OfficeMax 2006 Annual Report Download - page 2

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Dear Fellow Shareholders:
2006 was a year of solid improvement in our company’s performance, the result of an intense focus on the disciplined execution of our Turnaround
Plan for Higher Performance. We delivered on our primary objectives: strengthening our corporate infrastructure; improving our gross margins and
cost structure in our Contract and Retail operating segments; and translating this improvement into improved financial performance.
Our financial results reported in this annual report for 2006 reflect the progress we made in both our Contract and Retail operating segments.
2006 Operational Highlights
Focus on Profitable Sales. In Contract, we pursued profitable sales while we renewed and added customers in our U.S. large market business, grew
our higher-margin middle market business, and improved bottom line profitability in our small market. In Retail, we pursued profitable sales by
adopting a more effective promotional sales strategy, especially during key Retail selling seasons, which contributed to our significant Retail gross
margin expansion in 2006.
Successful Reorganization of U.S. Contract Sales and Operations. We announced and completed the structural reorganization of our U.S. Contract
sales and operations, separating organizational responsibility for field sales and delivery operations. Through this initiative, which we call FOCUS,
we have simplified our sales organization to stress leadership and accountability, and developed a fine-tuned sales model. While FOCUS was just
implemented in the fourth quarter of 2006, we expect it to result in improved sales, better customer service, and greater efficiencies in the
intermediate and long-term.
Improved Merchandising and Marketing Strategy. Sales of OfficeMax private label products continued to expand in 2006 as we introduced hundreds
of new items with new packaging. We continue to see significant opportunity to grow our private label offerings, which provide value and quality to
our customers at typically higher margins. Customers also benefit from and have embraced our decision to end mail-in rebates in favor of instant
rebates. OfficeMax Impress, formerly our Print and Document Services business, was our fastest-growing major category in 2006 and we took steps
during the year to meet strong demand and position this business for further growth. At the end of 2006, we launched the new Impress brand with
a multi-channel marketing campaign, and invested in new equipment and associate training.
Strengthened Real Estate Strategy. In the first quarter of 2006, we successfully completed the closure of 109 underperforming domestic stores as an
initial step in our real estate strategy, refined during 2006. During the course of the year, we opened 54 new stores featuring our customer-focused
Advantage store format. In the fourth quarter of 2006, we launched a multi-year store remodeling program, with plans to upgrade our stores
chainwide in key U.S. markets beginning in 2007.
Comprehensive Cost Controls. We significantly reduced costs across our company in 2006. Contract segment operating expense benefited from
lower promotion and marketing costs, reduced payroll, and lower integration costs resulting from the consolidation of distribution centers. Retail
segment operating expense benefited from a more targeted and productive approach to marketing spending and reduced store labor expense.
Infrastructure Improvements. We made important improvements to our infrastructure in supply chain and information technology in 2006. Our
supply chain improvements are contributing to better merchandise availability, improved inventory productivity, and delivery efficiencies. Our
information technology activities, including more robust, reliable and secure systems, have been refocused with strict alignment with the strategic
needs of our businesses.
Our operational improvements translated into solid financial performance improvement in 2006. While I am pleased with our progress, OfficeMax
still has significant opportunities for improvement and we expect that our renewed emphasis on disciplined growth will allow us to build on the
momentum we established last year. Overall, we remain intensely focused on delivering increased value to our shareholders over the long term.
Importantly, the progress we have made since last year would not have been possible without the full dedication and hard work of all of our more
than 36,000 OfficeMax associates.
We look forward to keeping you informed of our progress as we continue to pursue improved performance in your long-term interests.
Sincerely,
Sam Duncan
Chairman and Chief Executive Officer
March 2007
TO OUR
SHAREHOLDERS