OfficeMax 2007 Annual Report Download - page 27

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Our effective tax rate attributable to continuing operations for 2006 was 40.0%. In 2005, we
reported $1.2 million of income tax expense on a pre-tax loss of $37.6 million. 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. Income tax expense in 2005 was also impacted by
a $21.5 million increase in the valuation allowance for certain state net operating losses.
As a result of the foregoing factors, we reported income from continuing operations of
$99.1 million, or $1.29 per diluted share, for 2006, compared to a loss from continuing operations
of $41.2 million, or $(0.58) per diluted share, for 2005. Including the loss from discontinued
operations, the net income for 2006 was $91.7 million, or $1.19 per diluted share compared with a
net loss of $73.8 million, or ($0.99) per diluted share in 2005. 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 $159.1 million, or $2.10 per diluted share, for 2006. Excluding the charges for the write-down of
impaired assets of certain retail stores, our legal settlement with the Department of Justice,
severance and professional fees, international restructuring and our headquarters consolidation, we
recognized adjusted income from continuing operations of $23.6 million, or $0.24 per diluted share,
for 2005.
Segment Discussion
We report our results using three reportable segments: OfficeMax, Contract; OfficeMax, Retail;
and Corporate and Other.
OfficeMax, Contract distributes a broad line of items for the office, including office supplies and
paper, technology products and solutions and office furniture. OfficeMax, Contract sells directly to
large corporate and government offices, as well as to small and medium-sized offices in the United
States, Canada, Australia and New Zealand. This segment markets and sells through field
salespeople, outbound telesales, catalogs, the Internet and in some markets, including Canada,
Hawaii, Australia and New Zealand, through office products stores.
OfficeMax, Retail is a retail distributor of office supplies and paper, print and document
services, technology products and solutions and office furniture. Our retail segment has operations
in the United States, Puerto Rico and the U.S. Virgin Islands. Our retail segment’s office supply
stores feature OfficeMax ImPress, an in-store module devoted to print-for-pay and related services.
Our retail segment also operates office products stores in Mexico through a 51%-owned joint
venture.
Corporate and Other includes support staff services and the related assets and liabilities as
well as certain other expenses not fully allocated to the segments.
Management evaluates the segments based on operating profit before interest expense,
income taxes and minority interest, extraordinary items and cumulative effect of accounting
changes. The income and expense related to certain assets and liabilities that are reported in the
Corporate and Other segment have been allocated to the Contract and Retail segments. However,
certain expenses that management considers unusual or non-recurring are not allocated to the
Contract and Retail segments.
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