OfficeMax 2009 Annual Report Download - page 28

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the impairment charge and the additional interest expense resulted in a reduction of net
income available to OfficeMax common shareholders 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/Non-Recourse Debt’’ in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
• 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.
• We recorded $20.5 million of pre-tax income related to a distribution received on the Boise
Investment. We receive distributions on the Boise Investment for the income tax liability
associated with allocated earnings. 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 classified as non-operating 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
on the timber installment note guaranteed 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 income 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. 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 unfavorably impacted the tax benefit rate as the book basis of these assets was
higher than the amortizable tax basis and resulted in a tax benefit of $63.2 million or approximately
4.6% of the tax charge. The Company also reviewed the realizability of state net operating loss
carryforwards and foreign tax credits in 2008, resulting in the recognition of approximately
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