FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

OfficeMax, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMX)") else Response.Write("(NYSE: OMX)") end if %>
3605 Warrensville Center Road
Shaker Heights, OH 44122-5203
(216) 921-6900
http://www.officemax.com

UNION CITY, CA (March 12, 1997)/FOOLWIRE/ --- OfficeMax reported their fourth quarter and fiscal year end results for 1996 on March 4th. Net income for the fourth quarter was $30.2 million or $0.24 per share from the $28.8 million or $0.23 per share for the comparable quarter last year (which had one more week than this year). For the full fiscal year, net income increased 21% to $68.8 million or $0.55 per share which is up from $56.6 million or $0.47 per share in the previous year. The year over year results excludes the prior year's net after-tax gain of $69.1 million or $0.57 per share which was derived from the sale of the equity they had in Corporate Express.

In January they had a conference call and announced that their fourth quarter sales were up 17% to $966.8 million, up from $823.2 million the prior year. Same store sales in the fourth quarter were up 8% and that was on top of a 16% gain in the previous year. For the full fiscal year, sales rose 25% to $3.179 billion and that was up from $2.543 billion in the prior year.

BALANCE SHEET

CASH. OfficeMax ended the year with a cash position of $258 million compared to $366 million at the end of fiscal 1995. The $258 million translates into slightly over $2 per share of cash on the balance sheets and they continue to have one of the strongest balance sheets in retailing which, aside from anything else, puts them in excellent strategic position to take advantage of opportunities that may present themselves.

INVENTORY. They ended the year with an inventory position of $894 million compared to $636 million at the end of 1995. They are very comfortable with that position. Their inventories are extremely clean, particularly in the computer area where the inventory growth paralleled the sales growth. In looking at the year-over-year comparisons in inventory it is important to bear in mind a couple of non-comparable factors. One is that in 1996 they increased their store opening program to 96 stores up from 80 and also up from the 80 they opened in 1995. They had incremental additional units to support. They also opened 5 delivery centers in 1996, ending the year with 17. A couple of other items that affected the inventory, in the first two weeks of fiscal 1997 they opened a record number of new stores -- 6 stores in the first two weeks -- so they had to have inventory to support those openings prior to the end of fiscal 1996. And, they clearly ramped up their purchases in anticipation of the advent of Intel's MMX release and the release of Microsoft's Office '97 product, so that is in year-end numbers as well.

TOTAL ASSETS. They finished with total assets of $1.9 billion compared to $1.6 billion at the end of 1995. They added, right at the end of the year, a mortgage to the balance sheet of $20 million which financed the expansion of their corporate headquarters.

EQUITY. They ended the year with $1.064 billion of stockholders equity which was up from $991 million the year before.

TAX RATE. The effective tax rate for the year was 39.1%, unchanged from the rate they have been using during the course of the year. Looking ahead to 1997, they would expect about the same rate, with some possible upside and some possible area for improvement there.

OPERATIONAL REVIEW

FACTORS IMPACTING Q4 RESULTS. The big picture from the fourth quarter last year is that it was not a good quarter or positive one from a standpoint of where they thought they would be, but it turned out to be better than many competitors, which isn't much consolation. The big issues in the fourth quarter were an absence of new computer technology which caused a lot of retailers, including OfficeMax, to go to giveaway pricing to stay competitive. They also had the continued pressure in the fourth quarter from printers, faxes, and computers that were down in a range of 10-15%. Probably most significantly was continued 25-30% decline at retail of paper prices versus the prior year and that affected their fourth quarter comps negatively by about 3%. For the full-year effect, the paper issue was about 2.4-2.5%. Finally, there were 5 fewer shopping days between Thanksgiving and Christmas.

THINGS THAT WORKED OUT OKAY IN Q4. The more important story they think is that their performance in the fourth quarter was pretty decent in a number of areas. First of all, store performance continued to ramp up as their young store group started to mature. Average sales per retail location is up 18% from two years ago and their average retail store now with the young store base of 3.1 years is at $6.4 million. They also saw their new stores up about 28% over two years ago and their average new store now is generating $5.5 million. That primarily is a result of the concept of them taking stores into markets with a greater concentration, stronger market entry, and OfficeMax has become a national brand and the awareness for OfficeMax in the marketplace throughout the country has dramatically helped their ramp-up when they go into a new area and that is continuing.

SALES MIX BY CATEGORY. Office supplies was roughly 38% of sales; electronics, computers, accessories is about 51% of sales, and then furniture is 11% of sales. In terms of TriMax, they have reconfigured the stores and moved furniture to the front of the store and enlarged it and then have now put in a smattering of better quality case goods furniture. They are doing a lot with bigger businesses and panel systems and that is improving margins. At CopyMax, it is either a hub or a mini, and the margins are outstanding. They have enhanced this by adding incremental services rather than the self-serve copies they used to do that they just broke even on.

LOWERING STORE LEVEL COSTS. They are very pleased with a few things in terms of last year. Particularly, they are pleased with their ability to manage their store level costs and that is a compliment to the management team. Their real goal is not only to drive sales, but drive the cost out of sales which is a critical way of bringing real performance to the bottom line. For the fourth quarter they had a 111 basis point improvement in store-level costs coming in at 13.8% versus last year's 14.9% which is very good and, in light of the sales is particularly good. For the full year they improved 63 basis points to an expense of 15.8% versus last year's 16.5%. They are going to continue to see that as they continue to drive the cost out of sales.

INVESTING IN TECHNOLOGY TO LOWER COSTS. That came about from strong store-level cost controls. They have invested very heavily in systems and controls, payroll planning, and they have mechanized the ability to plan payroll so that they have associates in the stores serving customers when the customers are there, not when the part-time associates want to work. Being able to do it that way with their computerized payroll planning is enabling them to drive efficiencies at store level.

LEVERAGING EXPENSES. So, they are driving payroll costs down and still getting better service and they are getting significant benefit from their national advertising and they think that will continue through awareness. As they add more stores in a major market, they don't have to increase their advertising so they leverage that. This leverage is noteworthy because for the year they opened 96 stores, 15 more than were originally planned and that they announced in September. As a sidebar, that really represented in pre-opening expenses another $1.2 million that they absorbed in the fourth quarter.

MARGINS DECLINED. This improvement in terms of leveraging all these expenses helped them offset the decline in gross margin as a result of their increased sales of lower-margin computers as a percentage of their total merchandise mix. For the quarter, their margin declined 178 basis points to 21.2% and for the full year the decline was only 79 basis points to 21.7%. The good news is that they have seen a marked improvement in margin since January and continuing into March. They think that is going to continue through the year.

LEVERAGING OCCUPANCY COSTS. On another positive note, they are offsetting the gross margin decline with a continuing leverage of all of their occupancy costs. Very notable is their shrink reduction program which is in high gear and starting to pay some very handsome dividends. It is a lot easier sometimes to keep what you sell rather than have it walk out the back door or front door without being paid for and they are making some major improvements there.

GENERAL & ADMINISTRATIVE EXPENSES. They are also very pleased that they have been able to maintain their lowest-cost mentality in terms of their G&A expenses. They are better than originally planned for the past year. For the fourth quarter they actually had a decrease of 26 basis points in G&A expense to 1.5% of sales versus the prior year's quarter of 1.8%. For the full year, when they went into the year they expected to have an increase in G&A, but when they finished the year they had decreased by 7 basis points to 1.9%, which isn't very much but is a major victory over where they thought they would be. That doesn't mean they are doing without. They are using technology more aggressively, systems controls, and they just added 10 new vice presidents to manage the multi-billion dollar international business that they are developing. So, they have a management team that is equal in size to most companies. Where they are able to leverage is in the in-between and middle management because of the technology investments they have made over the past 4-5 years and will continue to make.

OPERATING PROFIT. From an operating income standpoint, for the quarter they increased 6% to $48.1 million from $45.3 million. For the full year the operating income jumped 22% to $105.5 million compared to $86.3 million last year and is the first time they topped the $100 million mark in operating income, again on the basis of stores at 3.1 years of age. Next year, after adding the planned 125-150 stores, the average age of a store in the chain will be 3.4 years. As they go down the maturation cycle, they see some major four-wall operating profit improvements. For example, for the year, on a four-wall operating basis (gross margin less store operating and selling expenses) declined only to 5.9% from 6%. But the gross margin impact of computers less the expense leverage, it is really noteworthy that in their stores that are four years old (there are 92), they are now generating four-wall operating profit of 8.4% which they think is among the best in their industry. They think this is going to be a year of productivity gains and that is in the right direction. Equally noteworthy is that, for stores that are just 2 years old, they are generating 5.2% on a four-wall, fully loaded profit basis and that is up dramatically from the 3.1% for a two-year-old store last year. Again it gets down to the fixed cost/volume relationship and the payoff in these investments that they have made in productivity in terms of systems controls, etc.

EXPANSION INITIATIVES OVER THE PAST YEAR

MET NEW OPENING OBJECTIVES. They are pleased to report that they met or exceeded all of their expansion objectives for the year. They opened 96 stores ending the year with 564 stores, in over 220 markets, in 47 states and Puerto Rico. They also opened 47 stores in Q4 versus 40 the prior year, 29 of which were in existing markets and 18 of which are in single store markets. Throughout the course of the year they also remodeled 154 superstores to their latest prototype, compared to 39 in the prior year. These stores continue to generate an approximate 10% increase over the previous sales trends.

FURNITUREMAX & COPYMAX. In addition, they opened 70 FurnitureMax stores, ending the year with a total of 94. They opened and/or converted 410 CopyMax stores which include 344 minis as well as 64 hubs, ending the year with a total of 74 hubs. This clearly puts them in a position to brand the CopyMax name. Both CopyMax and FurnitureMax will begin to take on a life of their own in fiscal 1997. The mini CopyMaxes that were converted last year are generating comp store increases well in excess of 30%. Each of the CopyMax hubs are expected to generate significant sales at high gross margins. In addition, FurnitureMax will begin to add incremental gross margin dollars as they mature this business which is a key element in their planned margin improvement.

NEW SUPERSTORES. All new superstores opened as of last November are of the TriMax variety. As such, they feature store-within-a-store modules of both FurnitureMax and CopyMax. They are predominantly 23,500 square feet in size although they have larger versions to support both CopyMax and FurnitureMax initiatives. Throughout the year they also opened 5 delivery centers and ended with a total of 17. These delivery centers support their growing catalog business and cover approximately 85% of their stores across the country.

INTERNATIONAL INITIATIVES. In addition to their major moves throughout the US and they are now in 47 states and literally coast to coast, they have not neglected the concept of taking OfficeMax beyond the borders because they feel that the OfficeMax concept transcends the boundary of the US.

MEXICO. To that end, last year they are extremely pleased with the results of their first initiative and joint venture in Mexico where they now have up-and-running stores. What is exciting about what they see in Mexico, first of all, is that Office Depot is down there and doing a good job and OfficeMax has come into the market and think they are doing a spectacular job with performance that far exceeds what they ever guessed they'd be able to do. Astoundingly, the merchandise mix in Mexico is selling about parallel with the US. The buy-ins are significantly higher than in the US and these stores are on their way for a first 12 months to record-breaking results, probably about 40-50% higher than originally planned. They have two stores operating in Mexico in a joint venture partnership where they own 19%. They have ratchet-up capabilities in Mexico to go to 70%. They will do so just before those stores, as an operating group, becomes profitable because of the price they will pay. As it stands now it looks like they will be profitable much sooner than ever anticipated. This year they will open at least 8 additional stores in the Mexico City area and throughout Mexico and they are now looking at other opportunities in Latin America and South America with the same partners.

JAPAN. They have just completed negotiations to enter Japan with a very fine retail powerhouse there who is a $21 billion retailer. They think they will have the opportunity to operate just in the country of Japan about 200 stores to serve the 126 million people there. They have just added a president and the joint venture partnership has added a management team. OfficeMax University in the US that trains these folks is up and running and they are going to be bringing through a number of people. This joint venture is also on a 19%/81% basis. They have ratchet-up in Japan to 50%/50% and have been very pleased with what has been happening. As they did in Mexico, they think we will see OfficeMax move at lightning speed and really compress the timeframe it takes to get up and running. Some of that is because of the partners they have chosen.

OUTLOOK FOR 1997. They think 1997 is key both in what is happening in their industry, what is going to happen within OfficeMax and their various initiatives. Their focus is on profits and margins and productivity increases at all levels of the business. They have been in business 8.5 years and think it is now time to show profits and margins translating into bottom-line performance.

INITIATIVES SHOULD BEAR FRUIT IN 1997. Last year in 1995 and 1996 they launched many new initiatives that they believe will show results in 1997. FurnitureMax is almost two years old. CopyMax is the fastest growing print-for-pay business in the US and the world. That is now 1.5 years old and in that time has become a national chain. The beauty of that business is that it is great margin, it is becoming its own identity, and it is going to be handsomely profitable this year and next year and they expect to see some real improvements.

COMPUTER STRATEGY. In 1997, they are also going to focus on a number of other key areas and those are in their core supply business. They played the computer game last year and did better than most other people in that they generated comps of 25-30%. But, they didn't show profits or margins they wanted to. The good news on computers is that there seems to be, at least today, some degree of sanity in the pricing among competitors and they are trying to lead the way in terms of productivity gains so they can all make a profit, particularly in their stores with computers and promotions. The exciting thing in computers is what they see happening next year in the fourth quarter up against lousy numbers in terms of profit numbers, they had good sales numbers. By generating minimal sales increase but changing the margin, there is some dramatic upside opportunities from there. February has been very good in terms of computer sales, still double-digits. The MMX is generating 40% of their business and that is with the absence of any new software of any magnitude coming out. Computer margins in February have continued to improve and they are focusing on the retailing of the accessories side of the business.

DELIVERY BUSINESS VERY STRONG. The key thing in terms of improving productivity is going to be their supply business and there are a number of things they are doing in the supply category including in their delivery business which is doing excellent. January and February have been two of the best months in the history of their delivery business. They made major strides in terms of improving in-stock levels and the whole in-stock level in the delivery centers in terms of the average transaction is improved because of that. Their average delivery order is handsomely above $200 now and is continuing to climb.

FOCUSED OFFERINGS TO TARGET MARKETS. They are also looking at different ways of reaching the one-on-one customer through intimate forms of marketing like direct mail, online businesses, and they think there are some exciting opportunities that really have margin abilities in terms of showing them much better returns. They are expanding their offerings through their catalog to include other ancillary items that serve their target market but are items that they perhaps did not carry in the past -- things like material handling equipment for small offices, expanded bindery items. They serve target markets and care about what the customers need and will focus merchandise categories to meet that end. They are expanding in a number of areas including the specialty paper category which is good margin and gives them the ability to reach a customer that already needs that paper anyway. They are also allocating more marketing resources to the supply business with the objective of improving the supply segment of the business.

STICKING WITH COMPUTERS. They are not forgetting about computers and electronics. 35-38% of the population in the US has computers and the good news is that many of those computers are really obsolete with Windows '95 and the introduction of MMX and things of that nature. They are going to be in the computer business for the duration, they are just going to do it more profitably. They have learned a lot and think they have done some damage to some of the competitors that have gone away, but they think they will be in a better position. They will not attempt to beat some of these year-over-year comparisons and promotions and that will affect comp stores negatively and on occasion during specific weeks and specific quarters. However, more importantly, the comp store measure is not the key number, the margins and earnings are. There are related areas too. With AT&T closing down their retail stores OfficeMax becomes one of the prime providers of phone equipment in the US. They also have the personal digital assistants and other electronic equipment.

GROSS MARGIN IMPROVEMENT EXPECTED. They expect gross margins to improve over 1995 levels or before. They think 1996 was an anomaly because of the computers. They expect margins in 1997 to be better than they were in 1995 and the improvement is going to come from computers and CopyMax/FurnitureMax as they start to kick in. They hired someone from Home Depot to head up their new importing group. They are going to be sourcing more and more merchandise in Asia. They see some tremendous margin opportunities there as well.

ROUGH COMPARISONS NEXT QUARTER. In February, March, and early April they have the most difficult comparisons because of paper prices last year in terms of retail. However, they see a substantial improvement coming in the late Summer and certainly in the second half where they will have comped the worst of the paper price issues. They think the worst is over. Sales in February are on track with some categories better than expected. That is despite paper being down, at the worst point, 20% in February. Electronic retail prices, particularly fax machines, are still down 15-20% year over year, but the number of transactions are very strong on a comp store basis. Their catalog business is very strong and they finished January and February with the best delivery center business in their history as far as the core supply business is concerned. Comps are running where they thought they would be and the direction they have given Wall Street for the first quarter is in the 5-6% range and, at least at this point, they are still right where they think they will be.

RECORD STORE OPENINGS IN FEBRUARY. They opened a record 10 stores in February. They are on track with their real estate and literally have all the stores in place to reach their 125-150 number. They are continuing to do well in Los Angeles. Overall they are getting better rents and more opportunities in light of the Staples/Depot merger and OfficeMax's accelerated expansion program. The bottom line two years from now is going to be enhanced because their rents are lower. Their strong balance sheet helps them with real estate too. Today there are only about 1600 office product superstores in the US today. They are confident that will grow to 3000-3500 over the next couple of years.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.