The following discussion contains statements about our future financial performance. These statements are only predictions. Our actual results may differ materially from these predictions. In evaluating these statements, you should review "Item 1A. Risk Factors" of this Form 10-K, including "Cautionary and Forward-Looking Statements."

Overall Summary

Sales for 2008 were $8.3 billion, compared to $9.1 billion for 2007 and $9.0 billion for 2006. We recorded a net loss of $1,657.9 million or ($21.90) per diluted share in 2008. Net income for 2007 was $207.4 million, or $2.66 per diluted share, compared to $91.7 million, or $1.19 per diluted share, for 2006.

Results of Operations, Consolidated

($ in millions)

                                                   2008        2007        2006
     Sales                                      $  8,267.0   $ 9,082.0   $ 8,965.7
     Gross profit                                  2,054.4     2,310.3     2,309.2
     Operating and selling expenses                1,555.6     1,633.6     1,641.2
     General and administrative expenses             306.9       332.5       355.9
     Goodwill and other asset impairments          2,100.2           -           -
     Other operating net                              27.9           -       146.2

     Operating income (loss)                      (1,936.2 )     344.2       165.9
     Income (loss) from continuing operations     (1,657.9 )     207.4        99.1
                                                      (percentage of sales)
     Gross profit margin                              24.9 %      25.4 %      25.8 %
     Operating and selling expenses                   18.8 %      18.0 %      18.3 %
     General and administrative expenses               3.7 %       3.7 %       4.0 %

Our results for 2008 were influenced significantly by the following items:

º •
º We recorded pre-tax impairment charges of $1,364.4 million related to goodwill, trade names and other long-lived assets, partially offset by a $6.5 million non-cash minority interest (after-tax) impact related to our Mexico joint venture.

º •
º We recognized a pre-tax impairment charge of $735.8 million on the timber installment note guaranteed by Lehman as a result of the Lehman bankruptcy in September 2008.

º •
º We recorded charges related to severance of various sales and field reorganizations in our Retail and Contract segments, as well as a significant reduction in force at the corporate headquarters. In addition, we recorded charges related to store closing and lease terminations and to the consolidation of the Contract segment's manufacturing facilities in New Zealand. Partially offsetting these charges was a gain primarily related to the refund of an escrow established at the time of sale of our legacy Voyageur Panel business in 2004.

º •
º We recorded $20.5 million of pre-tax income related to a tax distribution received from affiliates of Boise Cascade, L.L.C.

These items are described in more detail in the sections that follow.

As of December 27, 2008, we had total debt of $354.4 million, excluding $1,470.0 million of timber securitization notes, which have recourse limited to the timber installment notes receivable and related guarantees. As of December 27, 2008, we had $170.8 million in cash and cash equivalents, and $547 million in available (unused) borrowing capacity under our $700 million revolving credit facility, which is committed through July 12, 2012. Our unused borrowing capacity as of December 27, 2008 reflects an available borrowing base of $614 million, no outstanding borrowings, and $67 million of standby letters of credit issued under the revolving credit facility.

For the full year 2008, we generated $223.7 million of cash from operations reflecting our focus on working capital management, which yielded reduced collection days outstanding for accounts receivable, as well as a decrease in inventory per location while maintaining the same accounts payable leverage as last year.

Outlook

Given the projected weak economic outlook, we are cautious in our expectations for 2009. We expect sales to decline in 2009 on a year-over-year basis as a result of the difficult economic environment. As a result, we expect the effects of deleveraging of costs and expenses as a result of lower sales to continue in 2009.

Despite the challenging economic environment, we remain committed to managing OfficeMax for the long-term and positioning the Company for growth when the economic environment improves. We are placing a premium on maintaining positive operating cash flow through tight cost controls and conservative working capital management in the near term. We expect cash flow from operations to exceed capital expenditures in 2009. We also believe that our needs to access our revolving line of credit will be limited to seasonal periods, and expect to have little or no borrowings outstanding under the facility at year end.

2008 Compared with 2007

Sales for 2008 decreased 9.0% to $8,267.0 million from $9,082.0 million for 2007. The year-over-year sales decreases were largely influenced by the weaker global economic environment and by our more disciplined, analysis-driven approach to sales generation and retention. The year-over-year sales decrease occurred in both our Contract and Retail segments and reflects a 10.7% decrease in comparable sales. The amount of sales percentage decline compared to the prior year increased in each quarter of 2008. Foreign exchange rate changes late in the year had an adverse impact on sales. For the year, sales increased $9.4 million due to the impact of foreign exchange rates, but the trend has reversed and sales were reduced by $81.1 million due to the effect of foreign exchange rates in the fourth quarter.

Gross profit margin decreased by 0.5% of sales to 24.9% of sales in 2008 compared to 25.4% of sales in 2007. The gross profit margins declined in our Retail segment compared to the previous year but improved for our Contract segment. The Retail decline was primarily due to deleveraging of fixed costs, resulting from the lower sales, as well as new stores which have not ramped up to mature sales volume and higher inventory shrinkage results. The decline was partially offset by a sales-mix shift towards higher-margin office supplies category sales. The Contract segment margin improvement was due primarily to a higher margin customer mix resulting from our more disciplined approach to contractual sales generation and retention.

Operating and selling expenses increased by 0.8% of sales to 18.8% of sales in 2008 from 18.0% of sales a year earlier. The increases in operating and selling expenses as a percent of sales were primarily the result of deleveraging fixed costs due to lower sales, which were partially offset by reduced incentive compensation expense and targeted cost reductions, including reduced

selling expenses in the Contract segment and reduced store payroll in the Retail segment resulting from the management reorganizations completed in the first and second quarters of 2008.

General and administrative expenses were 3.7% of sales for both 2008 and 2007. The effect of deleveraging of expense resulting from lower sales was offset primarily by a reduction in incentive compensation.

As noted above, our results for 2008 include several significant items, as follows:

º •
º We recorded pre-tax impairment charges of $1,364.4 million related to goodwill, trade names and other long-lived assets. These non-cash charges consisted of $1,201.5 million of goodwill impairment in both the Contract ($815.5 million) and Retail ($386.0 million) segments; $107.1 million of impairment of trade names in our Retail segment and $55.8 million of impairment related to store fixed assets in our Retail segment. These non-cash charges resulted in a reduction in net income of $1,294.7 million, or $17.05 per diluted share and are included in the caption "Goodwill and other asset impairments" in the Consolidated Statements of Income (Loss). For information regarding these impairment charges see "Goodwill and Other Asset Impairments" in this section.

º •
º We recognized a pre-tax impairment charge of $735.8 million on the timber installment note guaranteed by Lehman as a result of the Lehman bankruptcy. This impairment charge, recorded in the Corporate and Other segment, is included in the caption "Goodwill and other asset impairments" in the Consolidated Statements of Income (Loss). We also stopped accruing the interest income on the timber installment note guaranted by Lehman as of the date of the last interest payment (April 29, 2008), while continuing to accrue interest expense on the related securitization notes payable until the date of default (October 29, 2008). The interest expense for this time period (from April 29 to October 29) was $20.4 million. The cumulative effect of the impairment charge and the additional interest expense resulted in a reduction of net income of $462.0 million, or $6.08 per diluted share. For information regarding this impairment charge see our discussion of the timber notes under the heading "Timber Notes" in this section.

º •
º We recorded a $23.9 million pre-tax severance charge related to various sales and field reorganizations in our Retail and Contract segments as well as a significant reduction in force at the corporate headquarters. We also recorded $4.7 million of pre-tax charges related to store closings and lease terminations, and pre-tax charges of $2.4 million related to the consolidation of the Contract segment's manufacturing facilities in New Zealand. Offsetting these charges was a $3.1 million pre-tax gain primarily related to the release of a warranty escrow established at the time of sale of our legacy Voyageur Panel business in 2004. These items were included in the caption "Other operating, net" in the Consolidated Statements of Income (Loss).

º •
º We recorded $20.5 million of pre-tax income related to a distribution received from affiliates of Boise Cascade, L.L.C. We receive distributions from Boise Cascade, L.L.C. for the income tax liability associated with allocated earnings of Boise Cascade, L.L.C. The distribution received was primarily related to the income tax liability associated with the allocated gain on the sale by Boise Cascade, L.L.C. of a majority interest in its paper and packaging and newsprint businesses during the first quarter of 2008. This income was included in "Other income (expense), net" in the Consolidated Statements of Income (Loss), and resulted in an increase in after-tax income of $12.5 million, or $0.16 per diluted share.

Interest expense was $113.6 million in 2008 compared to $121.3 million for 2007. The year-over-year decrease in interest expense was a result of lower average borrowings and the curtailment of interest accruals on certain of the timber securitization notes payable after the default

on the timber installment note guaranted by Lehman on October 29, 2008 due to the Lehman bankruptcy. Interest expense includes interest related to the affected timber securitization notes payable of approximately $73.5 million and $80.5 million for 2008 and 2007, respectively. Per the timber note agreements, the interest expense related to the timber securitization notes payable is to be offset by interest income earned on the timber installment notes receivable. However, at the time of the Lehman bankruptcy in September 2008, the Company reversed interest accrued on the installment note guaranteed by Lehman from the date of the last payment (April 29, 2008), and has not recognized any additional interest income on this installment note. We did, however, continue to record the ongoing interest expense on the related timber securitization notes payable until the default date, October 29, 2008 resulting in $20.4 million of additional interest expense that will only be paid if the corresponding interest income is collected. Total timber note related interest income was $53.9 million in 2008. In 2007, the timber note related interest expense was offset by timber note related interest income of $82.5 million.

Excluding the interest income earned on the timber notes receivable, interest income was $3.7 million and $5.4 million for the years ended December 27, 2008 and December 29, 2007, respectively.

For 2008, we recognized an income tax benefit of $306.5 million on our $1,972.4 million pre-tax loss (effective tax benefit rate of 15.5%) compared to income tax expense of $125.3 million on $337.5 million in pretax income (effective tax rate of 37.1%) for 2007. Income taxes for all periods were affected by the impact of state income taxes, non-deductible expenses and the mix of domestic and foreign sources of income.

In the first quarter of 2008, the Company effectively settled an audit with the Federal government for all tax years through 2005. As a result of the settlement and other related filings, the Company recognized a $6.8 million benefit in its tax provision for 2008. The goodwill, trade names and other long-lived assets impairment charge of $1.4 billion impacted the rate significantly as the book basis was higher than the amortizable tax basis and resulted in a $63.2 million tax benefit in the provision or approximately 4.6% of the tax charge. The Company also reviewed the realizability of state net operating loss carryforwards and foreign tax credits given the acceleration of the capital gain tax in 2008, resulting in approximately $1.3 million of tax benefit recorded in 2008.

As a result of the foregoing factors, we reported a net loss of $1,657.9 million from continuing operations or $(21.90) per diluted share, for 2008. Included in the loss was expense of $1,756.7 million, or $23.13 per diluted share for goodwill and other asset impairments, expense of $17.5 million, or $0.23 per diluted share for personnel reorganizations and other items, primarily severance costs, and a gain of $12.5 million or $0.16 per diluted share, related to a distribution from Boise Cascade, L.L.C.

2007 Compared with 2006

Sales for 2007 increased 1.3% to $9,082.0 million from $8,965.7 million for 2006 primarily due to growth in our international businesses, largely influenced by fluctuations in foreign currency exchange rates, offset by volume declines due to a weaker domestic economic environment in the second half of 2007 and our more disciplined focus on profitable sales growth. Comparable sales increased 0.5% year-over-year primarily as a result of higher sales in our Contract segment, partially offset by a reduction in our Retail segment for the year.

Gross profit margin decreased by 0.4% of sales to 25.4% of sales in 2007 compared to 25.8% of sales in 2006. The gross profit margin decrease was driven by pricing pressure and the impact of new and renewing accounts in our Contract segment, partially offset by a slight improvement in our Retail segment from its changes in promotional strategies.

Operating and selling expenses decreased by 0.3% of sales to 18.0% of sales in 2007 from 18.3% of sales a year earlier. The improvement in operating and selling expenses as a percent of sales was the result of targeted cost reduction programs, including lower promotion and marketing costs and delivery expenses in the Contract segment, and reduced store labor and marketing costs in our Retail segment, as well as reduced incentive compensation expense.

General and administrative expenses were 3.7% of sales for 2007 compared to 4.0% of sales for 2006. The year-over-year decrease in general and administrative expenses as a percentage of sales was due primarily to a decrease in incentive compensation expense.

In 2007, we recognized pre-tax income of $32.5 million and received cash payments from Boise Cascade L.L.C. of $32.5 million related to the Additional Consideration Agreement that was entered into in connection with the 2004 sale of our paper, forest products and timberland assets (the "Sale"). This amount was included in "Other income (expense), net." Also, during 2007, we incurred a loss from the sale of OfficeMax, Contract's operations in Mexico to Grupo OfficeMax, our 51% owned joint venture, which resulted in a $1.1 million increase in minority interest, net of income tax. Grupo OfficeMax's results of operations are included in our consolidated results of operations.

In 2006, we recorded pre-tax charges of $89.5 million related to the closing of 109 underperforming, domestic retail stores, $10.3 million primarily related to the reorganization of our contract segment and $46.4 million primarily related to the consolidation of our corporate headquarters. These charges were included in "Other operating, net" in the Consolidated Statements of Income
(Loss). During 2006, we reduced the liability related to the Additional Consideration Agreement that was entered into in connection with the Sale, which resulted in a credit to Other income (expense), net non-operating of $48.0 million. We also recorded an $18.0 million pre-tax charge for the closure of our Elma, Washington manufacturing facility which was reflected in Discontinued operations in the Consolidated Statements of Income (Loss).

Interest expense was $121.3 million in 2007 compared to $123.1 million in 2006. The year-over-year decrease in interest expense was a result of lower average borrowings. Interest expense includes interest related to the timber securitization notes of approximately $80.5 million for 2007 and 2006. The interest expense associated with the timber securitization notes is offset by interest income earned on the timber notes receivable of approximately $82.5 million for both 2007 and 2006. The interest income on the timber notes receivable is included in interest income and is not netted against the related interest expense in our Consolidated Statements of Income (Loss).

Excluding the interest income earned on the timber notes receivable, interest income was $5.4 million and $7.2 million for the years ended December 29, 2007 and December 30, 2006, respectively.

Our effective tax rate attributable to continuing operations was 37.1% in 2007 and 40.0% in 2006. Income taxes for both periods were affected by the impact of state income taxes, non-deductible expenses and the mix of domestic and foreign sources of income. The effective rate for 2007 was also impacted by the closure of certain prior year audits, which reduced the effective rate. In 2006, we increased our valuation allowance for certain state net operating loss carryforwards by $6.5 million.

As a result of the foregoing factors, we reported income from continuing operations of $207.4 million, or $2.66 per diluted share, for 2007, compared to $99.1 million, or $1.29 per diluted share, for 2006. We reported net income for 2007 of $207.4 million, or $2.66 per diluted share compared with net income of $91.7 million, or $1.19 per diluted share in 2006.

Segment Discussion

We report our results using three reportable segments: OfficeMax, Contract; OfficeMax, Retail; and Corporate and Other.

OfficeMax, Contract distributes a broad line of items for the office, including office supplies and paper, technology products and solutions and office furniture. OfficeMax, Contract sells directly to large corporate and government offices, as well as to small and medium-sized offices in the United States, Canada, Australia and New Zealand. This segment markets and sells through field salespeople, outbound telesales, catalogs, the Internet and in some markets, including Canada, Australia and New Zealand, through office products stores.

OfficeMax, Retail is a retail distributor of office supplies and paper, print and document services, technology products and solutions and office furniture. Our retail segment has operations in the United States, Puerto Rico and the U.S. Virgin Islands. Our retail segment's office supply stores feature OfficeMax ImPress, an in-store module devoted to print-for-pay and related services. Our retail segment also operates office products stores in Mexico through a 51% owned joint venture.

Corporate and Other includes support staff services and the related assets and liabilities as well as certain other expenses not fully allocated to the segments.

Management evaluates the segments based on operating profit before interest expense, income taxes and minority interest, extraordinary items and cumulative effect of accounting changes. The income and expense related to certain assets and liabilities that are reported in the Corporate and Other segment have been allocated to the Contract and Retail segments.

OfficeMax, Contract

($ in millions)

                                                    2008         2007        2006
      Sales                                       $ 4,310.0    $ 4,816.1   $ 4,714.5
      Gross profit                                    948.1      1,050.9     1,062.8
      Gross profit margin                              22.0 %       21.8 %      22.5 %
        Operating, selling and general and
        administrative expenses                       780.8        843.0       854.8
            Percentage of sales                        18.1 %       17.5 %      18.1 %
        Goodwill and other asset impairments          815.5            -           -
        Other operating expenses                        9.3            -        10.3

      Total operating expenses                      1,605.6        843.0       865.1
      Segment income (loss)                       $  (657.5 )  $   207.9   $   197.7
      Sales by Product Line
      Office supplies and paper                   $ 2,518.7    $ 2,696.3   $ 2,568.9
      Technology products                           1,299.2      1,535.1     1,551.9
      Office furniture                                492.1        584.7       593.7
      Sales by Geography
      United States                               $ 3,035.0    $ 3,518.9   $ 3,559.8
      International                                 1,275.0      1,297.2     1,154.7
      Sales Growth
      Total sales growth                              (10.5 )%       2.2 %       1.9 %

2008 Compared With 2007

Contract segment sales for 2008 decreased 10.5% to $4,310.0 million, from $4,816.1 million for 2007, reflecting a U.S. sales decline of 13.8% and an international sales decline of 1.7% in U.S. dollars, or 2.4% in local currencies. U.S. sales declined in 2008 compared to the prior year primarily due to: a) decreased sales from existing corporate accounts of 9%, b) our continued discipline in account acquisition and retention which resulted in lower sales to new and retained customers and c) lower sales from small market public website and catalog business customers. Early in the fourth quarter of 2008, we entered into an alliance with Lyreco to service our respective global customers. This agreement allows OfficeMax to supply global customers that have operations in European countries and Asia through Lyreco, and allows Lyreco to supply global customers that have operations in the United States and Mexico through OfficeMax.

Contract segment gross profit margin increased 0.2% of sales to 22.0% of sales for 2008 compared to 21.8% of sales in the previous year. The year-over-year increase was primarily due to improved account profitability for existing and new customers which was partially offset by deleveraging fixed delivery and occupancy costs from lower sales. Targeted cost controls helped to reduce the impact of deleveraging. These targeted cost controls included year-over-year reductions in our delivery fleet, resulting from optimizing delivery routes, which helped to reduce the impact of increased fuel costs.

Contract segment operating, selling and general and administrative expenses increased 0.6% of sales to 18.1% of sales for 2008 from 17.5% of sales a year earlier. The increase was primarily due to the deleveraging of fixed expenses from lower sales, including higher fixed marketing and account administration costs, partially offset by targeted cost controls, including reduced selling expenses and lower compensation costs as a result of fewer personnel in our customer fulfillment centers and customer service centers, as well as reduced incentive compensation expense. We

also cycled on operating expense improvements that we started generating in the second half of 2007.

Total Contract segment operating expenses for 2008 included a non-cash charge of $815.5 million related to impairment of the Contract segment's goodwill balance. Other operating expense of $9.3 million included employee severance costs in our U.S and international operations and the costs to consolidate manufacturing facilities in New Zealand. For more information regarding impairment charges, see discussion of "Goodwill and other asset impairments" in this section.

The Contract segment's reported segment income decreased $865.4 million to a loss of $657.5 million, or 15.2% of sales for 2008, compared to segment income of $207.9 million, or 4.3% of sales, for 2007.

2007 Compared With 2006

Contract segment sales for 2007 increased 2.2% to $4,816.1 million, from $4,714.5 million for 2006, reflecting a U.S. sales decline of 1.2%, offset by international sales growth of 12.3% in U.S. dollars, or 2.8% in local currencies. The U.S. sales decline reflects a weaker economic environment in the second half of 2007, as well as our initiative to terminate existing unprofitable contracts and be more disciplined in new account acquisition.

Contract segment gross profit margin decreased 0.7% of sales to 21.8% of sales for 2007 compared to 22.5% of sales in the previous year. The year-over-year decrease was primarily due to the continued impact of new and renewing accounts with lower gross margin rates and the impact of paper price increases throughout the year.

Contract segment operating, selling and administrative expenses decreased 0.6% of sales to 17.5% of sales for 2007 from 18.1% of sales a year earlier. The year-over-year improvement in operating expenses as a percentage of sales is the result of targeted cost controls, including the reorganization of the Contract segment that we began in the fourth quarter of 2006, lower incentive compensation expense and lower promotion and marketing costs.

Other operating expense for the Contract segment in 2006 was $10.3 million, and consisted of costs primarily related to severance due to the Contract segment reorganization.

Contract segment income increased $10.2 million to $207.9 million, or 4.3% of sales for 2007, compared to $197.7 million, or 4.2% of sales, for 2006.

OfficeMax, Retail

($ in millions)

                                                   2008         2007         2006
. . .