OfficeMax 2007 Annual Report Download - page 25

In 2006, Other operating, net also included $89.5 million related to the 109 domestic store
closures, $46.4 million primarily related to the headquarters consolidation and $10.3 million
primarily related to the Contract segment reorganization.
Interest expense was $121.3 million in 2007 compared to $123.1 million in 2006. The
year-over-year decrease in interest expense was a result of lower average borrowings. Interest
expense includes interest related to the timber securitization notes of approximately $80.5 million for
2007 and 2006. The interest expense associated with the timber securitization notes is offset by
interest income earned on the timber notes receivable of approximately $82.5 million for both 2007
and 2006. The interest income on the timber notes receivable is included in interest 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
$5.4 million and $7.2 million for the years ended December 29, 2007 and December 30, 2006,
respectively.
Other income (expense), net was $26.7 million of income in 2007 compared to $39.3 million of
income in 2006. In 2007 and 2006, we recognized income of $32.5 million and $48.0 million,
respectively, in Other income (expense), net related to the Additional Consideration Agreement that
was entered into in connection with the Sale. See Note 13, Financial Instruments, Derivatives and
Hedging Activities, 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
Additional Consideration Agreement.
Our effective tax rate attributable to continuing operations was 37.1% in 2007 and 40.0% in
2006. Income taxes for both periods were affected by the impact of state income taxes,
non-deductible expenses and the mix of domestic and foreign sources of income. The effective rate
for 2007 was also impacted by the closure of certain prior year audits, which reduced the effective
rate. In 2006, we increased our valuation allowance for certain state net operating loss
carryforwards by $6.5 million.
As a result of the foregoing factors, we reported income from continuing operations of
$207.4 million, or $2.66 per diluted share, for 2007, compared to $99.1 million, or $1.29 per diluted
share, for 2006. We reported net income for 2007 of $207.4 million, or $2.66 diluted share
compared with net income of $91.7 million, or $1.19 per diluted share in 2006. Excluding the
charge related to the sale of OfficeMax, Contract’s operations in Mexico and the effect of the
Additional Consideration Agreement, adjusted income from continuing operations was
$188.1 million, or $2.41 per diluted share, for 2007. Excluding the effect of the Additional
Consideration Agreement adjustment, the charges for store closures, contract segment
reorganization and our headquarters consolidation, adjusted income from continuing operations
was $159.1million, or $2.10 per diluted share, for 2006.
2006 Compared with 2005
Sales for 2006 decreased 2.1% to $8,965.7 million from $9,157.7 million for 2005. The
year-over-year sales decrease was primarily due to the impact of 109 strategic store closings in the
first quarter of 2006 and the 53rd week included in the 2005 Retail segment results. Comparable-
store sales increased 1.0% year-over-year primarily as a result of higher sales in our Contract
segment. For more information about our segment results, see the discussion of segment results
below.
Gross profit margin improved by 1.8% of sales to 25.8% of sales in 2006 compared to 24.0% of
sales in the previous year. The gross profit margin increase was driven by gross margin
improvement initiatives in both the Contract and Retail segments.
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