CompUSA 2007 Annual Report Download - page 96

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53
were audited by the Internal Revenue Service. The outcome of the audit did not have a material impact on the Company’s
consolidated financial statements. The Company has not signed any consents to extend the statute of limitations for any
subsequent years. The Company’s significant state tax returns have been audited through 2005. The Company considers its
significant tax jurisdictions in foreign locations to be the United Kingdom, Canada, France, Italy and Germany. The
Company remains subject to examination in the United Kingdom for years after 2001, in Canada for years after 2000, in
France for years after 2004, in Italy for years after 2002 and in Germany for years after 2004.
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This
interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and
disclosure of uncertain tax positions taken or expected to be taken in income tax returns. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. At January
1, 2007, the Company had a liability for unrecognized tax benefits of $3,379,000 (including interest and penalties of
$731,000) of which $283,000 was charged to retained earnings at January 1, 2007. Of this total, $2,586,000 (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. At December 31, 2007 the Company had a liability for unrecognized tax
benefits of $1,547,000 (including interest and penalties of $631,000). Of this total, $1,467,000 (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 following table details activity of the Company’s uncertain tax positions during
2007:
December 31,
2007
Opening balance January 1,2007 $2,648
Decreases related to settlements with taxing authorities (1,732)
Closing balance December 31, 2007 $916
Interest and penalties of approximately $69,000 related to unrecognized tax benefits were expensed in 2007 and are included
in income tax expense. Within the next twelve months the Company believes it reasonably possible that certain tax positions
may be reduced. The specific positions that may be reduced are related to certain ongoing state and foreign tax audits. The
Company estimates that the unrecognized benefits may be reduced by $1.5 million.
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases - The Company is obligated under operating lease agreements for the rental of certain office and warehouse facilities
and equipment which expire at various dates through September 2026. The Company currently leases one facility in New
York from an entity owned by the Company’s three principal shareholders and senior executive officers (see Note 3). The
Company also acquires certain computer and communications equipment pursuant to capital lease obligations.
At December 31, 2007, the future minimum annual lease payments for capital leases and related and third-party operating
leases were as follows (in thousands):
Capital
Leases
Third Party
Operating
Leases
Related Party
Operating
Lease
Total
2008 $471 $13,589 $860 $14,920
2009 186 13,204 895 14,285
2010 73 10,699 932 11,704
2011 10 9,651 970 10,631
2012
2013-2017 9,089
32,269 1,010
5,706 10,099
37,975
2018-2022 17,644 17,644
Thereafter 4,823 4,823
Total minimum lease payments 740 110,968 10,373 122,081
Less: sublease rental income 1,775 1,775
Lease obligation net of subleases 740 $109,193 $10,373 $120,306
Less amount representing interest 37
Present value of minimum capital lease
payments (including current portion of $449)
$703
Annual rent expense aggregated approximately $14,760,000, including $612,000 to related parties, for 2007, $13,198,000,
including $612,000 to related parties, for 2006 and $10,272,000, including $612,000 to related parties, for 2005. Rent
expense for 2007 is net of sublease income of $853,000.