given period, could have a significant impact on our results of operations and
cash flows for that period.
The determination of the Company’s provision for income taxes requires significant judgment,
the use of estimates, and the interpretation and application of complex tax laws. Significant
judgment is also required in assessing the timing and amounts of deductible and taxable items.
Facility Closure Reserves
The Company conducts regular reviews of its real estate portfolio to identify underperforming
facilities, and closes those facilities that are no longer strategically or economically viable. A liability
for the cost associated with such a closure is recorded at its fair value in the period in which it is
incurred. These costs are included in facility closure reserves in our Consolidated Balance Sheets
and include provisions for the present value of future lease obligations, less estimated sublease
income. At December 26, 2009, the vast majority of the reserve represents future lease obligations
of $113 million, net of anticipated sublease income of approximately $51 million. For each closed
location, we estimate future sublease income based on current real estate trends by market and
location-specific factors, including the age and quality of the location, as well as our historical
experience with similar locations. If we had used different assumptions to estimate future sublease
income our reserves would be different and the difference could be material. In addition, if actual
sublease income is different than our estimates, adjustments to the recorded reserves may be
required.
Environmental and Asbestos Reserves
Environmental and asbestos liabilities that relate to the operation of the paper and forest
products businesses and timberland assets prior to the sale of the paper, forest products and
timberland assets continue to be liabilities of OfficeMax. We are subject to a variety of
environmental laws and regulations. We record liabilities on an undiscounted basis when
assessments and/or remedial efforts are probable and the cost can be reasonably estimated. We
estimate our environmental liabilities based on various assumptions and judgments, as we cannot
predict with certainty the total response and remedial costs, our share of total costs, the extent to
which contributions will be available from other parties or the amount of time necessary to complete
any remediation. In making these judgments and assumptions, we consider, among other things,
the activity to date at particular sites, information obtained through consultation with applicable
regulatory authorities and third-party consultants and contractors and our historical experience at
other sites that are judged to be comparable. Due to the number of uncertainties and variables
associated with these assumptions and judgments and the effects of changes in governmental
regulation and environmental technologies, the precision of the resulting estimates of the related
liabilities is subject to uncertainty. We regularly monitor our estimated exposure to our
environmental and asbestos liabilities. As additional information becomes known, our estimates may
change.
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