OfficeMax 2008 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2008 OfficeMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

selling expenses in the Contract segment and reduced store payroll in the Retail segment resulting
from the management reorganizations completed in the first and second quarters of 2008.
General and administrative expenses were 3.7% of sales for both 2008 and 2007. The effect of
deleveraging of expense resulting from lower sales was offset primarily by a reduction in incentive
compensation.
As noted above, our results for 2008 include several significant items, as follows:
• We recorded pre-tax impairment charges of $1,364.4 million related to goodwill, trade names
and other long-lived assets. These non-cash charges consisted of $1,201.5 million of
goodwill impairment in both the Contract ($815.5 million) and Retail ($386.0 million)
segments; $107.1 million of impairment of trade names in our Retail segment and
$55.8 million of impairment related to store fixed assets in our Retail segment. These
non-cash charges resulted in a reduction in net income of $1,294.7 million, or $17.05 per
diluted share and are included in the caption ‘‘Goodwill and other asset impairments’’ in the
Consolidated Statements of Income (Loss). For information regarding these impairment
charges see ‘‘Goodwill and Other Asset Impairments’’ in this section.
• We recognized a pre-tax impairment charge of $735.8 million on the timber installment note
guaranteed by Lehman as a result of the Lehman bankruptcy. This impairment charge,
recorded in the Corporate and Other segment, is included in the caption ‘‘Goodwill and other
asset impairments’’ in the Consolidated Statements of Income (Loss). We also stopped
accruing the interest income on the timber installment note guaranted by Lehman as of the
date of the last interest payment (April 29, 2008), while continuing to accrue interest expense
on the related securitization notes payable until the date of default (October 29, 2008). The
interest expense for this time period (from April 29 to October 29) was $20.4 million. The
cumulative effect of the impairment charge and the additional interest expense resulted in a
reduction of net income of $462.0 million, or $6.08 per diluted share. For information
regarding this impairment charge see our discussion of the timber notes under the heading
‘‘Timber Notes’’ in this section.
• We recorded a $23.9 million pre-tax severance charge related to various sales and field
reorganizations in our Retail and Contract segments as well as a significant reduction in force
at the corporate headquarters. We also recorded $4.7 million of pre-tax charges related to
store closings and lease terminations, and pre-tax charges of $2.4 million related to the
consolidation of the Contract segment’s manufacturing facilities in New Zealand. Offsetting
these charges was a $3.1 million pre-tax gain primarily related to the release of a warranty
escrow established at the time of sale of our legacy Voyageur Panel business in 2004. These
items were included in the caption ‘‘Other operating, net’’ in the Consolidated Statements of
Income (Loss).
• We recorded $20.5 million of pre-tax income related to a distribution received from affiliates
of Boise Cascade, L.L.C. We receive distributions from Boise Cascade, L.L.C. for the income
tax liability associated with allocated earnings of Boise Cascade, L.L.C. The distribution
received was primarily related to the income tax liability associated with the allocated gain on
the sale by Boise Cascade, L.L.C. of a majority interest in its paper and packaging and
newsprint businesses during the first quarter of 2008. This income was included in ‘‘Other
income (expense), net’’ in the Consolidated Statements of Income (Loss), and resulted in an
increase in after-tax income of $12.5 million, or $0.16 per diluted share.
Interest expense was $113.6 million in 2008 compared to $121.3 million for 2007. The
year-over-year decrease in interest expense was a result of lower average borrowings and the
curtailment of interest accruals on certain of the timber securitization notes payable after the default
19