OfficeMax 2008 Annual Report Download - page 25

Operating and selling expenses decreased by 0.3% of sales to 18.0% of sales in 2007 from
18.3% of sales a year earlier. The improvement in operating and selling expenses as a percent of
sales was the result of targeted cost reduction programs, including lower promotion and marketing
costs and delivery expenses in the Contract segment, and reduced store labor and marketing costs
in our Retail segment, as well as reduced incentive compensation expense.
General and administrative expenses were 3.7% of sales for 2007 compared to 4.0% of sales
for 2006. The year-over-year decrease in general and administrative expenses as a percentage of
sales was due primarily to a decrease in incentive compensation expense.
In 2007, we recognized pre-tax income of $32.5 million and received cash payments from
Boise Cascade L.L.C. of $32.5 million related to the Additional Consideration Agreement that was
entered into in connection with the 2004 sale of our paper, forest products and timberland assets
(the ‘‘Sale’’). This amount was included in ‘‘Other income (expense), net.’’ Also, during 2007, we
incurred a loss from the sale of OfficeMax, Contract’s operations in Mexico to Grupo OfficeMax, our
51% owned joint venture, which resulted in a $1.1 million increase in minority interest, net of
income tax. Grupo OfficeMax’s results of operations are included in our consolidated results of
operations.
In 2006, we recorded pre-tax charges of $89.5 million related to the closing of 109
underperforming, domestic retail stores, $10.3 million primarily related to the reorganization of our
contract segment and $46.4 million primarily related to the consolidation of our corporate
headquarters. These charges were included in ‘‘Other operating, net’’ in the Consolidated
Statements of Income (Loss). During 2006, we reduced the liability related to the Additional
Consideration Agreement that was entered into in connection with the Sale, which resulted in a
credit to Other income (expense), net non-operating of $48.0 million. We also recorded an
$18.0 million pre-tax charge for the closure of our Elma, Washington manufacturing facility which
was reflected in Discontinued operations in the Consolidated Statements of Income (Loss).
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.
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 per diluted share
compared with net income of $91.7 million, or $1.19 per diluted share in 2006.
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