OfficeMax 2012 Annual Report Download - page 60

Interest income was $43.8 million and $44.0 million for 2012 and 2011, respectively. Interest expense was
$69.8 million and $73.1 million in 2012 and 2011, respectively.
For 2012, we recognized income tax expense of $248.7 million on pre-tax income of $669.5 million (an
effective tax expense rate of 37.1%) compared to income tax expense of $19.5 million on pre-tax income of
$57.6 million (an effective tax expense rate of 33.9%) for 2011. The effective tax rate in both years was impacted
by the mix of domestic and foreign sources of income, the effects of state income taxes, income items not subject
to tax, and non-deductible expenses. In 2011, we recorded an increase to the valuation allowances relating to
several state net operating losses. In 2012, we recorded an increase in our valuation allowance related to our
foreign tax credit carryforwards. Both of these negative impacts were offset by other one-time favorable rate
changes.
We reported net income attributable to OfficeMax and noncontrolling interest of $420.8 million for 2012.
After adjusting for joint venture earnings attributable to noncontrolling interest and preferred dividends, we
reported net income available to OfficeMax common shareholders of $414.7 million, or $4.74 per diluted share.
Adjusted net income available to OfficeMax common shareholders, as discussed above, was $68.5 million, or
$0.78 per diluted share, for 2012 compared to $53.3 million, or $0.61 per diluted share, for 2011.
2011 Compared with 2010
Sales for 2011 decreased 0.4% to $7,121.2 million, compared to $7,150.0 million for 2010, and included the
favorable impact of a change in foreign currency exchange rates relating to our international subsidiaries ($91
million) and the favorable impact of an extra week in fiscal year 2011 in our domestic subsidiaries ($86 million).
After adjusting for the favorable impact of the change in foreign currency exchange rates, the favorable impact of
the extra week in U.S. operations and the impact of stores closed and opened in 2011 and 2010 sales declined by
2.7%. These declines are the result of the competitive environment for our products, lower sales in our existing
Contract business and weak store traffic in our Retail segment. The sales declines also included an unfavorable
impact from inclement weather in the U.S. during the first quarter of 2011.
Gross profit margin decreased by 0.5% of sales (50 basis points) to 25.4% of sales in 2011 compared to
25.9% of sales in 2010, due to lower customer margins from more promotional activities, customer incentives
and continued economic pressures on our consumers’ spending as well as increased delivery and freight expense
from higher fuel costs and higher import duties associated with purchases in prior periods. These declines were
partially offset by lower occupancy expenses. The extra week in U.S. operations resulted in a $28 million
favorable impact to gross profit in 2011 compared to 2010.
Operating, selling and general and administrative expenses of 23.7% of sales in 2011 were flat as a percent
of sales as compared to the prior year. These expenses as a percent of sales were flat in the Contract segment, and
increased slightly in the Retail segment. For 2011, operating, selling and general and administrative expenses
increased $1.9 million compared to the prior year due to the unfavorable impact of foreign exchange rates
($21 million), the unfavorable impact of the extra week in U.S. operations ($20 million) and the unfavorable
impact of tax and legal settlements in 2010 ($14 million) that did not recur in 2011. These items were partially
offset by lower incentive compensation expense ($45 million), as the Company did not meet its earnings targets
under the incentive compensation plans for 2011. Favorable settlements in 2010 included $9 million of favorable
sales/use tax settlements and adjustments through the year as well as a $5 million gain related to the resolution of
a legal dispute.
As noted above, our results for 2011 include several significant items, as follows:
• We recognized a non-cash impairment charge of $11.2 million associated with leasehold improvements
and other assets at certain of our Retail stores in the U.S. After tax, this charge reduced net income
available to OfficeMax common shareholders by $6.8 million, or $0.08 per diluted share.
• We recorded $14.9 million of severance charges ($13.9 million in Contract, $0.3 million in Retail and
$0.7 million in Corporate) related primarily to reorganizations in Canada, Australia, New Zealand and
the U.S. sales and supply chain organizations. In addition, we recorded $5.6 million of charges in our
Retail segment related to store closures in the U.S. After tax, the cumulative effect of these items
reduced net income by $13.6 million or $0.16 per diluted share.
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