The decline in operating cash flows in 2000 is primarily attributable to lower gross profit and higher store and warehouse operating and selling expenses and general and administrative expenses, which is more fully explained in Results of Operations. In 1999, the decrease in operating cash flows from 1998 was due mainly to our aggressive store opening program. On a worldwide basis in 1999, excluding joint venture operations and licensing arrangements, we opened 159 stores, including relocations of older stores, as compared to 106 openings during 1998. Opening a new domestic store requires that we outlay approximately $0.5 million in cash for the portion of our inventories that is not financed by our vendors, as well as approximately $0.2 million for pre-opening expenses (see Pre-opening Expenses). Our focus on supply chain management helped boost our 1998 operating cash flows by reducing inventories by $139 million. This focus continued to reduce the average inventory balances held in stores and CSCs in 1999 and 2000; however, this benefit was offset by increases resulting from stocking our new stores with inventories. Incremental Y2K-related purchases further impacted our inventory levels in 1999.

Our primary investing activity is the acquisition of capital assets. The number of stores and CSCs we open or remodel each year generally drives the volume of our capital investments. Over the past three years, we opened 78, 159 and 106 stores during 2000, 1999 and 1998, respectively. This accounts for the majority of the variation in our investing activities over the years. During 2000, we also had significant expenditures related to our Viking integration plans. In 1999, computer and other equipment purchases at our corporate offices and at our facilities, necessary to complete Y2K remediation, relocation of our corporate data center, and support for our store expansion, also contributed to our increased cash investing needs.

We currently plan to open approximately 50 stores in our North American Retail Division and numerous stores in our International Division during 2001. We also plan to relocate several existing warehouses, and open two additional warehouses in our International Division. We estimate that our cash investing requirements will be approximately $1.1 million for each new domestic office supply store. The $1.1 million includes approximately $0.6 million for leasehold improvements, fixtures, point-of-sale terminals and other equipment, and approximately $0.5 million for the portion of our inventories that will not be financed by our vendors. In addition, our average new office supply store requires pre-opening expenses of approximately $0.2 million. The investment required for a new CSC is significantly more than the amounts required for a new store. Each new domestic and international CSC requires between $6 to $16 million for capital assets and inventory, and pre-opening expenses of up to $1.8 million, depending on the size, type and location of the facility. Also in 2001, we plan on spending approximately $40 million in capital investments related to re-merchandising and remodeling our store locations and consolidating and upgrading our call centers.

We have expanded our presence in the electronic commerce marketplace by entering into strategic business relationships with several Web-based providers of business-to-business electronic commerce solutions. We made equity investments in these companies during 2000 and 1999 of $30.1 and $50.7 million, respectively. During 2000, we sold certain of these investments for $57.9 million. Also, because of the recent decline in the market for Internet related companies, we performed an extensive valuation of each of our remaining investments at the end of 2000. This resulted in a write down of $45.5 million, reducing the current book value of the investments at December 30, 2000 to $29.9 million. We continue to believe the Internet represents an exciting opportunity for our products and services, and we will continue to look for opportunities to invest in companies that provide business-to-business e-commerce solutions for small-and medium-sized businesses.

Financing Activities

Our domestic credit facilities provide us with a maximum of $600.0 million in funds. These facilities consist of two separate credit agreements, a five-year loan providing us with a working capital line and letters of credit capacity totaling $300.0 million, and a 364-day loan for working capital also totaling $300.0 million. As of December 30, 2000, we had outstanding borrowings of $389.6 million under these lines of credit, as well as letters of credit totaling $49.5 million. Our five-year agreement was entered into in February 1998 and has various borrowing rate options, including a rate based on our credit rating that currently would result in an interest rate of 0.475% over the London Interbank Offered Rate (“ LIBOR”). In June 2000, we entered into a second credit agreement with a 364-day term, which also has various borrowing rate options, including a current borrowing rate of 0.500% over LIBOR. At December 30, 2000, the average effective interest rates were 7.001% and 7.996% for the five-year and 364-day facilities, respectively. Both agreements contain similar restrictive covenants relating to various financial statement ratios.