CompUSA 2007 Annual Report Download - page 68

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25
INCOME TAXES
The low effective tax rate in 2007 resulted primarily from the reversal of a valuation allowance of
approximately $5.9 million against deferred tax assets in the United Kingdom partially offset by the
recording of a valuation allowance of approximately $1.7 million against the deferred tax assets of
Germany. The United Kingdom valuation allowance, originally recorded at $10.2 million, had been
established in 2005 as the result of a cumulative loss position in the United Kingdom and was the primary
driver of the high effective tax rate in 2005. The effective rate in 2005 also was unfavorably impacted by
increased state and local taxes and losses in other foreign jurisdictions for which no tax benefit has been
recognized. These increases were partially offset by an income tax benefit of $2.7 million we recorded in
the fourth quarter of 2005 resulting from a favorable decision we received for a petition submitted in
connection with audit assessments made in 2002 and 2004 in a foreign jurisdiction.
During 2007, 2006 and 2005, we did not recognize certain foreign tax credits, certain state deferred tax
assets in the United States and certain benefits on losses in foreign tax jurisdictions due to our inability to
carry such credits and losses back to prior years and our determination that it was more likely than not
that we would not generate sufficient future taxable income to realize these assets. Accordingly, valuation
allowances were recorded against the deferred tax assets associated with those items. If we are able to
realize all or part of these deferred tax assets in future periods, it will reduce our provision for income
taxes by a release of the corresponding valuation allowance.
Seasonality
Net sales have historically been modestly weaker during the second and third quarters as a result of lower
business activity during those months. The following table sets forth the net sales, gross profit and income
from operations for each of the quarters since January 1, 2005 (amounts in millions).
March 31 June 30 September 30 December 31
2007
Net sales $676 $647 $687 $769
Percentage of year’s net sales 24.3% 23.3% 24.7% 27.7%
Gross profit $97 $99 $111 $120
Operating income $22 $20 $26 $27
2006
Net sales $575 $547 $575 $648
Percentage of year’s net sales 24.5% 23.3% 24.5% 27.6%
Gross profit $90 $77 $92 $83
Operating income $21 $11 $19 $11
2005
Net sales $538 $506 $489 $583
Percentage of year’s net sales 25.4% 23.9% 23.1% 27.6%
Gross profit $80 $71 $70 $86
Operating income $5 $3 $8 $18