OfficeMax 2006 Annual Report Download - page 23

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payroll and integrationexpenses in the Contract segment, and reduced store labor and marketing
costs in the Retail segment.
Generaland administrative expenses were 4.0% of sales for 2006 and 2005. General and
administrative expenses in 2005 included $24.2 million of expensesfor one-time severance payments
and other expenses, primarilyprofessional service fees, which are not expected to be ongoing.
Excluding the severance and other expenses, general and administrativeexpenses were3.6%of sales
for2005. Theyear-over-year increase in general and administrative expenses, excluding the
severance and other expenses, was due to increased payroll costs, primarily increased incentive
compensation expense.
In 2006, we reported $140.3 million of expense in Other operating, net which included $89.5
millionrelated to the 109 domestic store closures, $46.4 million primarily related to theheadquarters
consolidation and $10.3 millionprimarily related to the Contract segment reorganization. In 2005, we
reported $54.0 million of expense inOther operating, net. Other operating, net for 2005 included a
$9.8 million charge for a legal settlement withthe Department of Justice and $25.0 million related to
the corporate headquarters consolidation. 2005 also included $23.2million of expenses for the write-
down of impaired assets at underperforming retail stores and the restructuring of our Canadian
operations. Other operating, net also includes dividendsearned on our investment in affiliates of Boise
Cascade, L.L.C., whichwere $5.9 million for 2006 and $5.5 million for 2005, respectively. See Note 6,
Other Operating, Net, of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements
and Supplementary Data” of this Form 10-K for additional information related to the components of
Other Operating, net.
During 2005, we incurred costs related to the early retirement of debt of approximately $14.4 million
primarily as a result of purchasing andcancelling $87.3 million of 7% senior notes originally due in 2013.
Interest expense was $123.1 million in 2006 versus $128.5 millionin 2005. The year-over-year
decrease in interest expense wasa result oflower average borrowings. Interest expense included
interest related to the timber securitization notes ofapproximately $80.5 million for 2006 and2005.
The interest expense associated with the timber securitization notes is offset by interest income
earned on the timber notes receivable of approximately $82.5million for both 2006 and 2005.The
interest income on the timber notes receivable is included ininterest income and is not netted against
the related interest expense in our Consolidated Statements of Income (Loss).
Excluding the interest income earned on the timber notes receivable, interest income was
$7.1 million and $15.0 million for the years ended December 30, 2006 and December 31, 2005,
respectively. The additional interest incomein 2005 included interest earned on the cash and short-
term investments we held following the Sale. Approximately$800 million of the Sale proceeds were
used to repurchase 23.5 million shares of our common stock during the second quarter of 2005.
Other income (expense), net was $39.3 millionof incomein 2006 compared to $1.7million of
expense in 2005. In 2006, we reduced the liability related to the Additional Consideration Agreement
that was entered into in connection with the Sale. The reduction in the liability reflects the effect of
changes in our expectations regarding paper pricesover the remaining term of the agreement, and
resulted in the recognition of $48.0 million of other non-operating income in 2006.See Note 14,
Financial Instruments, Derivatives and Hedging Activities, of the Notes to Consolidated Financial
Statementsin “Item 8. Financial Statements and Supplementary Data” of the Form 10-K for additional
information related to theAdditional Consideration Agreement.
Our effective tax rate attributable to continuing operations for 2006 was 40.0%. In 2005, we
reported $1.2 million of income tax expense ona pre-tax loss of $37.6 million.Income taxes for both
periods were affected bythe impact of state incometaxes and non-deductible expenses and the mix