OfficeMax 2008 Annual Report Download - page 24

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on the timber installment note guaranted by Lehman on October 29, 2008 due to the Lehman
bankruptcy. Interest expense includes interest related to the affected timber securitization notes
payable of approximately $73.5 million and $80.5 million for 2008 and 2007, respectively. Per the
timber note agreements, the interest expense related to the timber securitization notes payable is to
be offset by interest income earned on the timber installment notes receivable. However, at the time
of the Lehman bankruptcy in September 2008, the Company reversed interest accrued on the
installment note guaranteed by Lehman from the date of the last payment (April 29, 2008), and has
not recognized any additional interest income on this installment note. We did, however, continue to
record the ongoing interest expense on the related timber securitization notes payable until the
default date, October 29, 2008 resulting in $20.4 million of additional interest expense that will only
be paid if the corresponding interest income is collected. Total timber note related interest income
was $53.9 million in 2008. In 2007, the timber note related interest expense was offset by timber
note related interest income of $82.5 million.
Excluding the interest income earned on the timber notes receivable, interest income was
$3.7 million and $5.4 million for the years ended December 27, 2008 and December 29, 2007,
respectively.
For 2008, we recognized an income tax benefit of $306.5 million on our $1,972.4 million pre-tax
loss (effective tax benefit rate of 15.5%) compared to income tax expense of $125.3 million on
$337.5 million in pretax income (effective tax rate of 37.1%) for 2007. Income taxes for all periods
were affected by the impact of state income taxes, non-deductible expenses and the mix of
domestic and foreign sources of income.
In the first quarter of 2008, the Company effectively settled an audit with the Federal
government for all tax years through 2005. As a result of the settlement and other related filings, the
Company recognized a $6.8 million benefit in its tax provision for 2008. The goodwill, trade names
and other long-lived assets impairment charge of $1.4 billion impacted the rate significantly as the
book basis was higher than the amortizable tax basis and resulted in a $63.2 million tax benefit in
the provision or approximately 4.6% of the tax charge. The Company also reviewed the realizability
of state net operating loss carryforwards and foreign tax credits given the acceleration of the capital
gain tax in 2008, resulting in approximately $1.3 million of tax benefit recorded in 2008.
As a result of the foregoing factors, we reported a net loss of $1,657.9 million from continuing
operations or $(21.90) per diluted share, for 2008. Included in the loss was expense of
$1,756.7 million, or $23.13 per diluted share for goodwill and other asset impairments, expense of
$17.5 million, or $0.23 per diluted share for personnel reorganizations and other items, primarily
severance costs, and a gain of $12.5 million or $0.16 per diluted share, related to a distribution
from Boise Cascade, L.L.C.
2007 Compared with 2006
Sales for 2007 increased 1.3% to $9,082.0 million from $8,965.7 million for 2006 primarily due
to growth in our international businesses, largely influenced by fluctuations in foreign currency
exchange rates, offset by volume declines due to a weaker domestic economic environment in the
second half of 2007 and our more disciplined focus on profitable sales growth. Comparable sales
increased 0.5% year-over-year primarily as a result of higher sales in our Contract segment, partially
offset by a reduction in our Retail segment for the year.
Gross profit margin decreased by 0.4% of sales to 25.4% of sales in 2007 compared to 25.8%
of sales in 2006. The gross profit margin decrease was driven by pricing pressure and the impact
of new and renewing accounts in our Contract segment, partially offset by a slight improvement in
our Retail segment from its changes in promotional strategies.
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