CompUSA 2008 Annual Report Download - page 62

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27
INCOME TAXES
The Company’ s effective tax rate was 36.9% in 2008 as compared to 30.5% in 2007. The higher tax rate
in 2008 is primarily attributed to a higher effective tax rate in the United Kingdom in 2008 as the result of
the reversal of the valuation allowance in 2007. The lower 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.
During 2008, 2007 and 2006, 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 in those tax jurisdictions 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 2008 amounts were impacted by the CompUSA acquisition.
The following table sets forth the net sales, gross profit and income from operations for each of the
quarters since January 1, 2006 (amounts in millions).
Three Months Ended
March 31 June 30 September 30 December 31
2008
Net sales $725 $756 $739 $813
Percentage of year’ s net sales 23.9% 24.9% 24.4% 26.8%
Gross profit $115 $116 $116 $117
Operating income $26 $21 $20 $16
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 $24 $28
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 $10 $19 $11