During the year, BSG also reinforced its position as an industry leader in electronic commerce, significantly growing our Internet business. By the end of 1999, we served over 40,000 contract customers via the Internet, up from 11,000 in 1998, and our public Web sites also grew dramatically. Sales from our combined Internet businesses, including our domestic public Web sites, www.officedepot.com and www.vikingop.com, and our business-to-business electronic commerce site, reached $349.7 million, an increase of 426% from the $66.5 million we reported in 1998.

BSG also generated $249.8 million in warehouse operating profit in 1999, up 25% from the $200.3 million in 1998. This increase resulted from our continued efforts to more effectively manage pricing in our contract business, grow our Viking brand and successfully leverage our warehouse costs. BSG’s strategy for continued success anticipates further reductions in expenses, improvements in selling techniques across all business channels and aggressive expansion of our Internet capabilities.

During 2000, we expect to generate significant additional savings by improving the productivity and efficiency of our warehouse operations. We will work toward this goal by continuing to integrate our Viking and Office Depot warehouses. As a result, during the next 18 months, Office Depot will trim the total number of warehouses we maintain and operate to 21, compared with 30 at the end of 1999. We are confident that this will lower our cost structure without compromising customer service.

Office Depot is committed to increasing BSG’s market share, while promoting customer retention and loyalty. We continually seek greater market share by offering customers sound value, high quality and superior service. In 2000, we intend to increase our use of database marketing programs for both the Office Depot and Viking brands to pinpoint the individual needs of our diverse customer base, stimulate greater customer loyalty, and drive incremental sales.