(Dollars in Thousands)	2002			2001			2000
Pre-opening expenses	$	8,414		$	10,172		$	13,465
Office supply stores opened*		42			55			78

*	Includes domestic and wholly owned international openings and relocations.

Our pre-opening expenses consist principally of personnel, property and advertising expenses incurred in opening or relocating stores in our North American Retail Division. Our pre-opening expenses also include, to a lesser extent, expenses incurred to open or relocate facilities in our BSG and International Division. We typically incur pre-opening expenses during a six-week period prior to a store opening. Because we expense these items as they are incurred, the amount of pre-opening expenses each year is generally proportional to the number of new stores opened during the period. This has been the primary contribution to the fluctuation in pre-opening expenses over the three years presented. For 2002, our pre-opening expenses approximated $165,000 per domestic office supply store and $115,000 per international office supply store. Our cost to open a new CSC varies significantly with the size and location of the facility. We currently estimate costs to open a domestic or international CSC to be approximately $1.0 million per facility.

GENERAL AND ADMINISTRATIVE EXPENSES

(Dollars in Thousands)	2002			2001			2000
General and administrative expenses	$	486,279		$	445,538		$	447,693
Percentage of sales		4.3	%		4.0	%		3.9	%

Our general and administrative expenses consist primarily of personnelrelated costs associated with support functions. Because these functions typically support all segments of our business, we do not consider these costs in determining our segment profitability. The increase in 2002 reflects additional professional fees to support operational process improvements, additional benefits costs, and costs incurred to support expansion activities that were not chargeable to segment operations. As noted above, other companies may charge more or less of their general and administrative costs to their segments, and comparisons to their operations could be affected.

OTHER INCOME AND EXPENSE

(Dollars in Thousands)	2002			2001			2000
Interest income	$	18,509		$	12,980		$	11,345
Interest expense		(46,195	)		(43,339	)		(32,683	)
Miscellaneous income (expense), net		7,183			(9,057	)		4,632

Financing and investing activities are not included in determining segment profitability. Average cash balances increased during 2001 and 2002, contributing to the increase in interest income; however, interest rates declined during the same time period, somewhat offsetting the impact of larger balances. In July 2001, we issued $250 million of senior subordinated notes that mature in 2008. Also during 2001, we entered into swap agreements to convert these fixed rate notes to variable interest rates. In September 2002, we terminated the swap agreements and received $18.8 million in proceeds. This value is being amortized to interest expense over the remaining life of the notes. The increase in interest expense in 2001 reflects a partial year of interest relating to this additional borrowing.

When a facility is closed before the end of an operating lease commitment, we record a liability at the present value of the lease obligation, offset by anticipated sublease income. The imputed interest cost on the discounted obligations is recognized as interest expense each period. The recorded obligations primarily relate to the store closures following the 2000 business review and totaled $60.4 million at December 28, 2002 and $76.7 million at December 29, 2001.

Our net miscellaneous income (expense) consists of equity in the earnings of our joint venture investments, royalty and franchise income that we generate from licensing and franchise agreements, and realized gains and impairments of investments. All of our equity investments involve operations outside of the United States and Canada. Impairment charges for other than temporary declines in the value of certain Internet investments were $3.0 million in 2002, $14.7 million in 2001, and $45.5 million in 2000. Fiscal year 2000 also included a realized gain of $57.9 million from the sale of certain Internet investments and $11.1 million of asset impairment in Japan.

INCOME TAXES

(Dollars in Thousands)	2002			2001			2000
Income Taxes	$	167,722		$	112,296		$	41,972
Effective income tax rate*		35	%		36	%		46	%

*	Income Taxes as a percentage of earnings before income taxes.

The effective income tax rate in 2002 declined to 35%, reflecting the impact of increased international activity taxed at lower rates and the absence of goodwill amortization. The effective tax rate may decline further during 2003. Certain non-deductible merger-related and other charges incurred in 2000 created a higher overall effective income tax rate than would have resulted from our ongoing operations.