Report and Corporate Profiles

Business Strategy and Outlook

In 2008, we continued to create cost efficiencies across our business to improve our productivity and drive differentiation in our product and service offerings. We are confident that our initiatives are aiding us in addressing near term challenges, strengthening our company and better positioning OfficeMax for long-term growth.

Some of the critical actions we took in 2008 to emerge as a stronger company that is positioned for growth once the economy improves included the following:

• Targeting Contract customer expansion, particularly among large and middle market customers, by offering a solid value proposition and total solution to manage their costs beyond traditional office supply procurement, including furniture, technology, and digital print solutions.
• Expanding our private brand program with unique and appealing office products at everyday values.
• Refining our marketing mix through various channels.
• Entering into a global alliance with Lyreco, which allows us to utilize the operations and infrastructure of both companies to better serve our multinational contract customers with a broader geographical coverage.
• Collaborating with Safeway Inc. to distribute OfficeMax office products and school supplies through approximately1,600 Safeway grocery stores.

We also took steps to refine our operations, increase cost efficiencies and preserve capital. To that end, our supply chain team reduced delivery and store fulfillment operating costs even as we incurred significant increases in fuel costs. As a result of prudent purchasing decisions by our merchandising and inventory management teams and effective collaboration with our suppliers, we generated efficiencies and lowered inventory levels at our stores and customer fulfillment centers. We also reorganized our retail store management to lessen overlap and reallocate payroll to key selling positions, and we reduced corporate staff and field management positions. Furthermore, we suspended cash dividend payments on common stock and rapidly adjusted our real estate program to better accommodate weaker near-term industry growth. Many of these decisions were difficult but necessary in order to remain competitive.

As we look forward, we continue to monitor our business very closely and are making appropriate adjustments. Currently, we do not plan to have net store growth and are not planning additional store remodels until economic conditions become more favorable. We will remain highly focused on generating cash flow and managing capital prudently in order to maintain flexibility and preserve our competitive advantage.

We do not know how long the slowdown in the economy will last. However, we are committed to taking necessary actions to adjust quickly in this difficult environment, to ensure that we are ahead of the curve and to better position OfficeMax for long-term growth.