Report and Corporate Profiles

Business Strategy and Outlook

OfficeMax demonstrated continued progress in 2007, the second year of our Turnaround Plan for Higher Performance. We reduced expenses, expanded operating income and generated bottom-line earnings growth. In the second half of 2007, we experienced the effects of the economic slowdown, which continued into 2008.

2007 Highlights

During the year, we pursued several initiatives to improve our Contract and Retail business segments. Efforts that encompass both segments include the following:
– The successful integration of our U.S. Contract delivery and warehouse operations with our Retail store fulfillment. This consolidation further simplifies our organization and generates substantial cost savings.
– Enhanced merchandise assortment, including expansion of private label product sales, which provide value and quality to our customers and typically higher margins for OfficeMax.

Contract Business Segment
Throughout 2007, we implemented against the structural reorganization of our U.S. Contract segment announced in late 2006 to build more cohesive sales and operations teams. We focused initially on field sales and delivery operations. We reduced overall sales force headcount, but increased “sales hunters” targeting future growth. In mid-2007, we implemented action plans to focus on improving margins from existing, new and renewing Contract accounts. We consolidated responsibility for U.S. Contract delivery operations under our supply chain organization to align with Retail store fulfillment functions and generate cost savings.

Our Contract business segment in Canada, Grand & Toy, continued its turnaround progress under a consolidated leadership team. Staff functions were also better aligned with our U.S. Contract team.

In Australia and New Zealand, our Contract business segment integrated small acquisitions under a new leadership team.

For 2008 and beyond, our U.S. Operations Contract segment focus includes the following:
– Develop “win-win” solutions for large U.S. customers
– Execute middle and small market selling initiatives
– Increase telesales performance
– Grow sales of our ImPress print and document services within Contract accounts

Retail Business Segment
In 2007, our U.S. Operations opened 59 new stores in the United States and 15 new stores in Mexico. We also successfully tested an additional 12 store remodels that helped us transform aging stores to reflect our successful Advantage store prototype. The results of the test are helping us reduce remodel cycle time and value engineer our investment for the best return. Our multi-year real estate strategy is expected to include a balance of new store openings, mostly in existing markets, along with store remodels.

Our Retail initiatives in 2007 also included continuing to adjust promotional strategies to focus on more profitable sales from our stores, even as we experienced a weaker U.S. economy.

Our supply chain initiatives benefited merchandise inventory levels resulting in lower inventory per store, improved in-stock metrics, and lower discontinued inventory levels.

For 2008 and beyond, our Retail segment focus includes the following:
– Develop store management and leadership
– Execute real estate strategy
– Improve in-store customer experience and offerings
– Leverage customer-focused research to enhance product and service offerings