It has been said that change is the world’s most powerful force. For Office Depot, our customers and businesses around the world, 1999 clearly demonstrated this fact. This last year of the millennium capped more than two decades of dramatic events—including numerous multi-billion dollar mergers and acquisitions, a myriad of technological innovations, and the explosive growth of the Internet—all of which have converged in a relatively short time frame to revamp the way most people conduct business.

At the crux of this global business revolution, Office Depot has not only adapted to today’s dizzying pace of change, but we have helped to drive and shape it. Our success stems from our long-held Company credo: To take care of business, every day, every way, everywhere. Fulfilling this commitment requires that we anticipate the changes that will impact our customers, and provide innovative products and services that help them compete.

A key example of our success in this effort is our industry leadership on the Internet. As the world’s appetite for electronic commerce has taken hold, Office Depot has been at the forefront of the Internet movement. Our early entry into the world of electronic commerce afforded us an excellent opportunity to offer our customers round-the-clock sales and service, while increasing our brand awareness and reaching out to new markets.

Our strategic approach to embracing change has helped to drive our growth. For example, our use of the Internet to market our products has allowed us to achieve greater leverage in our merchandising, warehousing and distribution organizations and enabled us to build incremental, profitable sales. Today, we dominate our industry on the Internet. The combined revenue of our domestic public and business-to-business Internet sites increased more than 400% during the year, approaching $350 million, well exceeding the goal of $200 million that we set at the beginning of the year. In fact, our run rate at the end of fiscal 1999 indicates that we will reach $600 million in Internet sales in 2000, significantly outpacing our 1999 performance.

While we generated growth in every channel of our business in 1999, we continue to believe that every business has room for improvement. With that in mind, we took a hard look at our operating strategies and our prospects for the future. Continuing our commitment to industry leadership and our record of growth, we reevaluated and redefined our business focus.

We emerged from this process with a more customer-centric business philosophy, which we are aggressively applying in all of our marketing, service and sales initiatives. We firmly believe that our focused approach will enable us to keep pace with the many changes that lie ahead, ensure the continued satisfaction of our customers, and allow us to generate profitable growth for our shareholders in the new millennium.

A Strong Financial Performance
Office Depot’s total sales for the fiscal year ended December 25, 1999 rose 14% to $10.3 billion from $9.0 billion in 1998. Worldwide comparable sales in the 695 stores and 42 customer service centers that have been open for more than one year increased 6%. Our operating profit, including non-recurring charges and credits, increased to $413.4 million from $404.8 million in 1998. Excluding these charges and credits, operating profit for 1999 was $518.6 million, a 1% decline from 1998, reflecting gross margin pressures related to increased sales growth in technology products, increased spending on advertising and the cost of certain strategic sales and re-merchandising initiatives in our stores.

Net income increased by 10% in 1999 to $257.6 million, compared with the $233.2 million earned in 1998. Excluding the impact of non-recurring charges and credits, net income increased 2% from $320.0 million in 1998 to $326.9 million in 1999.