# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	February	3,	2006

# DOLLAR	GENERAL	CORPORATION

(Exact	name	of	registrant	as	specified	in	its	charter)

TENNESSEE

(State	or	other	jurisdiction	of incorporation	or	organization)

(I.R.S.	Employer Identification	No.)

100	MISSION	RIDGE GOODLETTSVILLE,	TN		37072

(Address	of	principal	executive	offices,	zip	code)

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	class

Common	Stock

Series	B	Junior	Participating Preferred	Stock	Purchase	Rights

# Name	of	the	exchange	on	which	registered

New	York	Stock	Exchange

# Securities	registered	pursuant	to	Section	12(g)	of	the	Act:		None

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.		Yes	[X]

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	15(d)	of	the	Act.		Yes	[		]	No	[X]

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities Exchange	Act	of	1934	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports), and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90	days.	Yes	[X]	No	[			]

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will not	be	contained,	to	the	best	of	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	[X]

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	or	a	non-accelerated	filer.	See definition	of	"accelerated	filer	and	large	accelerated	filer"	in	Rule	12b-2	of	the	Exchange	Act.	Large	accelerated	filer	[X]	Accelerated filer	[	]	Non-accelerated	filer	[		]

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Act).		Yes	[		]		No	[X]

The	aggregate	market	value	of	the	voting	stock	held	by	non-affiliates	of	the	registrant,	computed	by	reference	to	the	closing	price on	the	New	York	Stock	Exchange	as	of	July	29,	2005,	was	approximately	$6.5	billion.	The	registrant	has	no	non-voting	common	stock. 	For	purposes	of	this	disclosure	only,	the	registrant	has	assumed	that	its	directors,	executive	officers,	and	beneficial	owners	of	greater than	10%	of	the	registrant's	common	stock	are	the	"affiliates"	of	the	registrant.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Certain	of	the	information	required	in	Part	III	of	this	Form	10-K	is	incorporated	by	reference	to	the	Registrant's	definitive	proxy statement	to	be	filed	for	the	Annual	Meeting	of	Shareholders	to	be	held	on	May	31,	2006.

# INTRODUCTION

# General

This	report	contains	references	to	years	2006,	2005,	2004,	2003,	2002,	and	2001,	which	represent	fiscal	years	ending	or	ended February	2,	2007,	February	3,	2006,	January	28,	2005,	January	30,	2004,	January	31,	2003,	and	February	1,	2002,	respectively.		All	of the	discussion	and	analysis	in	this	report	should	be	read	with,	and	is	qualified	in	its	entirety	by,	the	Consolidated	Financial	Statements and	the	notes	thereto.

# Forward	Looking	Statements/Risk	Factors

Except	for	specific	historical	information,	many	of	the	discussions	in	this	report	and	in	the	documents	incorporated	by	reference into	this	report	may	express	or	imply	projections	of	revenues	or	expenditures,	plans	and	objectives	for	future	operations,	growth	or initiatives,	expected	future	economic	performance,	or	the	expected	outcome	or	impact	of	pending	or	threatened	litigation.	These	and similar	statements	regarding	events	or	results	which	Dollar	General	Corporation	(the	"Company"	or	"Dollar	General")	expects	will	or may	occur	in	the	future	are	forward-looking	statements	concerning	matters	that	involve	risks,	uncertainties	and	other	factors	which	may cause	the	actual	performance	of	the	Company	to	differ	materially	from	those	expressed	or	implied	by	these	statements.		All	forward- looking	information	should	be	evaluated	in	the	context	of	these	risks,	uncertainties	and	other	factors.	The	words	"believe,"	"anticipate," "project,"	"plan,"	"expect,"	"estimate,"	"objective,"	"forecast,"	"goal,"	"intend,"	"will	likely	result,"	or	"will	continue"	and	similar expressions	generally	identify	forward-looking	statements.	The	Company	believes	the	assumptions	underlying	these	forward-looking statements	are	reasonable;	however,	any	of	the	assumptions	could	be	inaccurate,	and	therefore,	actual	results	may	differ	materially	from those	projected	in	or	implied	by	the	forward-looking	statements.		Factors	and	risks	that	may	result	in	actual	results	differing	from	this forward-looking	information	include,	but	are	not	limited	to,	those	listed	in	Part	I,	Item	1A	below,	all	of	which	are	incorporated	herein	by reference,	as	well	as	other	factors	discussed	throughout	this	document,	including,	without	limitation,	the	factors	described	under	"Critical Accounting	Policies	and	Estimates"	in	Part	II,	Item	7	below	or,	from	time	to	time,	in	the	Company's	filings	with	the	SEC,	press	releases and	other	communications.

Readers	are	cautioned	not	to	place	undue	reliance	on	forward-looking	statements	made	in	this	document,	since	the	statements speak	only	as	of	the	document's	date.		The	Company	has	no	obligation,	and	does	not	intend,	to	publicly	update	or	revise	any	of	these forward-looking	statements	to	reflect	events	or	circumstances	occurring	after	the	date	of	this	document	or	to	reflect	the	occurrence	of unanticipated	events.		Readers	are	advised,	however,	to	consult	any	further	disclosures	the	Company	may	make	on	related	subjects	in	its documents	filed	with	or	furnished	to	the	SEC	or	in	its	other	public	disclosures.

# PART	I

# ITEM	1. BUSINESS

The	Company	is	a	leading	discount	retailer	of	quality	general	merchandise	at	everyday	low	prices.		Through	conveniently	located stores,	the	Company	offers	a	focused	assortment	of	basic	consumable	merchandise	including	health	and	beauty	aids,	packaged	food	and refrigerated	products,	home	cleaning	supplies,	housewares,	stationery,	seasonal	goods,	basic	clothing	and	domestics.		Dollar	General stores	serve	primarily	low-,	middle-	and	fixed-income	families.

The	Company	was	founded	in	1939	as	J.L.	Turner	and	Son,	Wholesale.		The	Company	opened	its	first	dollar	store	in	1955,	when the	Company	was	first	incorporated	as	a	Kentucky	corporation	under	the	name	J.L.	Turner	&	Son,	Inc.		The	Company	changed	its	name to	Dollar	General	Corporation	in	1968	and	reincorporated	as	a	Tennessee	corporation	in	1998.		As	of	March	3,	2006,	the	Company operated	8,019	stores	in	32	states,	primarily	in	the	southern,	southwestern,	midwestern	and	eastern	United	States.

# Overall	Business	Strategy

Dollar	General's	mission	statement	is	"Serving	Others."	To	carry	out	this	mission,	the	Company	has	developed	a	business strategy	of	providing	its	customers	with	a	focused	assortment	of	fairly	priced,	consumable	merchandise	in	a	convenient,	small-store format.

Our	Customers.		The	Company	serves	the	basic	consumable	needs	of	customers	primarily	in	the	low	and	middle-income	brackets and	those	on	fixed	incomes.	According	to	AC	Nielsen's	2005	Homescan®	data,	in	2005	approximately	48%	of	the	Company's customers	earned	less	than	$30,000	per	year	and	approximately	26%	earned	less	than	$20,000	per	year.		The	Company's	merchandising and	operating	strategies	are	primarily	designed	to	meet	the	need	for	basic	consumable	products	of	the	consumers	in	these	lower	income groups.

Our	Stores.		The	traditional	Dollar	General	store	has,	on	average,	approximately	6,800	square	feet	of	selling	space	and	generally serves	customers	who	live	within	five	miles	of	the	store.		Of	the	Company's	8,019	stores	operating	as	of	March	3,	2006,	approximately 4,580	serve	communities	with	populations	of	20,000	or	less.		The	Company	believes	that	its	target	customers	prefer	the	convenience	of	a small,	neighborhood	store.		The	Company	believes	that	Dollar	General's	convenient	discount	store	format	will	continue	to	attract customers	and	provide	the	Company	with	a	competitive	advantage.

In	2003,	the	Company	began	testing	a	Dollar	General	Market	concept.		Dollar	General	Markets	are	larger	than	the	average	Dollar General	store	and	carry,	among	other	items,	an	expanded	assortment	of	grocery	products	and	perishable	items.		At	March	3,	2006,	the Company's	8,019	total	stores	included	44	Dollar	General	Market	stores	with	an	average	of	17,400	square	feet	of	selling	space.		The Company	plans	to	open	at	least	30	Dollar	General	Market	stores	in	2006.

Our	Merchandise.		The	Company	is	committed	to	offering	a	focused	assortment	of	quality,	consumable	merchandise	in	a	number of	core	categories,	such	as	health	and	beauty	aids,	packaged	food	and	refrigerated	products,	home	cleaning	supplies,	housewares, stationery,	seasonal	goods,	basic	clothing	and	domestics.		This	focused	merchandise	assortment	allows	customers	to	shop	at	Dollar General	stores	for	their	everyday	household	needs.		In	2005,	the	average	customer	purchase	was	$9.03.

Our	Prices.		The	Company	distributes	quality,	consumable	merchandise	at	everyday	low	prices.	Its	strategy	of	a	low-cost operating	structure	and	a	focused	assortment	of	merchandise	allows	the	Company	to	offer	quality	merchandise	at	competitive	prices.		As part	of	this	strategy,	the	Company	emphasizes	even-dollar	prices	on	many	of	its	items.	In	the	typical	Dollar	General	store,	the	majority of	the	products	are	priced	at	$10	or	less,	with	approximately	30%	of	the	products	priced	at	$1	or	less.

Our	Cost	Controls.		The	Company	emphasizes	aggressive	management	of	its	overhead	cost	structure.	Additionally,	the	Company seeks	to	locate	stores	in	neighborhoods	where	rental	and	operating	costs	are	relatively	low.	The	Company	attempts	to	control	operating costs	by	implementing	new	technology	where	feasible.	Examples	of	this	strategy	in	recent	years	include	the	implementation	of "EZstore",	the	Company's	initiative	designed	to	improve	inventory	flow	from	distribution	centers	to	consumers;	other	improvements	to the	Company's	supply	chain	and	warehousing	systems;	an	automatic	inventory	replenishment	system	at	the	store	level;	and	the implementation	of	a	new	merchandise	planning	system	designed	to	assist	the	Company's	merchants	with	their	purchasing	and	store allocation	decisions.

# Growth	Strategy

The	Company	has	experienced	a	rapid	rate	of	expansion	in	recent	years,	increasing	its	number	of	stores	from	5,000	as	of	February 2,	2001,	to	8,019	as	of	March	3,	2006.		In	addition	to	growth	from	new	store	openings,	the	Company	recorded	same-store	sales	increases of	2.0%	and	3.2%	in	2005	and	2004,	respectively.		Same-store	sales	calculations	for	2005	and	prior	include	only	those	stores	that	were open	both	at	the	end	of	that	period	and	at	the	beginning	of	the	preceding	fiscal	year,	based	on	the	comparable	calendar	weeks	in	the	prior year.	As	further	described	below	in	Part	II,	Item	7,	2005	was	a	53-week	accounting	period	while	2004	was	a	52-week	accounting	period.

Accordingly,	the	same	store	sales	percentage	for	2005	discussed	above	excludes	sales	from	the	53 	week	as	there	was	no	comparable rd week	in	2004.	In	addition,	the	Company	has	revised	its	method	for	determining	the	stores	that	are	included	in	its	publicly	released	same- store	sales	calculations	beginning	in	2006.	Management	will	continue	to	seek	to	grow	the	Company's	business	and	believes	that	this future	growth	will	come	from	a	combination	of	new	store	openings,	infrastructure	investments	and	merchandising	initiatives,	each	as discussed	more	fully	below.

New	Store	Growth.		Management	believes	that	the	Company's	convenient,	small-store	format	is	adaptable	to	small	towns	and neighborhoods	throughout	the	country.		The	majority	of	the	Company's	stores	are	located	in	these	small	towns	(defined	by	the	Company as	communities	with	populations	of	20,000	or	less).		In	2005,	slightly	over	half	of	the	Company's	new	stores	were	opened	in	small	towns while	the	remainder	were	opened	either	in	rural	or	in	more	densely	populated	areas.		The	Company	expects	a	similar	mix	of	new	store openings	between	small

towns	and	other	areas	in	2006.		New	store	openings	in	2006	will	include	the	Company's	existing	market	area	as	well	as	certain	other geographic	areas	where	management	believes	the	Company	has	the	potential	to	expand	its	store	base.	Opening	stores	in	its	existing market	areas	allows	the	Company	to	take	advantage	of	brand	awareness	and	to	maximize	its	operating	efficiencies.

In	2005,	2004	and	2003,	the	Company	opened	734,	722	and	673	new	stores,	and	remodeled	or	relocated	82,	80	and	76	stores, respectively.		The	Company	currently	plans	to	open	approximately	800	new	Dollar	General	stores	and	at	least	30	new	Dollar	General Market	stores	in	2006.		Some	of	the	new	Dollar	General	Markets	may	replace	existing	traditional	stores.

Infrastructure	Investments.	The	Company's	distribution	network	is	an	integral	component	of	the	Company's	efforts	to	reduce transportation	expenses	and	effectively	support	the	Company's	growth.		In	recent	years,	the	Company	has	made	significant	investments in	its	distribution	network.	As	of	March	3,	2006,	the	Company	operated	eight	distribution	centers	("DCs"),	one	of	which	opened	during 2005.	The	Company's	ninth	DC	in	Marion,	Indiana	is	expected	to	be	completed	and	fully	operational	in	mid-2006.		In	addition,	the Company	is	currently	in	the	planning	stages	for	its	tenth	DC.		Also,	in	recent	years,	the	Company	has	expanded	its	DCs	in	South	Boston, Virginia	and	Ardmore,	Oklahoma	by	completing	the	conversion	of	these	DCs	from	single	to	dual	sortation	systems,	which	enables	them to	serve	more	stores.

The	Company's	investments	in	technology	in	recent	years	are	outlined	below.	In	2005,	new	systems	for	store	operating statements,	store	labor	scheduling,	supplier	communications	and	transportation	and	claims	management	were	installed.	In	addition,	the Company	enhanced	its	store	systems	to	sell	Dollar	General	gift	cards.		In	2004,	a	merchandising	data	warehouse	was	added,	the	rollout of	credit/debit	and/or	electronic	benefit	transfer	("EBT")	capabilities	was	completed	and	an	automatic	inventory	replenishment	system was	installed	in	all	stores.	In	addition,	a	new	stock	ledger	and	sales	flash	system	were	completed.	Also,	for	the	first	time,	store	district managers	were	equipped	with	personal	computers	to	enable	them	to	access	daily	merchandising	information.	In	2003,	the	Company implemented	an	improved	warehouse	management	system,	a	DC	appointment	scheduling	system,	and	an	inventory	reconciliation	system, and	completed	allocation	system	improvements,	shortage	analysis	reporting,	and	improvements	to	automated	DC	replenishment	systems.

Merchandising	Initiatives.		The	Company's	merchandising	initiatives	are	designed	to	promote	same-store	sales	increases.		The Company	continually	evaluates	the	performance	of	its	merchandise	mix	and	makes	adjustments	when	appropriate.		In	recent	years,	the Company	has	increased	its	emphasis	on	the	highly	consumable	category	by	adding	items	in	the	food,	paper,	pet	products,	household chemicals,	and	health	and	beauty	aids	categories.	Also	in	recent	years,	the	Company	began	offering	perishable	products,	which	include	a selection	of	dairy	products,	luncheon	meats,	frozen	foods	and	ice	cream.		Other	recent	initiatives	include	prepaid	phone	cards	and branded	apparel.

Beginning	in	the	fourth	quarter	of	2003,	and	principally	at	the	conclusion	of	the	holiday	selling	season,	the	Company	began taking	end-of-season	markdowns	materially	in	excess	of	what	it	had	historically	taken	to	appropriately	value	year-end	inventory	and	to help	dispose	of	certain	holiday-related	items	that	had	not	sold	in	sufficient	quantities.		Prior	to	2003,	the

Company	would	have	carried	that	inventory	forward	and	would	have	attempted	to	adjust	future	inventory	purchases	to	account	for	the carryover	product.		In	2004	and	2005,	the	Company	again	executed	end-of-season	markdowns	throughout	the	year	as	it	deemed appropriate.		The	Company	continues	to	aggressively	identify,	evaluate,	merchandise	and	markdown	aged	inventory	to	minimize seasonal	inventory	carried	forward	to	the	next	fiscal	year.

# Merchandise

Dollar	General	stores	offer	a	focused	assortment	of	quality	merchandise	in	a	number	of	core	categories.	The	Company	separates its	merchandise	into	the	following	four	categories	for	reporting	purposes:	highly	consumable,	seasonal,	home	products,	and	basic clothing.	The	Company	maintains	approximately	4,600	core	stock-keeping	units	("SKUs")	per	store.

The	percentage	of	total	sales	of	each	of	the	four	categories	tracked	by	the	Company	for	the	preceding	three	years	is	as	follows:

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Highly\tconsumable | 65.3% | 63.0% | 61.2% |
| Seasonal | 15.7% | 16.5% | 16.8% |
| Home\tproducts | 10.6% | 11.5% | 12.5% |
| Basic\tclothing | 8.4% | 9.0% | 9.5% |

Of	the	four	categories,	the	seasonal	category	typically	accounts	for	the	highest	gross	profit	rate	and	the	highly	consumable category	typically	accounts	for	the	lowest	gross	profit	rate.

The	Company	purchases	its	merchandise	from	a	wide	variety	of	suppliers.	Approximately	11%	of	the	Company's	purchases	in 2005	were	from	Procter	and	Gamble.		No	other	supplier	accounted	for	more	than	3%	of	the	Company's	purchases	in	2005.		The Company	directly	imported	approximately	13%	of	its	retail	receipts	in	2005.

Through	2005,	the	Company	generally	did	not	print	weekly	advertising	circulars	but	instead	advertised	to	support	new	traditional store	openings	primarily	with	targeted	circulars	and	in-store	signage.		Advertising	expenses	were	less	than	1%	of	sales.	In	2005,	the Company	initiated	a	marketing	program	as	the	sponsor	of	a	National	Association	for	Stock	Car	Auto	Racing	("NASCAR")	Busch	Series car.		The	Company	participated	in	the	Busch	Series	racing	season,	which	ran	from	February	to	November	and	served	as	the	title	sponsor of	the	Dollar	General	300	NASCAR	Busch	Series	race	at	Lowe's	Motor	Speedway	in	Concord,	North	Carolina.

# Seasonality

The	Company's	business	is	modestly	seasonal	in	nature.		The	Company	expects	to	continue	to	experience	seasonal	fluctuations, with	a	larger	percentage	of	its	net	sales,	operating	profit	and	net	income	being	realized	in	the	fourth	quarter.	In	addition,	the	Company's quarterly	results	can	be	affected	by	the	timing	of	new	store	openings	and	store	closings,	the	amount	of	sales	contributed	by	new	and existing	stores,	as	well	as	the	timing	of	certain	holidays.	The	Company	purchases	substantial	amounts	of	inventory	in	the	third	quarter and	incurs	higher

shipping	costs	and	higher	payroll	costs	in	anticipation	of	the	increased	sales	activity	during	the	fourth	quarter.		In	addition,	the	Company carries	merchandise	during	its	fourth	quarter	that	it	does	not	carry	during	the	rest	of	the	year,	such	as	gift	sets,	trim-a-tree,	certain	baking items,	and	a	broader	assortment	of	toys	and	candy.

The	following	table	reflects	the	seasonality	of	net	sales,	operating	profit,	and	net	income	by	quarter.	All	of	the	quarters	reflected below	are	comprised	of	13	weeks	with	the	exception	of	the	fourth	quarter	of	the	year	ended	February	3,	2006,	which	was	comprised	of 14	weeks.

# The	Dollar	General	Store

The	typical	Dollar	General	store	is	operated	by	a	manager,	an	assistant	manager	and	two	or	more	sales	clerks.		Approximately 52%	of	the	Company's	stores	are	located	in	strip	shopping	centers,	46%	are	in	freestanding	buildings	and	2%	are	in	downtown	buildings. 	The	Company	generally	has	not	encountered	difficulty	locating	suitable	store	sites	in	the	past,	and	management	does	not	currently anticipate	experiencing	material	difficulty	in	finding	suitable	locations.

The	Company's	recent	store	growth	is	summarized	in	the	following	table:

|  | Stores	at |  |  | Net |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Beginning | Stores | Stores | Store | Stores\tat |
| Year | of\tYear | Opened | Closed | Increase | End\tof\tYear |
| 2003 | 6,113 | 673 | 86 | 587 | 6,700 |
| 2004 | 6,700 | 722 | 102 | 620 | 7,320 |
| 2005 | 7,320 | 734 | 125(a) | 609 | 7,929 |

(a)	Includes	41	stores	closed	as	a	result	of	hurricane	damage.

# Employees

As	of	March	3,	2006,	the	Company	employed	approximately	64,500	full-time	and	part-time	employees,	including	divisional	and regional	managers,	district	managers,	store	managers,	and	DC	and	administrative	personnel,	compared	with	approximately	63,200 employees	on	April	1,	2005.		Management	believes	the	Company's	relationship	with	its	employees	is	generally	good	and	the	Company	is not	a	party	to	any	collective	bargaining	agreements.

# Competition

The	Company	operates	in	the	discount	retail	merchandise	business,	which	is	highly	competitive	with	respect	to	price,	store location,	merchandise	quality,	assortment	and	presentation,	in-stock	consistency,	and	customer	service.		The	Company	competes	with discount	stores	and	with	many	other	retailers,	including	mass	merchandise,	grocery,	drug,	convenience,	variety	and	other	specialty	stores. 	These	other	retail	companies	operate	stores	in	many	of	the	areas	where	the	Company	operates	and	many	of	them	engage	in	extensive advertising	and	marketing	efforts.	The	Company's	direct	competitors	in	the	dollar	store	retail	category	include	Family	Dollar,	Dollar Tree,	Fred's	and	various	local,	independent	operators.		Competitors	from	other	retail	categories	include	Wal-Mart	and	Walgreens,	among others.		Certain	of	the	Company's	competitors	have	greater	financial,	distribution,	marketing	and	other	resources	than	the	Company.

The	dollar	store	category	differentiates	itself	from	other	forms	of	retailing	by	offering	consistently	low	prices	in	a	convenient, small-store	format.		The	Company	believes	that	its	prices	are	competitive	due	in	part	to	its	low	cost	operating	structure	and	the	relatively limited	assortment	of	products	offered.		Historically,	labor	and	marketing	expenses	have	been	minimized	by	fewer	price	points,	relying on	simple	merchandise	presentation,	and	limited	marketing	efforts.		The	Company	attempts	to	locate	primarily	in	second-tier	locations, either	in	small	towns	or	in	the	neighborhoods	of	more	densely	populated	areas	where	occupancy	expenses	are	relatively	low.		The Company	maintains	a	strong	purchasing	power	position	due	to	its	leadership	position	in	the	dollar	store	retail	category,	which	centers	on a	focused	assortment	of	merchandise.

# Trademarks

The	Company,	through	its	affiliate,	Dollar	General	Merchandising,	Inc.,	has	registered	with	the	United	States	Patent	and Trademark	Office	the	trademarks	Dollar	General®,	Dollar	General	Market®,	Clover	Valley®,	American	Value®,	DG	Guarantee®	and the	Dollar	General	price	point	designs,	along	with	certain	other	trademarks.	The	Company	attempts	to	obtain	registration	of	its trademarks	whenever	possible	and	to	pursue	vigorously	any	infringement	of	those	marks.

# Available	Information

The	Company's	website	address	is	www.dollargeneral.com.	The	Company	makes	available	through	this	address,	without	charge, its	annual	report	on	Form	10-K,	quarterly	reports	on	Form	10-Q,	current	reports	on	Form	8-K	and	amendments	to	those	reports	filed	or furnished	pursuant	to	Section	13(a)	or	15(d)	of	the	Exchange	Act	as	soon	as	reasonably	practicable	after	they	are	electronically	filed	or furnished	to	the	Securities	and	Exchange	Commission	("SEC").

# ITEM	1A. RISK	FACTORS

The	Company	encourages	investors	to	carefully	consider	the	risks	described	below	and	other	information	contained	in	this document	when	considering	an	investment	decision	with	respect	to	Dollar	General's	securities.	Additional	risks	and	uncertainties	not presently	known	to	management,	or	that	management	currently	deems	immaterial,	may	also	impair	the	Company's	business	operations. Any	of	the	events	discussed	in	the	risk	factors	below	may	occur.	If	one	or	more	of	these	events	do	occur,	business,	results	of	operations or	financial	condition	could	be	materially	adversely	affected.	In	that	instance,	the	trading	price	of	Dollar	General	securities	could	decline, and	investors	might	lose	all	or	part	of	their	investment.

The	Company's	business	is	moderately	seasonal	with	the	highest	portion	of	sales	occurring	during	the	fourth	quarter.	Adverse events	during	the	fourth	quarter	could,	therefore,	materially	affect	the	Company's	financial	statements	as	a	whole.	The	Company realizes	a	significant	portion	of	its	net	sales	and	net	income	during	the	Christmas	selling	season	in	the	fourth	quarter.		In	anticipation	of this	holiday,	the	Company	purchases	substantial	amounts	of	seasonal	inventory	and	hires	many	temporary	employees.		A	seasonal merchandise	inventory	imbalance	could	result	if	for	any	reason	the	Company's	net	sales	during	the	Christmas	selling	season	were	to	fall below	seasonal	norms.		If	such	an	imbalance	were	to	occur,	more	markdowns	than	anticipated	might	be	required	to	minimize	the imbalance.	The	Company's	profitability	and	operating	results	could	be	adversely	affected	by	unanticipated	markdowns	and	by	lower than	anticipated	sales.	Lower	than	anticipated	sales	in	the	Christmas	selling	season	would	also	negatively	impact	the	Company's	ability to	leverage	the	increased	labor	costs.

Competition	in	the	retail	industry	could	limit	the	Company's	growth	opportunities	and	reduce	its	profitability.		The	Company operates	in	the	discount	retail	merchandise	business,	which	is	highly	competitive.		This	competitive	environment	subjects	the	Company to	the	risk	of	reduced	profitability	because	of	the	lower	prices,	and	thus	the	lower	margins,	required	to	maintain	the	Company's competitive	position.		The	Company	competes	with	discount	stores	and	with	many	other	retailers,	including	mass	merchandise,	grocery, drug,	convenience,	variety	and	other	specialty	stores.		These	other	retail	companies	operate	stores	in	many	of	the	areas	where	the Company	operates.		The	Company's	direct	competitors	in	the	dollar	store	retail	category	include,	without	limitation,	Family	Dollar, Dollar	Tree,	Fred's,	and	various	local,	independent	operators.		Competitors	from	other	retail	categories	include	Wal-Mart	and	Walgreens, among	others.		Some	of	the	Company's	competitors	utilize	aggressive	promotional	activities,	advertising	programs,	and	pricing	discounts and	the	Company's	results	of	operations	could	be	adversely	affected	if	the	Company	does	not	respond	effectively	to	these	efforts.

The	discount	retail	merchandise	business	is	subject	to	excess	capacity,	and	some	of	the	Company's	competitors	are	much	larger and	have	substantially	greater	resources	than	the	Company.		The	competition	for	customers	has	intensified	in	recent	years	as	larger competitors,	such	as	Wal-Mart,	have	moved	into,	or	increased	their	presence	in,	the	Company's	geographic	markets.		The	Company remains	vulnerable	to	the	marketing	power	and	high	level	of	consumer	recognition	of	these	major	national	discount	chains	and	to	the	risk that	these	chains	or	others	could	venture	into	the	"dollar	store"	industry	in	a	significant	way.		Generally,	the	Company	expects	an increase	in	competition.

The	Company's	financial	performance	is	highly	sensitive	to	changes	in	overall	economic	conditions	that	may	impact	consumer spending	and	the	Company's	costs	of	doing	business.		A	general	slowdown	in	the	United	States	economy	or	rising	personal	debt	levels may	adversely	affect	the	spending	of	the	Company's	consumers,	which	would	likely	result	in	lower	net	sales	than	expected	on	a quarterly	or	annual	basis.		Economic	conditions	affecting	disposable	consumer	income,	such	as	employment	levels,	business	conditions, fuel	and	energy	costs,	inflation,	interest	rates,	and	tax	rates,	could	also	adversely	affect	the	Company's	business	by	reducing	consumer spending	or	causing	consumers	to	shift	their	spending	to	other	products.		The	Company	might	be	unable	to	anticipate	these	buying patterns	and	implement	appropriate	inventory	strategies,	which	would	adversely	affect	its	sales	and	gross	profit	performance.		In addition,	continued	increases	in	fuel	and	energy	costs	would	increase	the	Company's	transportation	costs	and	overall	cost	of	doing business	and	could	adversely	affect	the	Company's	financial	statements	as	a	whole.

Natural	disasters	or	unusually	adverse	weather	conditions	could	adversely	affect	the	Company's	net	sales	and	supply	chain efficiency.		Unusually	adverse	weather	conditions,	natural	disasters	or	similar	disruptions,	especially	during	the	peak	Christmas	selling season,	but	also	at	other	times,	could	significantly	reduce	the	Company's	net	sales.		In	addition,	these	disruptions	could	also	adversely affect	the	Company's	supply	chain	efficiency	and	make	it	more	difficult	for	the	Company	to	obtain	sufficient	quantities	of	merchandise from	its	suppliers.

Existing	military	efforts	and	the	possibility	of	war	and	acts	of	terrorism	could	disrupt	the	Company's	information	or	distribution systems	or	increase	our	costs	of	doing	business.	Existing	U.S.	military	efforts,	as	well	as	the	involvement	of	the	United	States	in	other military	engagements,	or	a	significant	act	of	terrorism	on	U.S.	soil	or	elsewhere,	could	have	an	adverse	impact	on	the	Company	by, among	other	things,	disrupting	its	information	or	distribution	systems;	causing	dramatic	increases	in	fuel	prices	thereby	increasing	the costs	of	doing	business;	or	impeding	the	flow	of	imports	or	domestic	products	to	the	Company.

The	Company's	business	is	dependent	on	its	ability	to	obtain	attractive	pricing	and	other	terms	from	its	vendors.		The	Company believes	that	it	has	generally	good	relations	with	its	vendors	and	that	it	is	generally	able	to	obtain	attractive	pricing	and	other	terms	from vendors.	However,	if	the	Company	fails	to	maintain	good	relations	with	its	vendors,	it	may	not	be	able	to	obtain	attractive	pricing	with the	consequence	that	its	net	sales	or	profit	margins	would	be	reduced.		Also,	prolonged	or	repeated	price	increases	of	certain	raw materials	could	affect	our	vendors'	product	costs	and,	ultimately,	the	Company's	profitability.	The	Company's	ability	to	pass	on incremental	pricing	changes	may	be	limited	due	to	operational	and	competitive	factors,	which	could	negatively	affect	the	Company's profitability	and	sales.

The	efficient	operation	of	the	Company's	business	is	heavily	dependent	on	its	information	systems.	The	Company	depends	on	a variety	of	information	technology	systems	for	the	efficient	functioning	of	its	business.		The	Company	relies	on	certain	software	vendors to	maintain	and	periodically	upgrade	many	of	these	systems	so	that	they	can	continue	to	support	the	Company's	business.		The	software programs	supporting	many	of	the	Company's	systems	were	licensed	to	the	Company	by	independent	software	developers.		The	inability of	these	developers	or	the	Company	to	continue	to	maintain	and	upgrade	these	information	systems	and	software	programs	would	disrupt or	reduce	the	efficiency	of	the	Company's	operations	if	it	were	unable	to	convert

to	alternate	systems	in	an	efficient	and	timely	manner.		In	addition,	costs	and	potential	problems	and	interruptions	associated	with	the implementation	of	new	or	upgraded	systems	and	technology	or	with	maintenance	or	adequate	support	of	existing	systems	could	also disrupt	or	reduce	the	efficiency	of	the	Company's	operations.	The	Company	also	relies	heavily	on	its	information	technology	staff.		If the	Company	cannot	meet	its	staffing	needs	in	this	area,	the	Company	may	not	be	able	to	fulfill	its	technology	initiatives	while continuing	to	provide	maintenance	on	existing	systems.

The	Company	is	dependent	upon	the	smooth	functioning	of	its	distribution	network,	the	capacity	of	its	DCs,	and	the	timely	receipt of	inventory.		The	Company	relies	upon	the	ability	to	replenish	depleted	inventory	through	deliveries	to	its	DCs	from	vendors	and	from the	DCs	to	its	stores	by	various	means	of	transportation,	including	shipments	by	air,	sea	and	truck.	Labor	shortages	in	the	transportation industry	could	negatively	affect	transportation	costs.	In	addition,	long-term	disruptions	to	the	national	and	international	transportation infrastructure	that	lead	to	delays	or	interruptions	of	service	would	adversely	affect	the	Company's	business.		The	Company	also	may	face difficulty	in	obtaining	needed	inventory	from	its	vendors	because	of	interruptions	in	production,	adverse	weather	conditions,	foreign trade	restrictions	or	government	regulations,	or	for	other	reasons,	which	would	adversely	affect	the	Company's	sales.		Moreover,	if	the Company	were	unable	to	achieve	functionality	of	new	DCs	in	the	time	frame	expected,	the	Company's	ability	to	achieve	the	expected growth	could	be	inhibited.

Construction	and	expansion	projects	relating	to	the	Company's	DCs	entail	risks	which	could	cause	delays	and	cost	overruns, such	as:	shortages	of	materials;	shortages	of	skilled	labor	or	work	stoppages;	unforeseen	construction,	scheduling,	engineering, environmental	or	geological	problems;	weather	interference;	fires	or	other	casualty	losses;	and	unanticipated	cost	increases.		The completion	dates	and	ultimate	costs	of	these	projects	could	differ	significantly	from	initial	expectations	due	to	construction-related	or other	reasons.		The	Company	cannot	guarantee	that	any	project	will	be	completed	on	time	or	within	established	budgets.

The	Company's	success	depends	to	a	significant	extent	upon	the	abilities	of	its	senior	management	team	and	the	performance	of its	employees.	The	loss	of	services	of	key	members	of	the	Company's	senior	management	team	or	of	certain	other	key	employees	could negatively	affect	the	Company's	business.		The	risk	of	key	employee	turnover	intensifies	as	a	greater	number	of	public	corporations locate	in	the	vicinity	of	the	Company's	headquarters.	In	addition,	future	performance	will	depend	upon	the	Company's	ability	to	attract, retain	and	motivate	qualified	employees	to	keep	pace	with	its	expansion	schedule.	The	inability	to	do	so	may	limit	the	Company's	ability to	effectively	penetrate	new	market	areas.	Also,	the	Company's	stores	are	decentralized	and	are	managed	through	a	network	of geographically	dispersed	management	personnel.		The	inability	of	the	Company	to	effectively	and	efficiently	operate	its	stores,	including the	ability	to	control	losses	resulting	from	inventory	and	cash	shrinkage,	may	negatively	impact	the	Company's	sales	and/or	operating margins.

If	the	Company	cannot	open	new	stores	on	schedule,	its	growth	will	be	impeded	which	would	adversely	affect	sales.			The Company's	growth	is	dependent	on	both	increases	in	sales	in	existing	stores	and	the	ability	to	open	new	stores.	Delays	in	store	openings could	adversely	affect	the	Company's	future	operations	by	slowing	new	store	growth,	which	may	in	turn	reduce	its	revenue	growth.		The Company's	ability	to	timely	open	new	stores	and	to	expand	into	additional

market	areas	depends	in	part	on	the	following	factors:	the	availability	of	attractive	store	locations;	the	ability	to	negotiate	favorable	lease terms;	the	ability	to	hire	and	train	new	personnel,	especially	store	managers;	the	ability	to	identify	customer	demand	in	different geographic	areas;	general	economic	conditions;	and	the	availability	of	sufficient	funds	for	expansion.	Many	of	these	factors	are	beyond the	Company's	control.	In	addition,	the	Company	may	not	anticipate	all	of	the	challenges	imposed	by	the	expansion	of	its	operations and,	as	a	result,	may	not	meet	its	targets	for	opening	new	stores	or	expanding	profitably.

The	inability	to	execute	operating	initiatives	could	negatively	affect	the	Company's	future	operating	results.	The	Company	is involved	in	a	significant	number	of	operating	initiatives	that	have	the	potential	to	be	disruptive	in	the	short	term	if	they	are	not implemented	effectively.		Ineffective	implementation	or	execution	of	some	or	all	of	these	initiatives	could	also	negatively	impact	the Company's	operating	results.	Please	reference	the	discussion	of	the	initiatives	in	the	"Results	of	Operations	–	Executive	Overview" section	included	in	Part	II,	Item	7	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operation"	below.

The	Company's	cost	of	doing	business	could	increase	as	a	result	of	changes	in	federal,	state	or	local	regulations.		Unanticipated changes	in	the	federal	or	state	minimum	wage	or	living	wage	requirements	or	changes	in	other	wage	or	workplace	regulations	could adversely	affect	the	Company's	ability	to	meet	financial	targets.		In	addition,	changes	in	federal,	state	or	local	regulations	governing	the sale	of	the	Company's	products,	particularly	"over-the-counter"	medications	or	health	products,	could	increase	the	Company's	cost	of doing	business	and	could	adversely	affect	the	Company's	sales	results.	Also,	the	Company's	inability	to	comply	with	these	regulatory changes	in	a	timely	fashion	or	to	adequately	execute	a	required	recall	could	result	in	significant	fines	or	penalties	that	could	affect	the Company's	financial	statements	as	a	whole.

Unanticipated	increases	in	insurance	costs	or	loss	experience	could	negatively	impact	profitability.		The	costs	of	some	insurance (workers'	compensation	insurance,	general	liability	insurance,	health	insurance	and	property	insurance)	and	loss	experience	have	risen	in recent	years.	Higher	than	expected	increases	in	these	costs	or	other	insurance	costs	or	unexpected	escalations	in	the	Company's	loss	rates could	have	an	unanticipated	negative	impact	on	the	Company's	profitability.

The	Company	is	subject	to	certain	legal	proceedings	that	may	adversely	affect	its	financial	statements	as	a	whole.		The	Company is	involved	in	a	number	of	legal	proceedings,	which	include,	for	instance,	consumer,	employment,	tort	and	other	litigation.			Certain	of these	lawsuits,	if	decided	adversely	to	the	Company	or	settled	by	the	Company,	may	result	in	liability	material	to	the	Company's financial	statements	as	a	whole	or	may	negatively	impact	the	Company's	operating	results	if	changes	to	the	operation	of	the	business	are required.		Please	see	Note	7	to	the	Consolidated	Financial	Statements	included	in	Part	II,	Item	8	below	for	further	details	regarding certain	of	these	pending	matters.

The	Company	may	be	unable	to	rely	on	liability	indemnities	given	by	foreign	vendors	which	could	adversely	affect	its	financial statements	as	a	whole.	The	Company	imports	approximately	13%	of	its	merchandise	globally.	Sources	of	supply	may	prove	to	be unreliable,	or	the	quality	of	the	globally	sourced	products	may	vary	from	the	Company's	expectations.		The

Company's	ability	to	obtain	indemnification	from	the	manufacturers	of	these	products	may	be	hindered	by	the	manufacturers'	lack	of understanding	of	U.S.	product	liability	laws,	which	may	make	it	more	likely	that	the	Company	may	have	to	respond	to	claims	or complaints	from	its	customers	as	if	the	Company	were	the	manufacturer	of	the	products.		Any	of	these	circumstances	could	have	a material	adverse	effect	on	the	Company's	business	and	its	financial	statements	as	a	whole.

The	Company	is	subject	to	interest	rate	risk	which	could	impact	profitability.		The	Company	is	subject	to	market	risk	from exposure	to	changes	in	interest	rates	based	on	its	financing,	investing	and	cash	management	activities.	Changes	in	interest	rates	could have	an	unanticipated	negative	impact	on	the	Company's	profitability.

# ITEM	1B. UNRESOLVED	STAFF	COMMENTS

# None.

# ITEM	2. PROPERTIES

As	of	March	3,	2006,	the	Company	operated	8,019	retail	stores	located	in	32	states	as	follows:

Most	of	the	Company's	stores	are	located	in	leased	premises.		Individual	store	leases	vary	as	to	their	terms,	rental	provisions	and expiration	dates.		The	majority	of	the	Company's	leases	are	relatively	low-cost,	short-term	leases	(usually	with	initial	or	primary	terms	of three	to	five	years)	often	with	multiple	renewal	options.	The	Company	also	has	stores	subject	to	build-to-suit	arrangements	with landlords,	which	typically	carry	a	primary	lease	term	of	between	7	and	10	years	with	multiple	renewal	options.	In	recent	years,	an increasing	percentage	of	the	Company's	new	stores	have	been	subject	to	build-to-suit	arrangements.	In	2006,	the	Company	expects approximately	40%	of	its	new	stores	to	be	build-to-suit	arrangements.

As	of	March	3,	2006,	the	Company	operated	eight	DCs,	as	described	in	the	following	table:

|  | Year | Approximate	Square | Approximate	Number |
| :--- | :--- | :--- | :--- |
| Location | Opened | Footage | of\tStores\tServed |
| Scottsville,\tKY | 1959 | 720,000 | 902 |
| Ardmore,\tOK | 1994 | 1,310,000 | 1,256 |
| South\tBoston,\tVA | 1997 | 1,250,000 | 1,014 |
| Indianola,\tMS | 1998 | 820,000 | 911 |
| Fulton,\tMO | 1999 | 1,150,000 | 1,160 |
| Alachua,\tFL | 2000 | 980,000 | 669 |
| Zanesville,\tOH | 2001 | 1,170,000 | 1,354 |
| Jonesville,\tSC | 2005 | 1,120,000 | 753 |

The	Company	owns	the	DCs	located	in	Kentucky,	Florida,	Ohio	and	South	Carolina	and	leases	the	other	four	DCs.		The Company	is	constructing	a	1.1	million	square-foot	DC	in	Marion,	Indiana.		The	Company	anticipates	the	facility	will	be	fully	operational in	mid-2006.	The	Company	leases	additional	temporary	warehouse	space	as	necessary	to	support	its	distribution	needs.

The	Company's	executive	offices	are	located	in	approximately	302,000	square	feet	of	leased	space	in	Goodlettsville,	Tennessee.

# ITEM	3. LEGAL	PROCEEDINGS

The	information	contained	in	Note	7	to	the	Consolidated	Financial	Statements	under	the	heading	"Legal	Proceedings"	contained in	Part	II,	Item	8	of	this	Form	10-K	is	incorporated	herein	by	this	reference.

# ITEM	4. SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY	HOLDERS

No	matters	were	submitted	to	a	vote	of	shareholders	during	the	fourth	quarter	of	2005.

# ITEM	4A. EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

Information	regarding	the	current	executive	officers	of	the	Company	is	set	forth	below.	The	Company's	executive	officers	serve at	the	pleasure	of	the	Board	of	Directors	and	are	elected	annually	by	the	Board	to	serve	until	their	successors	are	duly	elected.

Mr.	Perdue	joined	Dollar	General	on	April	2,	2003	as	Chief	Executive	Officer	and	as	a	member	of	the	Board	of	Directors.	He was	elected	Chairman	on	June	2,	2003.	Prior	to	joining	Dollar	General,	Mr.	Perdue	served	as	Chairman	and	Chief	Executive	Officer	of Pillowtex	Corporation,	a	producer	and	marketer	of	home	textiles,	from	July	2002	through	March	27,	2003.	Pillowtex	filed	for	bankruptcy in	July	2003	after	emerging	from	a	previous	bankruptcy	in	May	2002.	Mr.	Perdue	was	also	with	Reebok	International	Ltd.	from September	1998	to	July	2002	where	he	served	as	President	and	Chief	Executive	Officer	of	the	Reebok	Brand	(January	2001	to	July 2002),	Executive	Vice	President,	Global	Operating	Units	(October	1999	to	January	2001)	and	Senior	Vice	President,	Global	Supply Chain	(September	1998	to	October	1999).	Prior	to	Reebok,	Mr.	Perdue	was	Senior	Vice	President	of	Haggar,	Inc.	(1994	to	September 1998).	He	gained	additional	international	expertise	while	based	in	Hong	Kong	with	Sara	Lee	Corporation	where	he	served	as	Senior	Vice President	of	Operations	from	1992	to	1994.	Earlier	in	his	career,	he	spent	12	years	in	management	consulting	with	Kurt	Salmon Associates,	an	international	management	consulting	firm.	Mr.	Perdue	serves	as	a	director	of	Alliant	Energy	Corporation	(since	2001).

Mr.	Tehle	joined	Dollar	General	in	June	2004	as	Executive	Vice	President	and	Chief	Financial	Officer.	He	served	from	1997	to June	2004	as	Executive	Vice	President	and	Chief	Financial	Officer	of	Haggar	Corporation,	a	manufacturing,	marketing	and	retail corporation.	From	1996	to	1997,	he	was	Vice	President	of	Finance	for	a	division	of	The	Stanley	Works,	one	of	the	world's	largest manufacturers	of	tools,	and	from	1993	to	1996,	he	was	Vice	President	and	Chief	Financial	Officer	of	Hat	Brands,	Inc.,	a	hat manufacturer.	Earlier	in	his	career,	Mr.	Tehle	served	in	a	variety	of	financial-related	roles	at	Ryder	System,	Inc.	and	Texas	Instruments. Mr.	Tehle	serves	as	a	director	of	Jack	in	the	Box,	Inc.	(since	December	2004).

Mr.	Buley	joined	Dollar	General	in	December	2005	as	Division	President,	Merchandising,	Marketing	and	Supply	Chain.	Prior	to joining	the	Company,	he	served	from	April	2005	through	November	2005	as	Executive	Vice	President,	Retail	Operations	of	Mervyn's Department	Store,	a	privately	held	company	operating	265	department	stores,	where	he	was	responsible	for	store	operations,	supply chain	(including	4	distribution	centers),	real	estate,	construction,	visual	merchandising	and	interior	planning,	and	loss	prevention.	From September	2003	to	March	2005,	Mr.	Buley	worked	for	Sears,	Roebuck	and	Company,	a	multi-line	retailer	offering	a	wide	array	of merchandise	and	related	services.		As	Sears'	Executive	Vice	President	and	General	Manager	of	Retail	Store	Operations,	he	was responsible	for	all	store-based	activities.	Prior	to	that,	he	had	responsibility	for	8	distinct	businesses	operating	in	over	2,200	locations	as Sears'	Senior	Vice	President	and	General	Merchandise	Manager	of	the	Specialty	Retail	Group.	Prior	to	joining	Sears,	Mr.	Buley	spent 15	years	in	various	positions	with	Kohl's	Corporation,	which	operates	a	chain	of	specialty	department	stores.	His	last	position	was Executive	Vice	President	of	Stores,	responsible	for	store	operations.	Prior	to	that,	he	was	Kohl's	Senior	Vice	President	of	Stores	from 1999	to	2001.

Ms.	Guion	joined	Dollar	General	in	October	2003	as	Executive	Vice	President,	Store	Operations.	She	was	named	Executive	Vice President,	Store	Operations	and	Store	Development	in	February	2005,	and	was	promoted	to	Division	President,	Store	Operations	and Store	Development,	in	November	2005.	From	2000	until	joining	Dollar	General,	Ms.	Guion	served	as	President	and	Chief	Executive Officer	of	Duke	and	Long	Distributing	Company,	a	convenience	store	chain	operator	and	wholesale	distributor	of	petroleum	products. Prior	to	that	time,	she

served	as	an	operating	partner	for	Devon	Partners	(1999-2000),	where	she	developed	operating	plans	and	assisted	in	the	identification	of acquisition	targets	in	the	convenience	store	industry,	and	as	President	and	Chief	Operating	Officer	of	E-Z	Serve	Corporation	(1997- 1998),	an	owner/operator	of	convenience	stores,	mini-marts	and	gas	marts.	From	1987	to	1997,	Ms.	Guion	served	as	the	Vice	President and	General	Manager	of	the	largest	division	(Chesapeake	Division)	of	company-owned	stores	at	7-Eleven,	Inc.,	a	convenience	store chain.	Other	positions	held	by	Ms.	Guion	during	her	tenure	at	7-Eleven	include	District	Manager,	Zone	Manager,	Operations	Manager, and	Division	Manager	(Midwest	Division).

Ms.	Lanigan	joined	Dollar	General	in	July	2002	as	Vice	President,	General	Counsel	and	Corporate	Secretary.	She	was	promoted to	Senior	Vice	President	in	October	2003	and	to	Executive	Vice	President	in	March	2005.	Prior	to	joining	Dollar	General,	Ms.	Lanigan served	as	Senior	Vice	President,	General	Counsel	and	Secretary	at	Zale	Corporation,	a	specialty	retailer	of	fine	jewelry,	headquartered	in Irving,	Texas.	During	her	six	years	with	Zale,	Ms.	Lanigan	held	various	positions,	including	Associate	General	Counsel.	Prior	to	that,	she held	legal	positions	with	both	Turner	Broadcasting	System,	Inc.	and	Troutman	Sanders	law	firm.

Ms.	Lowe	joined	Dollar	General	as	Executive	Vice	President	of	Human	Resources	in	September	2005.	From	2000	to	2004,	Ms. Lowe	was	Executive	Vice	President	of	Human	Resources,	Corporate	Communications,	and	Public	Affairs	for	Ryder	System,	Inc.,	a logistics	and	transportation	services	company.	She	was	Executive	Vice	President	of	Human	Resources	and	Administration	Services,	for Beneficial	Management	Corporation,	an	international	consumer	finance	company,	from	1997	to	1999,	and	Executive	Vice	President	of Human	Resources	and	Communications	for	Heller	International,	a	commercial	finance	company,	from	1993	to	1997.	She	also	served	as Senior	Vice	President,	Administrative	Services,	for	Sanwa	Business	Credit	Corporation	from	1985	to	1993.	Prior	to	joining	Sanwa,	she spent	13	years	with	Continental	Illinois	Leasing	Corporation	and	Continental	Bank,	where	her	last	position	was	Vice	President	and Division	Head.	Ms.	Lowe	serves	as	a	director	of	The	South	Financial	Group	(since	2006).

Mr.	O'Briant	joined	Dollar	General	in	1991	as	Divisional	Merchandise	Manager.		Mr.	O'Briant	was	named	General Merchandise	Manager	in	1992,	Vice	President,	Merchandising	in	1995,	Senior	Vice	President,	Merchandising	and	MIS	in	1998,

Executive	Vice	President	in	2000,	Executive	Vice	President,	Operations	in	February	2001,	and	Executive	Vice	President,

Merchandising,	Marketing	and	Strategic	Planning	in	August	2003.	He	assumed	his	current	position	as	Executive	Vice	President,

Strategic	Initiatives	in	December	2005.	Before	joining	Dollar	General,	Mr.	O'Briant	spent	17	years	with	Fred's,	Inc.,	a	discount	retailer, where	he	served	in	a	number	of	executive	management	positions,	including	Vice	President,	Hardlines,	Vice	President,	Softlines,	and Vice	President,	Household	Goods.	He	also	owned	his	own	business,	O'Briant	Enterprises,	Inc.,	from	1989	to	1991,	specializing	in	the service	sector	serving	retail	and	wholesale	customers	and	the	military.	Mr.	O'Briant	has	announced	his	plans	to	retire	from	the	Company in	2006.

Ms.	Elliott	joined	Dollar	General	as	Senior	Vice	President	and	Controller	in	August	2005.	Prior	to	joining	Dollar	General,	she served	as	Vice	President	and	Controller	of	Big	Lots,	Inc.,	a	closeout	retailer,	from	May	2001	to	August	2005.	Overseeing	a	staff	of	140	at Big	Lots,	she	was	responsible	for	accounting	operations,	financial	reporting	and	internal	audit.	Prior	to	serving	at	Big	Lots,	she	served	as Vice	President	and	Controller	for	Jitney-Jungle	Stores	of

America,	Inc.,	a	grocery	retailer,	from	April	1998	to	March	2001.	At	Jitney-Jungle,	Ms.	Elliott	was	responsible	for	the	accounting operations	and	the	internal	and	external	financial	reporting	functions.	Prior	to	serving	at	Jitney-Jungle,	she	practiced	public	accounting for	12	years,	6	of	which	were	with	Ernst	&	Young,	LLP.

Mr.	Gibson	joined	Dollar	General	as	Senior	Vice	President	of	Dollar	General	Market	in	November	2005.	Prior	to	joining	Dollar General,	he	assembled	and	led	teams	of	investment	bankers	and	private	equity	fund	managers	in	several	mid-sized	business	acquisition efforts	from	2004	to	November	2005.	He	also	served	as	Senior	Vice	President	of	Global	Logistics	(2000-2003)	and	Vice	President	of Logistics	(1998-2000)	for	The	Home	Depot,	Inc.,	a	home	improvement	retailer.	He	founded	Gibson	Associates,	a	management consulting	firm,	in	1997	and	served	there	until	1998.	Prior	to	that,	he	served	in	various	positions	at	Rite	Aid	Corporation	from	1994	to 1997,	including	Senior	Vice	President	of	Logistics.	He	also	served	retailers	as	a	management	consulting	principal	(1993-1994)	and management	consultant	(1984-1993)	at	Deloitte	&	Touche.

# PART	II

# ITEM	5. MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER PURCHASES	OF	EQUITY	SECURITIES

The	Company's	common	stock	is	traded	on	the	New	York	Stock	Exchange	under	the	symbol	"DG."		The	following	table	sets forth	the	range	of	the	high	and	low	sales	prices	of	the	Company's	common	stock	during	each	quarter	in	2005	and	2004,	as	reported	in	the consolidated	transaction	reporting	system,	together	with	dividends.

There	were	approximately	12,112	shareholders	of	record	of	the	Company's	common	stock	as	of	March	14,	2006.	The	Company has	paid	cash	dividends	on	its	common	stock	since	1975.	The	Board	of	Directors	regularly	reviews	the	Company's	dividend	plans	to ensure	that	they	are	consistent	with	the	Company's	earnings	performance,	financial	condition,	need	for	capital	and	other	relevant	factors.

The	following	table	contains	information	regarding	purchases	of	the	Company's	common	stock	made	during	the	quarter	ended February	3,	2006	by	or	on	behalf	of	the	Company	or	any	"affiliated	purchaser,"	as	defined	by	Rule	10b-18(a)(3)	of	the	Securities Exchange	Act	of	1934:

|  |  |  |  | Maximum	Number |
| :--- | :--- | :--- | :--- | :--- |
|  |  |  | Total\tNumber | of\tShares\tthat\tMay |
|  | Total\tNumber | Average | of\tShares\tPurchased\tas\tPart | Yet\tBe\tPurchased |
|  | of\tShares | Price\tPaid | of\tPublicly\tAnnounced | Under\tthe\tPlans\tor |
| Period | Purchased\t(a) | per\tShare | Plans\tor\tPrograms\t(b) | Programs\t(b) |
| 10/29/05-11/30/05 | 649 | $\t18.66 | - | 6,413,600 |
| 12/01/05-12/31/05 | 1,930,435 | $\t19.11 | 1,930,400 | 4,483,200 |
| 01/01/06-02/03/06 | 403 | $\t17.30 | - | 4,483,200 |
| Total | 1,931,487 | $\t19.11 | 1,930,400 | 4,483,200 |

(a)		Includes	1,087	shares	purchased	in	open	market	transactions	in	satisfaction	of	the	Company's	obligations	under certain	employee	benefit	plans.

(b)		On	September	30,	2005,	the	Company	announced	that	its	Board	of	Directors	had	approved	a	share	repurchase program	of	up	to	10	million	shares.		Under	the	authorization,	purchases	may	be	made	in	the	open	market	or	in	privately negotiated	transactions	from	time	to	time	subject	to	market	conditions.		This	repurchase	authorization	expires	on	September 30,	2006.

# ITEM	6. SELECTED	FINANCIAL	DATA

The	following	table	sets	forth	selected	consolidated	financial	information	for	each	of	the	five	most	recent	fiscal	years.		This information	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	the	notes	thereto,	included	in	Part	II,	Item	8	of this	report,	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,	included	in	Part	II,	Item	7	of	this report,	and	the	Forward-Looking	Statement/Risk	Factors	disclosure	contained	in	the	Introduction	and	in	Part	I,	Item	1A	of	this	report.

(In	thousands,	except	per	share	and	operating	data)

|  | February	3,<br>2006	(a) | January	28,<br>2005 | January	30,<br>2004 | January	31,<br>2003 | February	1,<br>2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| SUMMARY\tOF\tOPERATIONS: |  |  |  |  |  |
| Net\tsales | $8,582,237 | $7,660,927 | $6,871,992 | $6,100,404 | $5,322,895 |
| Gross\tprofit | $2,464,824 | $2,263,192 | $2,018,129 | $1,724,266 | $1,509,412 |
| Penalty\texpense\tand\tlitigation\nsettlement\t(proceeds) | $– | $– | $10,000 | $(29,541) | $– |
| Income\tbefore\tincome\ttaxes | $544,642 | $534,757 | $476,523 | $410,337 | $322,174 |
| Net\tincome | $350,155 | $344,190 | $299,002 | $262,351 | $203,874 |
| Net\tincome\tas\ta\t%\tof\tsales | 4.1% | 4.5% | 4.4% | 4.3% | 3.8% |
| PER\tSHARE\tRESULTS: |  |  |  |  |  |
| Basic\tearnings\tper\tshare | $1.09 | $1.04 | $0.89 | $0.79 | $0.61 |
| Diluted\tearnings\tper\tshare | $1.08 | $1.04 | $0.89 | $0.78 | $0.61 |
| Cash\tdividends\tper\tshare\tof\ncommon\tstock | $0.175 | $0.160 | $0.140 | $0.128 | $0.128 |
| Weighted\taverage\tdiluted\tshares | 324,133 | 332,068 | 337,636 | 335,050 | 335,017 |
| FINANCIAL\tPOSITION: |  |  |  |  |  |
| Total\tassets | $2,992,187 | $2,841,004 | $2,621,117 | $2,303,619 | $2,526,481 |
| Long-term\tobligations | $269,962 | $258,462 | $265,337 | $330,337 | $339,470 |
| Shareholders'\tequity | $1,720,795 | $1,684,465 | $1,554,299 | $1,267,445 | $1,023,690 |
| Return\ton\taverage\tassets\t(b) | 12.1% | 12.7% | 12.3% | 10.9% | 8.6% |
| Return\ton\taverage\tequity\t(b) | 20.9% | 22.1% | 21.4% | 23.2% | 22.2% |
| OPERATING\tDATA: |  |  |  |  |  |
| Retail\tstores\tat\tend\tof\tperiod | 7,929 | 7,320 | 6,700 | 6,113 | 5,540 |
| Year-end\tselling\tsquare\tfeet | 54,753,000 | 50,015,000 | 45,354,000 | 41,201,000 | 37,421,000 |
| Highly\tconsumable\tsales | 65.3% | 63.0% | 61.2% | 60.2% | 58.0% |
| Seasonal\tsales | 15.7% | 16.5% | 16.8% | 16.3% | 16.7% |
| Home\tproducts\tsales | 10.6% | 11.5% | 12.5% | 13.3% | 14.4% |
| Basic\tclothing\tsales | 8.4% | 9.0% | 9.5% | 10.2% | 10.9% |

(a) The	fiscal	year	ended	February	3,	2006	is	comprised	of	53	weeks.

(b) Average	assets	or	equity,	as	applicable,	is	calculated	using	the	fiscal	year-end	balance	and	the	four	preceding	fiscal quarter-end	balances.

# ITEM	7. MANAGEMENT'S	 DISCUSSION	 AND	 ANALYSIS	 OF FINANCIAL	 CONDITION	 AND	 RESULTS	 OF

# OPERATIONS

Accounting	Periods.		The	following	text	contains	references	to	years	2006,	2005,	2004	and	2003,	which	represent	fiscal	years ending	or	ended	February	2,	2007,	February	3,	2006,	January	28,	2005,	and	January	30,	2004,	respectively.	Fiscal	year	2006	will	be,	and each	of	2004	and	2003	was,	a	52-week	accounting	period,	while	fiscal	2005	was	a	53-week	accounting	period,	which	affects	the comparability	of	certain	amounts	in	the	Consolidated	Financial	Statements	and	financial	ratios	between	2005	and	the	other	fiscal	years reflected	herein.	The	Company's	fiscal	year	ends	on	the	Friday	closest	to	January	31.	This	discussion	and	analysis	should	be	read	with, and	is	qualified	in	its	entirety	by,	the	Consolidated	Financial	Statements	and	the	notes	thereto.	It	also	should	be	read	in	conjunction	with the	Forward-Looking	Statements/Risk	Factors	disclosure	set	forth	in	the	Introduction	and	in	Item	I,	Part	1A	of	this	report.

Purpose	of	Discussion.	We	intend	for	this	discussion	to	provide	the	reader	with	information	that	will	assist	in	understanding	our Company	and	the	critical	economic	factors	that	affect	our	Company.	In	addition,	we	hope	to	help	the	reader	understand	our	financial statements,	the	changes	in	certain	key	items	in	those	financial	statements	from	year	to	year,	and	the	primary	factors	that	accounted	for those	changes,	as	well	as	how	certain	accounting	principles	affect	our	financial	statements.

# Executive	Overview

Dollar	General	Corporation	("Dollar	General"	or	the	"Company")	is	the	largest	dollar	store	discount	retailer	of	consumable	basics in	the	United	States,	with	over	8,000	stores.	We	are	committed	to	serving	the	needs	of	low-,	middle-	and	fixed-income	customers. However,	the	Company	sells	quality	private	label	and	national	brand	products	that	appeal	to	a	wide	range	of	customers.	Our	merchandise is	priced	at	competitive	everyday	low	prices	that	do	not	change	frequently	as	a	result	of	promotional	activity.		We	believe	many	of	our customers	shop	at	Dollar	General	because	they	trust	us	to	consistently	stock	quality	merchandise	at	low	prices.		We	also	believe convenience,	or	the	ability	to	complete	a	shopping	trip	in	a	limited	amount	of	time,	is	critical	to	many	of	our	customers	and	is	a	key factor	that	differentiates	us	from	large-box	retailers.

We	operate	in	the	highly	competitive	retail	industry.	We	face	strong	sales	competition	from	other	retailers	that	sell	general merchandise	and	food.	Because	of	Dollar	General's	low-price	strategy,	we	must	strive	to	keep	our	operating	costs	as	low	as	possible. This	effort	affects	all	expenses,	but	is	particularly	critical	as	we	compete	for	retail	site	locations	and	for	qualified	talent	to	manage	and operate	our	stores.	The	fact	that	many	of	our	stores	are	located	in	towns	that	many	retailers	may	find	too	small	to	support	their	business model,	however,	has	allowed	Dollar	General	to	continue	to	increase	its	store	count	faster	than	most	retailers.

Management	of	the	Company	continues	to	focus	on	making	good	investment	decisions	for	the	long-term	growth	and	profitability of	the	Company.	In	order	to	better	support	sales	efforts	in	our	stores	and	to	enable	the	Company	to	continue	its	rapid	growth,	the Company	has

attempted	to	strengthen	the	senior	leadership	team	over	the	last	several	years.	In	2005,	changes	were	made	to	the	organization	structure in	order	to	increase	synergies	between	store	operations	and	new	store	development	and	among	merchandising,	marketing	and	the	supply chain.		Executives	were	added	to	support	our	efforts	in	human	resources,	real	estate,	store	operations,	supply	chain	and	the	Dollar General	Market	concept.	Going	forward,	the	Company	expects	these	new	leaders	to	have	a	positive	impact	on	the	overall	performance and	profitability	of	the	Company.

Along	with	other	retail	companies,	we	are	impacted	by	a	number	of	factors	including,	but	not	limited	to:	cost	of	product, consumer	debt	levels,	economic	conditions,	customer	preferences,	unemployment,	labor	costs,	inflation,	fuel	prices,	weather	patterns, insurance	costs	and	accident	costs.

Key	Items	in	Fiscal	2005.	Despite	a	difficult	economic	environment	for	our	customers	in	2005,	the	Company	successfully implemented	many	of	the	important	operating	initiatives	outlined	in	last	year's	Form	10-K,	while	also	increasing	sales	and	earnings	per share.		The	following	are	some	of	the	more	significant	accomplishments	during	the	year:

· Total	sales	increased	by	12.0	percent,	including	sales	during	the	53rd	week,	and	same-store	sales	increased	by	2.0	percent;

· We	opened	734	new	stores,	including	29	Dollar	General	Market	stores;

· We	implemented	"EZstore",	the	Company's	initiative	designed	to	improve	inventory	flow	from	distribution	centers	to consumers	as	well	as	improve	other	areas	of	store	operations,	including	labor	scheduling,	hiring	and	training	and	product presentation,	in	3,825	stores	as	of	year-end;

· We	completed	construction	of	and	opened	the	Company's	eighth	DC	in	South	Carolina	and	began	construction	of	a	ninth	DC in	Indiana	to	increase	overall	distribution	capacity	and	to	decrease	stem	miles	between	the	DCs	and	the	stores;

· We	increased	annual	inventory	turns	to	4.2	times	in	2005,	including	the	53 	week,	from	4.0	times	in	2004	and	reduced rd inventory	levels	on	a	per-store	basis	by	1%	as	of	year	end.	The	Company	has	executed	end-of-season	markdowns	over	the	past two	years	to	minimize	seasonal	inventory	carried	forward	to	the	following	year.	The	Company	made	substantial	progress	on this	initiative	in	2005	and	continues	to	aggressively	identify,	evaluate,	merchandise	and	markdown	aged	inventory;

· We	introduced	Dollar	General	gift	cards	before	the	Christmas	holiday	season;

· We	introduced	Fisher-Price®	branded	children's	apparel	and	Bobbie	Brooks®	apparel	for	women	in	our	stores;

· We	developed	and	installed	new	systems	to	provide	enhanced	store	operating	statements,	supplier	communications	and transportation	and	claims	management;	and

· We	generated	sufficient	cash	flow	to	allow	the	Company	to	repurchase	approximately	15	million	shares	of	its	common	stock for	$297.6	million	and	to	increase	our	per	share	dividend	to	shareholders	by	over	9%.

The	Company	believes	its	2005	sales	(particularly	in	more	discretionary,	higher	gross	profit	categories)	were	negatively	impacted by	the	effect	on	its	typical	low-	to	middle-income	customer	of	high	gasoline	and	heating	fuel	prices	as	well	as	higher	interest	rates	and increasing

consumer	debt	levels.	The	Company's	gross	profit	rate	was	negatively	impacted	for	the	year	by	several	factors	as	further	discussed	in "Results	of	Operations"	below,	but	was	most	notably	affected	by	the	decrease,	as	a	percentage	of	sales,	in	sales	of	higher	gross	profit merchandise	categories	and	higher	transportation	fuel	costs.

In	2005,	Hurricanes	Katrina	and	Rita	made	landfall	in	the	Gulf	Coast,	impacting	our	operations,	our	customers,	and	our employees.		At	the	peak,	approximately	350	stores	were	temporarily	closed	due	to	Hurricane	Katrina	and	330	stores	were	temporarily closed	due	to	Hurricane	Rita.		The	Company	ultimately	closed	41	stores	as	a	result	of	the	hurricanes,	and	suffered	the	total	destruction	of inventory	in	29	of	those	stores	due	to	Hurricane	Katrina	and	3	of	those	stores	due	to	Hurricane	Rita.	Significant	losses	of	inventory	and fixed	assets,	in	the	form	of	store	fixtures	and	leasehold	improvements,	were	caused	by	the	hurricanes.	These	losses	were	offset	by insurance	proceeds	received	during	the	year.	In	addition,	the	Company	expects	to	record	additional	insurance	proceeds	in	excess	of	the cost	of	the	asset	losses	in	the	future.	Significant	business	interruption	was	experienced	during	the	hurricanes.	The	Company	did	not recover	any	business	interruption	insurance	proceeds	during	the	year,	and	will	not	record	any	such	proceeds	until	the	business interruption	claims	are	substantially	settled.

Company	Performance	Measures.	Management	uses	a	number	of	metrics,	including	those	indicated	on	the	table	included	in "Results	of	Operations"	below,	to	assess	its	performance.	The	following	are	the	more	frequently	discussed	metrics:

· Earnings	per	share	("EPS")	growth	is	an	indicator	of	the	increased	returns	generated	for	the	Company's	shareholders.	EPS	of 	$1.08	in	2005	reflected	an	increase	of	3.8	percent	over	EPS	of	$1.04	reported	in	2004.

· Total	net	sales	growth	indicates,	among	other	things,	the	success	of	the	Company's	selection	of	new	store	locations	and merchandising	strategies.	Total	net	sales	increased	12.0%	in	2005,	including	the	impact	of	the	53 	week. rd

· Same-store	sales	growth	indicates	whether	our	merchandising	strategies,	store	execution	and	customer	service	in	existing stores	have	been	successful	in	generating	increased	sales.	Same-store	sales	increased	2.0	percent	in	2005,	with	stronger	same- store	sales	in	the	first	half	of	the	year	than	the	latter	half.	Sales	were	negatively	impacted	for	the	year	by	the	economic	factors discussed	above.	However,	the	latter	half	of	the	year	was	increasingly	impacted	by	promotional	efforts	of	competitors.	Same- store	sales	in	2004	increased	by	3.2	percent.

· Operating	margin	rate	(operating	profit	divided	by	net	sales),	which	is	an	indicator	of	the	Company's	success	in	leveraging	its fixed	costs	and	managing	its	variable	costs,	declined	to	6.5	percent	in	2005	versus	7.3	percent	in	2004.	The	various components	impacting	this	metric	are	fully	discussed	in	"Results	of	Operations"	below.

· Free	cash	flow	(the	sum	of	net	cash	flows	from	operating	activities,	net	cash	flows	from	investing	activities	and	net	cash	flows from	financing	activities,	excluding	share	repurchases	and	changes	in	debt	other	than	required	payments).	Although	this measure	is	a	non-GAAP	measure,	the	Company	believes	it	is	useful	as	an	indicator	of	the	cash	flow	generating	capacity	of	the Company's	operations.	It	is	also	a	useful	metric	to	analyze	in	conjunction	with	net	income	to	determine	whether	there	is	any significant	non-cash	component	to	the	Company's	net	income.	The	Company

generated	free	cash	flow	of	$250.9	million	in	2005	compared	to	$96.2	million	in	2004,	as	calculated	below	under	"Non-GAAP disclosures."

· Inventory	turns	(cost	of	goods	sold	for	the	year	divided	by	average	inventory	balances,	at	cost,	measured	at	the	end	of	the latest	five	fiscal	quarters)	is	an	indicator	of	how	well	the	Company	is	managing	the	largest	asset	on	its	balance	sheet.

· Return	on	average	assets	(net	income	for	the	year	divided	by	average	total	assets,	measured	at	the	end	of	the	latest	five	fiscal quarters),	is	an	overall	indicator	of	the	Company's	effectiveness	in	deploying	its	resources.	Return	on	assets	was	12.1	percent in	2005	and	12.7	percent	in	2004.

While	the	Company	is	particularly	pleased	with	the	improvement	in	inventory	management	and	free	cash	flow	generation,	we	did not	achieve	our	overall	internal	financial	goals	set	out	at	the	beginning	of	the	year.	This	shortfall	was	partially	a	result	of	non-controllable economic	and	other	factors	that	impacted	our	customers.	As	a	result	of	the	Company's	inability	to	achieve	its	financial	targets, executives	and	administrative	employees	did	not	earn	a	bonus	under	the	Company's	"Teamshare"	bonus	program.	The	Company	has identified	the	following	opportunities	aimed	at	improving	financial	performance	in	2006.

Key	Items	for	Fiscal	2006.		For	2006,	the	Company	has	established	the	following	priorities	and	initiatives	aimed	at	continuing	the Company's	growth	and	improving	its	operating	and	financial	performance	while	remaining	focused	on	serving	its	customers:

· Improvement	in	sales	performance	of	same-stores	and	new	stores	through	new	merchandise	additions,	improved	in-store presentation,	and	heightened	promotional	energy	aimed	at	increasing	customer	traffic	and	average	customer	ticket.	The Company	plans	to	strengthen	its	"treasure	hunt"	offering	and	to	execute	a	variety	of	new	marketing,	promotional	and/or advertising	strategies.	The	Company	will	also	implement	a	new	store	floor	plan	in	all	new	stores,	emphasizing	improved merchandising	adjacencies,	operational	efficiencies	and	customer	service,	and	will	continue	efforts	referred	to	as	"Project Gold	Standard"	begun	in	2005	to	improve	the	shopability	and	financial	performance	of	existing	stores;

· Further	development	of	the	Dollar	General	Market	concept;

· Continued	investment	in	EZstore,	further	reducing	store	labor	and	related	costs,	with	the	goal	of	completing	the	rollout	by	the end	of	2006;

· Increased	efforts	to	control	inventory	shrink	in	the	stores,	which	remains	above	acceptable	levels	as	a	percentage	of	sales;

· Opening	a	minimum	of	800	new	traditional	Dollar	General	stores,	while	continuing	to	pursue	further	geographical	expansion, with	increased	emphasis	on	site	selection,	approval	processes,	and	lowering	rent	as	a	percentage	of	sales	in	new	and	existing stores;	and

· Continued	investment	in	the	Company's	infrastructure,	including	increasing	global	sourcing,	further	developing	our information	technology	capabilities,	and	opening	the	Company's	ninth	distribution	center	thereby	expanding	distribution capacity.

The	Company	can	provide	no	assurance	that	it	will	be	successful	in	executing	these	initiatives,	nor	can	the	Company	guarantee that	the	successful	implementation	of	these	initiatives	will	result	in	superior	financial	performance.

# Results	of	Operations

The	following	discussion	of	the	Company's	financial	performance	is	based	on	the	Consolidated	Financial	Statements	set	forth herein.	The	following	table	contains	results	of	operations	data	for	the	2005,	2004	and	2003	fiscal	years,	and	the	dollar	and	percentage variances	among	those	years.

|  |  |  |  | 2005	vs.	2004 | 2005	vs.	2004 | 2004	vs.	2003 | 2004	vs.	2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (amounts\tin\tmillions,\texcluding\tper\nshare\tamounts) | \t\t\t2005\t(a) | \t\t2004 | \t\t2003 | $%\nchange | \tchange | $\t%\nchange | \tchange |
| Net\tsales\tby\tcategory: |  |  |  |  |  |  |  |
| Highly\tconsumable | $\t5,606.5 | $\t4,825.1 | $\t4,206.9 | $\t781.4 | 16.2% | $\t618.2 | 14.7% |
| %\tof\tnet\tsales | 65.33% | 62.98% | 61.22% |  |  |  |  |
| Seasonal | 1,348.8 | 1,264.0 | 1,156.1 | 84.8 | 6.7 | 107.9 | 9.3 |
| %\tof\tnet\tsales | 15.72% | 16.50% | 16.82% |  |  |  |  |
| Home\tproducts | 907.8 | 879.5 | 860.9 | 28.4 | 3.2 | 18.6 | 2.2 |
| %\tof\tnet\tsales | 10.58% | 11.48% | 12.53% |  |  |  |  |
| Basic\tclothing | 719.2 | 692.4 | 648.1 | 26.8 | 3.9 | 44.3 | 6.8 |
| %\tof\tnet\tsales | 8.38% | 9.04% | 9.43% |  |  |  |  |
| Net\tsales | $\t8,582.2 | $\t7,660.9 | $\t6,872.0 | $\t921.3 | 12.0% | $\t788.9 | 11.5% |
| Cost\tof\tgoods\tsold | 6,117.4 | 5,397.7 | 4,853.9 | 719.7 | 13.3 | 543.9 | 11.2 |
| %\tof\tnet\tsales | 71.28% | 70.46% | 70.63% |  |  |  |  |
| Gross\tprofit | 2,464.8 | 2,263.2 | 2,018.1 | 201.6 | 8.9 | 245.1 | 12.1 |
| %\tof\tnet\tsales | 28.72% | 29.54% | 29.37% |  |  |  |  |
| Selling,\tgeneral\tand\tadministrative |  |  |  |  |  |  |  |
| expenses | 1,903.0 | 1,706.2 | 1,500.1 | 196.7 | 11.5 | 206.1 | 13.7 |
| %\tof\tnet\tsales | 22.17% | 22.27% | 21.83% |  |  |  |  |
| Penalty\texpense | - | - | 10.0 | - | - | (10.0) | (100.0) |
| %\tof\tnet\tsales | - | - | 0.15% |  |  |  |  |
| Operating\tprofit | 561.9 | 557.0 | 508.0 | 4.9 | 0.9 | 49.0 | 9.6 |
| %\tof\tnet\tsales | 6.55% | 7.27% | 7.39% |  |  |  |  |
| Interest\tincome | (9.0) | (6.6) | (4.1) | (2.4) | 36.9 | (2.5) | 60.2 |
| %\tof\tnet\tsales | (0.10)% | (0.09)% | (0.06)% |  |  |  |  |
| Interest\texpense | 26.2 | 28.8 | 35.6 | (2.6) | (8.9) | (6.8) | (19.1) |
| %\tof\tnet\tsales | 0.31% | 0.38% | 0.52% |  |  |  |  |
| Income\tbefore\tincome\ttaxes | 544.6 | 534.8 | 476.5 | 9.9 | 1.8 | 58.2 | 12.2 |
| %\tof\tnet\tsales | 6.35% | 6.98% | 6.93% |  |  |  |  |
| Income\ttaxes | 194.5 | 190.6 | 177.5 | 3.9 | 2.1 | 13.0 | 7.3 |
| %\tof\tnet\tsales | 2.27% | 2.49% | 2.58% |  |  |  |  |
| Net\tincome | $\t350.2 | $\t344.2 | $\t299.0 | $\t6.0 | 1.7 | $\t45.2 | 15.1 |
| %\tof\tnet\tsales | 4.08% | 4.49% | 4.35% |  |  |  |  |
| Diluted\tearnings\tper\tshare | $\t1.08 | $\t1.04 | $\t0.89 | $\t0.04 | 3.8% | $\t0.15 | 16.9% |
| Weighted\taverage\tdiluted\tshares | 324.1 | 332.1 | 337.6 | (7.9) | (2.4) | (5.6) | (1.6) |

Net	Sales.		Increases	in	2005	net	sales	resulted	primarily	from	opening	additional	stores,	including	609	net	new	stores	in	2005, and	a	same-store	sales	increase	of	2.0%	for	2005	compared	to	2004.	Same-store	sales	calculations	for	2005	and	prior	include	only	those stores	that	were	open	both	at	the	end	of	that	period	and	at	the	beginning	of	the	preceding	fiscal	year.	Same-store	sales	increases	are calculated	based	on	the	comparable	calendar	weeks	in	the	prior	year.		Accordingly,	the	same	store	sales	percentage	for	2005	discussed above	excludes	sales	from	the	53 rd 	week	as	there	was	no	comparable	week	in	2004.	The	increase	in	same-store	sales	accounted	for $144.2	million	of	the	increase	in	sales.		Stores	opened	since	the	beginning	of	2004,	as	well	as	the	$162.9	million	impact	of	the	53 	week rd of	sales	in	fiscal	year	2005	for	all	stores	were	the	primary	contributors	to	the	remaining	$777.1	million	sales	increase	during	2005.		The increase	in	same-store	sales	is	primarily	attributable	to	an	increase	in	average	customer	purchase.

The	Company	has	recently	revised	and	published	its	method	for	determining	the	stores	that	are	included	in	the	Company's publicly	released	same-store	sales	calculations.	Beginning	in	fiscal	2006,	the	Company	now	provides	same-store	sales	calculations	for those	stores	that	have	been	open	at	least	13	full	fiscal	months	and	remain	open	at	the	end	of	the	reporting	period.	Using	the	revised methodology,	the	same-store	sales	increase	in	2005	was	2.2%.

The	Company	monitors	its	sales	internally	by	the	four	major	categories	noted	in	the	table	above.	The	Company's	merchandising mix	in	recent	years	has	shifted	to	faster-turning	consumable	products	versus	seasonal,	home	products	and	clothing.	This	has	been	driven by	customer	wants	and	needs	in	the	marketplace.	As	a	result,	over	the	past	three	years	the	highly	consumable	category	has	become	a greater	percentage	of	the	Company's	overall	sales	mix	while	the	percentages	of	the	seasonal,	home	products	and	basic	clothing categories	have	declined.	Accordingly,	the	Company's	sales	increase	by	merchandise	category	in	2005	compared	to	2004	was	primarily attributable	to	the	highly	consumable	category,	which	increased	by	$781.4	million,	or	16.2%.	The	Company	believes	that	future	sales growth	is	dependent	upon	an	increase	in	the	number	of	customer	transactions	as	well	as	an	increase	in	the	dollar	value	of	the	average transaction.	The	Company	continually	reviews	its	merchandise	mix	and	strives	to	adjust	it	when	deemed	necessary	as	a	part	of	its ongoing	efforts	to	improve	overall	sales	and	gross	profit.	These	ongoing	reviews	may	result	in	a	shift	in	the	Company's	merchandising strategy	which	could	increase	permanent	markdowns	in	the	future.

The	Company's	sales	increase	in	2004	compared	to	2003	resulted	primarily	from	opening	additional	stores,	including	620	net new	stores	in	2004,	and	a	same-store	sales	increase	of	3.2%	for	2004	compared	to	2003.	The	increase	in	same-store	sales	accounted	for $204.0	million	of	the	increase	in	sales	while	stores	opened	since	the	beginning	of	2003	were	the	primary	contributors	to	the	remaining $585.0	million	sales	increase	during	2004.	The	Company's	sales	increase	in	2004	was	primarily	attributable	to	the	highly	consumable category,	which	increased	by	$618.2	million,	or	14.7%.

Gross	Profit.		The	gross	profit	rate	declined	by	82	basis	points	in	2005	as	compared	with	2004	due	to	a	number	of	factors, including	but	not	limited	to:	lower	sales	(as	a	percentage	of	total	sales)	in	the	Company's	seasonal,	home	products	and	basic	clothing categories,	which	have	higher	than	average	markups;	an	increase	in	markdowns	as	a	percentage	of	sales	primarily	as	a	result	of	the Company's	initiative	to	reduce	per-store	inventory;	higher	transportation	expenses

primarily	attributable	to	increased	fuel	costs;	an	increase	in	the	Company's	shrink	rate;	and	an	estimated	$5.2	million	reduction	resulting from	the	expansion	of	the	number	of	departments	utilized	for	the	gross	profit	calculation	from	10	to	23,	as	further	described	below	under "Critical	Accounting	Policies	and	Estimates."	These	factors	were	partially	offset	by	higher	average	mark-ups	on	the	Company's beginning	inventory	in	2005	as	compared	with	2004.	In	2005	and	2004,	the	Company	experienced	inventory	shrinkage	of	3.22%	and 3.05%,	respectively.

The	gross	profit	rate	increased	17	basis	points	in	2004	as	compared	with	2003.	Although	the	Company's	gross	profit	rate	was pressured	by	sales	mix	shifts	to	more	highly	consumable	items,	which	typically	carry	lower	gross	profit	rates,	the	Company	was	able	to more	than	offset	this	through	increases	in	gross	markups	on	all	merchandise	categories	in	2004.	More	specific	factors	include	higher initial	mark-ups	on	merchandise	received	during	2004	as	compared	with	2003,	achieved	primarily	from	the	positive	impact	of opportunistic	purchasing,	renegotiating	product	costs	with	several	key	suppliers,	selective	price	increases,	and	an	increase	in	various performance-based	vendor	rebates;	and	higher	average	mark-ups	on	the	Company's	beginning	inventory	in	2004	as	compared	to	2003, which	represents	the	cumulative	impact	of	higher	margin	purchases	over	time.	These	components	of	gross	profit,	which	positively impacted	the	Company's	results,	were	partially	offset	by	an	increase	in	transportation	expenses	as	a	percentage	of	sales,	resulting primarily	from	higher	fuel	costs	in	2004	as	compared	to	2003;	and	a	nonrecurring	favorable	inventory	adjustment	in	2003	of	$7.8	million, representing	a	change	in	the	Company's	estimated	provision	for	shrinkage.

Selling,	General	and	Administrative	("SG&A")	Expense.		The	10	basis	point	decrease	in	SG&A	expense	as	a	percentage	of	sales in	2005	as	compared	with	2004	was	due	to	a	number	of	factors,	including	but	not	limited	to	the	following	expense	categories	that	either declined	or	increased	less	than	the	12.0%	increase	in	sales:	employee	incentive	compensation	expense	(decreased	37.8%),	based	upon the	Company's	fiscal	2005	financial	performance;	professional	fees	(decreased	32.3%),	primarily	due	to	the	reduction	of	consulting	fees associated	with	the	EZstore	project	and	2004	fees	associated	with	the	Company's	initial	Sarbanes-Oxley	compliance	effort;	and employee	health	benefits	(decreased	10.0%),	due	in	part	to	a	downward	revision	in	claim	lag	assumptions	based	upon	review	and recommendation	by	the	Company's	outside	actuary	and	decreased	claims	costs	as	a	percentage	of	sales.	Partially	offsetting	these reductions	in	SG&A	were	current	year	increases	in	store	occupancy	costs	(increased	17.6%),	primarily	due	to	rising	average	monthly rentals	associated	with	the	Company's	leased	store	locations,	and		store	utilities	costs	(increased	22.7%)	primarily	related	to	increased electricity	and	gas	expense.

The	increase	in	SG&A	expense	as	a	percentage	of	sales	in	2004	as	compared	with	2003	was	due	to	a	number	of	factors,	including but	not	limited	to	increases	in	the	following	expense	categories	that	were	in	excess	of	the	11.5	percent	increase	in	sales:	store	occupancy costs	(increased	17.4%),	primarily	due	to	rising	average	monthly	rentals	associated	with	the	Company's	leased	store	locations;	purchased services	(increased	54.6%),	due	primarily	to	fees	associated	with	the	increased	customer	usage	of	debit	cards;	professional	fees (increased	119.2%),	primarily	due	to	consulting	fees	associated	with	both	the	Company's	2004	EZstore	project	and	compliance	with certain	provisions	of	the	Sarbanes-Oxley	Act	of	2002;	and	inventory	services	(increased	88.2%),	due	to	both	an	increased	number	of physical	inventories	and	a	higher	average	cost	per	physical	inventory.	Partially	offsetting	these	increases	was	a

reduction	in	accruals	for	employee	bonus	expenses	(declined	21.3%),	primarily	related	to	higher	bonus	expense	in	2003	resulting	from the	Company's	financial	performance	during	2003.

Penalty	Expense.		During	2003,	the	Company	recorded	a	charge	of	$10.0	million	relating	to	a	civil	penalty	resulting	from	its agreement	in	principle	with	the	Securities	and	Exchange	Commission	("SEC")	staff	to	settle	the	matters	arising	out	of	a	restatement	of the	Company's	financial	statements	for	fiscal	years	2001	and	prior.

Interest	Income.	The	increase	in	interest	income	in	2005	compared	to	2004	is	due	primarily	to	higher	interest	earned	on	short- term	investments	due	to	increased	interest	rates	on	short-term	borrowings.	The	increase	in	interest	income	in	2004	compared	to	2003	is due	primarily	to	interest	income	on	certain	notes	receivable	purchased	in	May	2003	relating	to	the	Company's	South	Boston	DC,	as further	discussed	below	under	Liquidity	and	Capital	Resources.

Interest	Expense.	The	decrease	in	interest	expense	in	2005	is	primarily	attributable	to	a	reduction	in	tax	related	interest	expense	of $1.4	million,	principally	due	to	the	reversal	of	interest	accruals	pertaining	to	certain	income	tax	related	contingencies	that	were	resolved during	2005.	The	decrease	in	interest	expense	in	2004	compared	to	2003	is	due	primarily	to	capitalized	interest	of	$3.6	million	related	to the	Company's	DC	construction	and	expansion	projects	in	2004	compared	to	$0.2	million	in	2003	and	a	reduction	in	amortization	of	debt issuance	costs	of	$2.2	million	due	in	part	to	the	amendment	of	the	Company's	revolving	credit	facility	in	June	2004.	The	Company	had variable-rate	debt	of	$14.5	million	as	of	February	3,	2006.	The	remainder	of	the	Company's	outstanding	indebtedness	at	February	3, 2006	and	all	of	its	outstanding	indebtedness	at	January	28,	2005	was	fixed	rate	debt.

While	the	2005	and	2004	rates	were	similar	overall,	the	rates	contained	offsetting	differences.		Non-recurring	factors	causing	the 2005	tax	rate	to	increase	when	compared	to	the	2004	tax	rate	include	a	reduction	in	federal	jobs	credits	of	approximately	$1.0	million, additional	net	foreign	income	tax	expense	of	approximately	$0.8	million	and	a	decrease	in	the	contingent	income	tax	reserve	due	to resolution	of	contingent	liabilities	that	is	$3.6	million	less	than	the	decrease	that	occurred	in	2004.		Non-recurring	factors	causing	the 2005	tax	rate	to	decrease	when	compared	to	the	2004	tax	rate	include	the	recognition	of	state	tax	credits	of	approximately	$2.3	million related	to	the	Company's	construction	of	a	DC	in	Indiana	and	a	non-recurring	benefit	of	approximately	$2.6	million	related	to	an	internal restructuring	that	was	completed	during	2005.		Excluding	the	non-recurring	items,	the	2005	effective	tax	rate	would	have	been approximately	36.5%.

The	2004	rate	was	lower	than	the	2003	rate	primarily	due	to	the	reversal	of	certain	contingent	income	tax	liabilities	of approximately	$6.2	million	in	2004,	when	the	Company	adjusted	its	tax	contingency	reserve	based	upon	the	results	of	two	state	income tax	examinations.	The	tax	rate	in	2003	was	negatively	impacted	by	the	$10.0	million	penalty	expense	in	2003,	as	discussed	above,	which was	not	deductible	for	income	tax	purposes.

In	2005,	the	Company	recognized	a	reduction	in	its	federal	income	tax	expense	of	approximately	$4.5	million	for	federal	jobs related	tax	credits.		Of	this	amount,	approximately	$3.9	million	relates	to	the	Work	Opportunity	Tax	Credit	(WOTC),	the	Welfare	to Work	Credit	(WtW)	and	the	Native	American	Employment	Credit.		The	federal	law	that	provided	for	the	WOTC	and	WtW	credit programs	expired	on	December	31,	2005	for	employees	hired	after	that	date.		Credits	can	continue	to	be	earned	in	2006	for	eligible employees	that	were	hired	prior	to	the	December	31,	2005	date.		The	federal	law	that	provided	for	the	Native	American	Employment Credit	expired	for	years	beginning	after	December	31,	2005	(the	Company's	2006	year)	without	regard	to	when	the	employee	was	hired. 	The	Company	currently	anticipates	that	Congress	will	renew	these	credit	programs	on	a	retroactive	basis;	however,	renewal	cannot currently	be	assured.		Should	these	credit	programs	not	be	renewed,	the	Company	currently	anticipates	a	reduction	in	its	2006	credits	of approximately	$3.1	million.

# Liquidity	and	Capital	Resources

Current	Financial	Condition	/	Recent	Developments.	During	the	past	three	years,	the	Company	has	generated	an	aggregate	of approximately	$1.46	billion	in	cash	flows	from	operating	activities.	During	that	period,	the	Company	has	expanded	the	number	of	stores it	operates	by	approximately	30%	(over	1,800	stores)	and	has	incurred	approximately	$713	million	in	capital	expenditures,	primarily	to support	this	growth.	Also	during	this	three-year	period,	the	Company	has	expended	approximately	$537	million	for	repurchases	of	its common	stock	and	paid	dividends	of	approximately	$156	million.

The	Company's	inventory	balance	represented	approximately	49%	of	its	total	assets	as	of	February	3,	2006.	The	Company's proficiency	in	managing	its	inventory	balances	can	have	a	significant	impact	on	the	Company's	cash	flows	from	operations	during	a given	fiscal	year.	For	example,	in	2005,	changes	in	inventory	balances	represented	a	much	less	significant	use	of	cash	($97.9	million,	as explained	in	more	detail	below),	as	compared	to	changes	in	inventory	balances	in	2004	($219.4	million	use	of	cash).

As	described	in	Note	7	to	the	Consolidated	Financial	Statements,	the	Company	is	involved	in	a	number	of	legal	actions	and claims,	some	of	which	could	potentially	result	in	material	cash	payments.		Adverse	developments	in	those	actions	could	materially	and adversely	affect	the	Company's	liquidity.		The	Company	also	has	certain	income	tax-related	contingencies	as	more	fully	described	below under	"Critical	Accounting	Policies	and	Estimates".	Estimates	of	these	contingent	liabilities	are	included	in	the	Company's	Consolidated Financial	Statements.	However,	future	negative	developments	could	have	a	material	adverse	effect	on	the	Company's	liquidity.	See Notes	4	and	7	to	the	Consolidated	Financial	Statements.

On	September	30,	2005,	November	30,	2004	and	March	13,	2003,	the	Board	of	Directors	authorized	the	Company	to	repurchase up	to	10	million,	10	million	and	12	million	shares,	respectively,	of	its	outstanding	common	stock.	These	authorizations	allow	or	allowed, as	applicable,	for	purchases	in	the	open	market	or	in	privately	negotiated	transactions	from	time	to	time,	subject	to	market	conditions. The	objective	of	the	Company's	share	repurchase	initiative	is	to	enhance	shareholder	value	by	purchasing	shares	at	a	price	that	produces a	return	on	investment	that	is	greater	than	the	Company's	cost	of	capital.	Additionally,	share	repurchases	generally	are	undertaken	only	if such	purchases	result	in	an	accretive	impact	on	the	Company's

fully	diluted	earnings	per	share	calculation.		The	2005	authorization	expires	September	30,	2006.	The	2004	and	2003	authorizations	were completed	prior	to	their	expiration	dates.	During	2005,	the	Company	purchased	approximately	15.0	million	shares	pursuant	to	the	2005 and	2004	authorizations	at	a	total	cost	of	$297.6	million.	During	2004,	the	Company	purchased	approximately	11.0	million	shares pursuant	to	the	2004	and	2003	authorizations	at	a	total	cost	of	$209.3	million.	During	2003,	the	Company	purchased	approximately	1.5 million	shares	pursuant	to	the	2003	authorization	at	a	total	cost	of	$29.7	million.	Share	repurchases	in	2005	increased	diluted	earnings	per share	by	approximately	$0.01.

The	following	table	summarizes	the	Company's	significant	contractual	obligations	as	of	February	3,	2006	(in	thousands):

|  |  |  | Payments	Due	by	Period |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Contractual\tobligations\t(a) | Total | &lt;\t1\tyr | 1-3\tyrs | 3-5\tyrs | &gt;\t5\tyrs |
| Long-term\tdebt | $214,473 | $- | $- | $199,978 | $14,495 |
| Capital\tlease\tobligations | 22,028 | 7,862 | 7,992 | 1,148 | 5,026 |
| Financing\tobligations | 89,586 | 2,031 | 5,136 | 4,684 | 77,735 |
| Inventory\tpurchase\tobligations | 85,148 | 85,148 | - | - | - |
| Interest\t(b) | 169,466 | 25,933 | 49,895 | 39,772 | 53,866 |
| Operating\tleases | 1,368,848 | 281,615 | 424,225 | 269,466 | 393,542 |
| Total\tcontractual\tcash\nobligations | $1,949,549 | $402,589 | $487,248 | $515,048 | $544,664 |

(a) The	Company	has	self-insurance	liabilities	of	$154.7	million	that	are	not	reflected	in	the	table	above	due	to	the absence	of	scheduled	maturities.

(b) Represents	obligations	for	interest	payments	on	long-term	debt,	capital	lease	and	financing	obligations.	Excludes interest	on	$14.5	million	of	variable	rate	long-term	debt	issued	in	2005	which	interest,	on	an	annualized	basis,

would	have	equaled	approximately	$0.6	million	in	2005.

In	fiscal	year	2005,	the	Company's	South	Carolina-based	wholly	owned	captive	insurance	subsidiary,	Ashley	River	Insurance Company	("ARIC"),	had	cash	and	cash	equivalents	and	investments	balances	held	pursuant	to	South	Carolina	regulatory	requirements	to maintain	30%	of	ARIC's	liability	for	insurance	losses	in	the	form	of	certain	specified	types	of	assets	and	as	such,	these	investments	are not	available	for	general	corporate	purposes.	At	February	3,	2006,	these	cash	and	cash	equivalents	and	investments	balances	totaled $43.4	million.

The	Company	has	a	$250	million	revolving	credit	facility	(the	"Credit	Facility"),	which	expires	in	June	2009.	As	of	February	3, 2006,	the	Company	had	no	outstanding	borrowings	or	standby	letters	of	credit	outstanding	under	the	Credit	Facility.	Outstanding	standby letters	of	credit	reduce	the	borrowing	capacity	of	the	Credit	Facility.	The	Credit	Facility	contains	certain	financial	covenants.	The Company	was	in	compliance	with	all	these	financial	covenants	at	February	3,	2006.	See	Note	5	to	the	Consolidated	Financial	Statements for	further	discussion	of	the	Credit	Facility.

The	Company	has	$200	million	(principal	amount)	of	8	5/8%	unsecured	notes	due	June	15,	2010.	This	indebtedness	was	incurred to	assist	in	funding	the	Company's	growth.	Interest	on	the	notes	is	payable	semi-annually	on	June	15	and	December	15	of	each	year. 	The	Company	may	seek,	from	time	to	time,	to	retire	the	notes	through	cash	purchases	on	the	open	market,	in	privately	negotiated transactions	or	otherwise.	Such	repurchases,	if	any,	will	depend	on

prevailing	market	conditions,	the	Company's	liquidity	requirements,	contractual	restrictions	and	other	factors.	The	amounts	involved may	be	material.

In	July	2005,	as	an	inducement	for	the	Company	to	select	Marion,	Indiana	as	the	site	for	construction	of	a	new	DC,	the	Economic Development	Board	of	Marion	approved	a	tax	increment	financing	in	the	amount	of	$14.5	million,	which	matures	February	1,	2035. Pursuant	to	this	financing,	proceeds	from	the	issuance	of	certain	revenue	bonds	were	loaned	to	the	Company	in	connection	with	the construction	of	this	DC.	The	variable	interest	rate	on	this	loan	is	based	on	the	weekly	remarketing	of	the	bonds,	which	are	supported	by	a bank	letter	of	credit,	and	ranged	from	3.52%	to	4.60%	in	2005.

Significant	terms	of	the	Company's	outstanding	debt	obligations	could	have	an	effect	on	the	Company's	ability	to	incur additional	debt	financing.		The	Credit	Facility	contains	financial	covenants,	which	include	limits	on	certain	debt	to	cash	flow	ratios,	a fixed	charge	coverage	test,	and	minimum	allowable	consolidated	net	worth.		The	Credit	Facility	also	places	certain	specified	limitations on	secured	and	unsecured	debt.		The	Company's	outstanding	notes	discussed	above	place	certain	specified	limitations	on	secured	debt and	place	certain	limitations	on	the	Company's	ability	to	execute	sale-leaseback	transactions.	The	Company	has	generated	significant cash	flows	from	its	operations	during	recent	years.	The	Company	had	peak	borrowings	under	the	Credit	Facility	of	$100.3	million	during 2005	and	$73.1	million	during	2004,	all	of	which	were	repaid	prior	to	February	3,	2006	and	January	28,	2005,	respectively,	and	had	no borrowings	outstanding	under	the	Credit	Facility	at	any	time	during	2003.	Therefore,	the	Company	does	not	believe	that	any	existing limitations	on	its	ability	to	incur	additional	indebtedness	will	have	a	material	impact	on	its	liquidity.	Notes	5	and	7	to	the	Consolidated Financial	Statements	contain	additional	disclosures	related	to	the	Company's	debt	and	financing	obligations.

At	February	3,	2006	and	January	28,	2005,	the	Company	had	commercial	letter	of	credit	facilities	totaling	$195.0	million	and $215.0	million,	respectively,	of	which	$85.1	million	and	$98.8	million,	respectively,	were	outstanding	for	the	funding	of	imported merchandise	purchases.

During	2005,	the	Company	incurred	significant	losses	caused	by	Hurricane	Katrina,	primarily	inventory	and	fixed	assets,	in	the form	of	store	fixtures	and	leasehold	improvements.	The	Company	has	received	insurance	proceeds	of	$8.0	million	due	to	these	losses, and	has	utilized	a	portion	of	these	proceeds	to	replace	lost	assets.	The	Company	expects	to	receive	additional	insurance	proceeds,	due	in part	to	significant	business	interruption	experienced	during	the	hurricanes.	The	Company	did	not	recover	any	business	interruption proceeds	during	2005,	and	will	not	record	any	such	proceeds	until	the	business	interruption	claims	are	substantially	settled.	Losses related	to	inventory	are	included	in	cash	flows	provided	by	operating	activities	while	losses	related	to	fixed	assets	are	included	in	cash flows	used	in	investing	activities.	The	insurance	proceeds	approximated	the	amount	of	losses	recorded	by	the	Company,	resulting	in	no material	impact	on	reported	2005	net	income.

The	Company	believes	that	its	existing	cash	balances	($200.6	million	at	February	3,	2006),	cash	flows	from	operations	($555.5 million	generated	in	2005),	the	Credit	Facility	($250	million	available	at	February	3,	2006)	and	its	anticipated	ongoing	access	to	the capital	markets,	if

necessary,	will	provide	sufficient	financing	to	meet	the	Company's	currently	foreseeable	liquidity	and	capital	resource	needs.

Cash	flows	provided	by	operating	activities.		Cash	flows	from	operating	activities	for	2005	compared	to	2004	increased	by $164.0	million.	The	most	significant	component	of	the	increase	in	cash	flows	from	operating	activities	in	the	2005	period	as	compared	to the	2004	period	was	the	changes	in	inventory	balances.	Seasonal	inventory	levels	increased	by	10%	in	2005	as	compared	to	a	22% increase	in	2004,	home	products	inventory	levels	increased	by	2%	in	2005	as	compared	to	a	16%	increase	in	2004,	while	basic	clothing inventory	levels	declined	by	5%	in	2005	as	compared	to	a	21%	increase	in	2004.	Total	merchandise	inventories	at	the	end	of	2005	were $1.47	billion	compared	to	$1.38	billion	at	the	end	of	2004,	a	7.1	percent	increase	overall,	but	a	1%	decrease	on	a	per	store	basis, reflecting	the	Company's	focus	on	lowering	its	per	store	inventory	levels.	In	connection	with	this	effort,	the	Company	has	completed	an initiative	of	identifying	specific	merchandise	in	its	stores	that	it	intends	to	sell	via	promotional	discounts	to	customers.	Some	of	these items	have	already	been	marked	down	and	some	may	require	additional	markdowns	in	future	periods.	The	future	rate	of	sales	of	this merchandise	will	be	a	key	determinant	of	the	rate	of	future	markdowns.

Cash	flows	from	operating	activities	for	2004	compared	to	2003	declined	by	$122.6	million.	The	most	significant	component	of the	change	in	cash	flows	from	operating	activities	was	an	increase	in	inventory	levels	in	2004.	Total	merchandise	inventories	at	the	end of	2004	were	$1.38	billion	compared	to	$1.16	billion	at	the	end	of	2003,	a	19	percent	increase,	or	a	9	percent	increase	on	a	per	store basis,	with	the	remainder	primarily	attributable	to	growth	in	the	number	of	stores.	The	largest	portion	of	the	increase	in	inventories resulted	from	the	Company's	focus	on	improving	in-stock	levels	of	core	merchandise	at	the	stores.	New	initiatives,	including	the expansion	of	the	perishable	food	program	and	the	addition	of	certain	core	apparel	items,	magazines	and	Hispanic	food	items	also contributed	to	the	inventory	increase.		In	addition,	due	to	an	early	Easter	in	2005,	the	Company	received	more	seasonal	merchandise	for Spring	2005	before	the	end	of	fiscal	2004.	Cash	flows	in	2004	increased	by	$45.3	million	over	2003	related	to	changes	in	income	taxes payable,	primarily	due	to	a	large	payment	of	federal	income	taxes	for	2002	that	was	made	in	2003.	Cash	flows	in	the	2004	period	were positively	impacted	by	an	increase	in	net	income	of	$45.2	million	driven	by	improved	operating	results	(as	more	fully	discussed	above under	"Results	of	Operations").

Cash	flows	used	in	investing	activities.	Cash	flows	used	in	investing	activities	of	$264.4	million	in	2005	were	primarily	related	to capital	expenditures.	Significant	components	of	the	Company's	purchases	of	property	and	equipment	in	2005	included	the	following approximate	amounts:	$102	million	for	distribution	and	transportation-related	capital	expenditures;	$96	million	for	new	stores;	$47 million	related	to	the	EZstore	project;	$18	million	for	certain	fixtures	in	existing	stores;	and	$15	million	for	various	systems-related capital	projects.	During	2005,	the	Company	opened	734	new	stores	and	relocated	or	remodeled	82	stores.	Distribution	and	transportation expenditures	in	2005	included	costs	associated	with	the	construction	of	the	Company's	new	DCs	in	South	Carolina	and	Indiana.

Net	sales	of	short-term	investments	in	2005	of	$34.1	million	primarily	reflect	the	Company's	investment	activities	in	tax-exempt auction	market	securities.	Purchases	of	long-term	investments	are	related	to	the	Company's	captive	insurance	subsidiary.

Cash	flows	used	in	investing	activities	of	$259.2	million	in	2004	were	also	primarily	related	to	capital	expenditures.	Significant components	of	the	Company's	purchases	of	property	and	equipment	in	2004	included	the	following	approximate	amounts:	$101	million for	distribution	and	transportation-related	capital	expenditures;	$82	million	for	new	stores;	$26	million	for	certain	fixtures	in	existing stores;	$26	million	for	various	systems-related	capital	projects;	and	$23	million	for	coolers	in	existing	stores,	which	allow	the	stores	to carry	refrigerated	products.	During	2004,	the	Company	opened	722	new	stores	and	relocated	or	remodeled	80	stores.	Distribution	and transportation	expenditures	in	2004	included	costs	associated	with	the	construction	of	the	Company's	new	DC	in	South	Carolina	as	well as	costs	associated	with	the	expansion	of	the	Ardmore,	Oklahoma	and	South	Boston,	Virginia	DCs.

Net	sales	of	short-term	investments	in	2004	of	$25.8	million	primarily	reflect	the	Company's	investment	activities	in	tax-exempt auction	market	securities.

Cash	flows	used	in	investing	activities	totaled	$256.7	million	in	2003.	The	Company's	purchases	of	property	and	equipment	in 2003	included	the	following	approximate	amounts:	$63	million	for	new,	relocated	and	remodeled	stores;	$22	million	for	systems-related capital	projects;	and	$25	million	for	distribution	and	transportation-related	capital	expenditures.	During	2003,	the	Company	opened	673 new	stores	and	relocated	or	remodeled	76	stores.	Systems-related	projects	in	2003	included	approximately	$6	million	for	point-of-sale and	satellite	technology	and	$3	million	related	to	debit/credit/EBT	technology.	Distribution	and	transportation	expenditures	in	2003 included	approximately	$19	million	at	the	Ardmore,	Oklahoma	and	South	Boston,	Virginia	DCs	primarily	related	to	the	ongoing expansion	of	those	facilities.

Net	purchases	of	short-term	investments	in	2003	of	$67.2	million	primarily	reflect	the	Company's	investment	activities	in	tax- exempt	auction	market	securities.

During	2003,	the	Company	purchased	two	secured	promissory	notes	totaling	$49.6	million	which	represent	debt	issued	by	a	third party	entity	from	which	the	Company	leases	its	DC	in	South	Boston,	Virginia.		See	Note	7	to	the	Company's	Consolidated	Financial Statements.

Capital	expenditures	during	2006	are	projected	to	be	approximately	$375	million.		The	Company	anticipates	funding	its	2006 capital	requirements	with	cash	flows	from	operations	and	the	Credit	Facility,	if	necessary.	Significant	components	of	the	2006	capital plan	include	the	completion	of	construction	of	the	new	DC	in	Indiana	and	anticipated	costs	related	to	the	Company's	planned	tenth	DC; leasehold	improvements	and	fixtures	and	equipment	for	approximately	800	new	stores,	which	includes	30	new	Dollar	General	Market stores;	the	continued	rollout	of	the	Company's	EZstore	project;	and	additional	investments	in	technology	and	systems.		The	Company plans	to	undertake	these	expenditures	in	order	to	improve	its	infrastructure	and	provide	support	for	its	anticipated	growth.

Cash	flows	used	in	financing	activities.		Cash	flows	used	in	financing	activities	were	$323.3	million	in	2005.	The	Company repurchased	approximately	15.0	million	shares	of	its	common	stock	at	a	total	cost	of	$297.6	million,	paid	cash	dividends	of	$56.2 million,	or	$0.175	per	share,	on	its	outstanding	common	stock,	and	expended	$14.3	million	to	reduce	its	outstanding	capital	lease	and financing	obligations.	Also	in	2005,	the	Company	received	proceeds	of	$14.5	million	from	the	issuance	of	a	tax	increment	financing	in conjunction	with	the

construction	of	its	new	DC	in	Indiana.	During	2004,	the	Company	repurchased	approximately	11.0	million	shares	of	its	common	stock	at a	total	cost	of	$209.3	million,	paid	cash	dividends	of	$52.7	million,	or	$0.16	per	share,	on	its	outstanding	common	stock	and	expended $16.4	million	to	reduce	its	outstanding	capital	lease	and	financing	obligations.	During	2003,	the	Company	repurchased	approximately	1.5 million	shares	of	its	common	stock	at	a	total	cost	of	$29.7	million,	paid	cash	dividends	of	$46.9	million,	or	$0.14	per	share,	on	its outstanding	common	stock,	and	expended	$15.9	million	to	reduce	its	outstanding	capital	lease	and	financing	obligations.	These	uses	of cash	were	partially	offset	by	proceeds	from	the	exercise	of	stock	options	during	2005,	2004	and	2003	of	$29.4	million,	$34.1	million	and $49.5	million,	respectively.	The	majority	of	the	remaining	borrowings	and	repayments	were	a	result	of	activity	associated	with	daily	cash needs	of	the	Company.

# Critical	Accounting	Policies	and	Estimates

The	preparation	of	financial	statements	in	accordance	with	GAAP	requires	management	to	make	estimates	and	assumptions	that affect	reported	amounts	and	related	disclosures.		In	addition	to	the	estimates	presented	below,	there	are	other	items	within	the	Company's financial	statements	that	require	estimation,	but	are	not	deemed	critical	as	defined	below.	The	Company	believes	these	estimates	are reasonable	and	appropriate.	However,	if	actual	experience	differs	from	the	assumptions	and	other	considerations	used,	the	resulting changes	could	have	a	material	effect	on	the	financial	statements	taken	as	a	whole.

Management	believes	the	following	policies	and	estimates	are	critical	because	they	involve	significant	judgments,	assumptions, and	estimates.	Management	has	discussed	the	development	and	selection	of	its	critical	accounting	estimates	with	the	Audit	Committee	of the	Company's	Board	of	Directors	and	the	Audit	Committee	has	reviewed	the	disclosures	presented	below	relating	to	them.

Merchandise	Inventories.	Merchandise	inventories	are	stated	at	the	lower	of	cost	or	market	with	cost	determined	using	the	retail last-in,	first-out	("LIFO")	method.		Under	the	Company's	retail	inventory	method	("RIM"),	the	calculation	of	gross	profit	and	the resulting	valuation	of	inventories	at	cost	are	computed	by	applying	a	calculated	cost-to-retail	inventory	ratio	to	the	retail	value	of	sales. 	The	RIM	is	an	averaging	method	that	has	been	widely	used	in	the	retail	industry	due	to	its	practicality.		Also,	it	is	recognized	that	the	use of	the	RIM	will	result	in	valuing	inventories	at	the	lower	of	cost	or	market	if	markdowns	are	currently	taken	as	a	reduction	of	the	retail value	of	inventories.

Inherent	in	the	RIM	calculation	are	certain	significant	management	judgments	and	estimates	including,	among	others,	initial markups,	markdowns,	and	shrinkage,	which	significantly	impact	the	gross	profit	calculation	as	well	as	the	ending	inventory	valuation	at cost.	These	significant	estimates,	coupled	with	the	fact	that	the	RIM	is	an	averaging	process,	can,	under	certain	circumstances,	produce distorted	cost	figures.		Factors	that	can	lead	to	distortion	in	the	calculation	of	the	inventory	balance	include:

· applying	the	RIM	to	a	group	of	products	that	is	not	fairly	uniform	in	terms	of	its	cost	and	selling	price	relationship	and turnover;

· applying	the	RIM	to	transactions	over	a	period	of	time	that	include	different	rates	of	gross	profit,	such	as	those	relating	to seasonal	merchandise;

· inaccurate	estimates	of	inventory	shrinkage	between	the	date	of	the	last	physical	inventory	at	a	store	and	the	financial statement	date;	and

· inaccurate	estimates	of	lower	of	cost	or	market	("LCM")	and/or	LIFO	reserves.

To	reduce	the	potential	of	such	distortions	in	the	valuation	of	inventory,	the	Company's	RIM	calculation	through	the	end	of	2004 utilized	10	departments	in	which	fairly	homogenous	classes	of	merchandise	inventories	having	similar	gross	profit	rates	were	grouped. 	In	2005,	in	order	to	further	refine	its	RIM	calculation,	the	Company	expanded	the	number	of	departments	it	utilizes	for	its	gross	profit calculation	from	10	to	23.	The	impact	of	this	change	on	the	Company's	Consolidated	Statement	of	Income	for	2005	was	an	estimated reduction	of	gross	profit	and	a	corresponding	decrease	to	inventory,	at	cost,	of	$5.2	million.	Other	factors	that	reduce	potential	distortion include	the	use	of	historical	experience	in	estimating	the	shrink	provision	(see	discussion	below)	and	the	utilization	of	an	independent statistician	to	assist	in	the	LIFO	sampling	process	and	index	formulation.	Also,	on	an	ongoing	basis,	the	Company	reviews	and	evaluates the	salability	of	its	inventory	and	records	LCM	reserves,	if	necessary.

The	Company	calculates	its	shrink	provision	based	on	actual	physical	inventory	results	during	the	fiscal	period	and	an	accrual	for estimated	shrink	occurring	subsequent	to	a	physical	inventory	through	the	end	of	the	fiscal	reporting	period.	This	accrual	is	calculated	as a	percentage	of	sales	and	is	determined	by	dividing	the	book-to-physical	inventory	adjustments	recorded	during	the	previous	twelve months	by	the	related	sales	for	the	same	period	for	each	store.	Beginning	in	2003,	in	an	effort	to	improve	this	estimate,	the	Company began	applying	store-specific	shrink	rates	to	store-specific	sales	generated	subsequent	to	a	given	store's	physical	inventory.	Prior	to	2003, the	Company	applied	a	weighted-average	shrink	rate	to	all	Company	sales	generated	subsequent	to	physical	inventories.	During	2005,	in an	attempt	to	further	refine	its	shrink	accrual,	the	Company	changed	from	a	store-level	shrink	accrual	to	a	store-	and	department-level shrink	accrual.	To	the	extent	that	subsequent	physical	inventories	yield	different	results	than	this	estimated	accrual,	the	Company's effective	shrink	rate	for	a	given	reporting	period	will	include	the	impact	of	adjusting	the	estimated	results	to	the	actual	results.	Although the	Company	performs	physical	inventories	in	all	of	its	stores	on	an	annual	basis,	the	same	stores	do	not	necessarily	get	counted	in	the same	reporting	periods	from	year	to	year,	which	could	impact	comparability	in	a	given	reporting	period.

During	2003,	the	Company	implemented	an	item-level	perpetual	inventory	system.	This	system	provides	better	information regarding	the	type	of	inventory	that	the	Company	owns	and	improves	the	Company's	ability	to	estimate	its	shrink	provision	as	discussed above.	The	utilization	of	this	improved	information	in	the	Company's	RIM	calculation	resulted	in	a	non-recurring	inventory	adjustment of	approximately	$7.8	million,	which	favorably	impacted	gross	profit	in	the	third	quarter	of	2003.

Property	and	Equipment.		Property	and	equipment	are	recorded	at	cost.	The	Company	groups	its	assets	into	relatively homogeneous	classes	and	generally	provides	for	depreciation	on	a	straight-line	basis	over	the	estimated	average	useful	life	of	each	asset class,	except	for	leasehold	improvements,	which	are	amortized	over	the	shorter	of	the	applicable	lease	term	or	the	estimated	useful	life	of the	asset.	The	valuation	and	classification	of	these	assets	and	the	assignment	of	useful	depreciable	lives	involves	significant	judgments and	the	use	of	estimates.	Property	and	equipment	are	reviewed	for	impairment	periodically	and	whenever	events	or	changes	in circumstances	indicate	that	the	carrying	value	of	an	asset	may	not	be	recoverable.

Insurance	Reserves.		The	Company	retains	a	significant	portion	of	the	risk	for	its	workers'	compensation,	employee	health insurance,	general	liability,	property	loss	and	automobile	coverage.	These	costs	are	significant	primarily	due	to	the	large	employee	base and	number	of	stores.	Provisions	are	made	to	this	insurance	liability	on	an	undiscounted	basis	based	on	actual	claim	data	and	estimates	of incurred	but	not	reported	claims	developed	by	an	independent	actuary	utilizing	historical	claim	trends.	If	future	claim	trends	deviate	from recent	historical	patterns,	the	Company	may	be	required	to	record	additional	expenses	or	expense	reductions,	which	could	be	material	to the	Company's	future	financial	results.

Contingent	Liabilities	–	Income	Taxes.	The	Company	is	subject	to	routine	income	tax	audits	that	occur	periodically	in	the	normal course	of	business.	The	Company	estimates	its	contingent	income	tax	liabilities	based	on	its	assessment	of	probable	income	tax-related exposures	and	the	anticipated	settlement	of	those	exposures	translating	into	actual	future	liabilities.	The	contingent	liabilities	are estimated	based	on	both	historical	audit	experiences	with	various	state	and	federal	taxing	authorities	and	the	Company's	interpretation	of current	income	tax-related	trends.	If	the	Company's	income	tax	contingent	liability	estimates	prove	to	be	inaccurate,	the	resulting adjustments	could	be	material	to	the	Company's	future	financial	results.

Contingent	Liabilities	-	Legal	Matters.	The	Company	is	subject	to	legal,	regulatory	and	other	proceedings	and	claims.	Reserves, if	any,	are	established	for	these	claims	and	proceedings	based	upon	the	probability	and	estimability	of	losses	and	to	fairly	present,	in conjunction	with	the	disclosures	of	these	matters	in	the	Company's	financial	statements	and	SEC	filings,	management's	view	of	the Company's	exposure.	The	Company	reviews	outstanding	claims	and	proceedings	with	external	counsel	to	assess	probability	and estimates	of	loss.		These	assessments	are	re-evaluated	each	quarter	or	as	new	information	becomes	available	to	determine	whether	a reserve	should	be	established	or	if	any	existing	reserve	should	be	adjusted.	The	actual	cost	of	resolving	a	claim	or	proceeding	ultimately may	be	substantially	different	than	the	amount	of	the	recorded	reserve.		In	addition,	because	it	is	not	permissible	under	GAAP	to establish	a	litigation	reserve	until	the	loss	is	both	probable	and	estimable,	in	some	cases	there	may	be	insufficient	time	to	establish	a reserve	prior	to	the	actual	incurrence	of	the	loss	(upon	verdict	and	judgment	at	trial,	for	example,	or	in	the	case	of	a	quickly	negotiated settlement).	See	Note	7	to	the	Consolidated	Financial	Statements.

Lease	Accounting.	The	majority	of	the	Company's	stores	are	subject	to	short-term	leases	(usually	with	initial	or	primary	terms	of three	to	five	years)	with	multiple	renewal	options	when	available.		The	Company	also	has	stores	subject	to	build-to-suit	arrangements with	landlords,	which	typically	carry	a	primary	lease	term	of	between	7	and	10	years	with	multiple	renewal

options.	Approximately	half	of	the	Company's	stores	have	provisions	for	contingent	rentals	based	upon	a	percentage	of	defined	sales volume.		The	Company	recognizes	contingent	rental	expense	when	the	achievement	of	specified	sales	targets	are	considered	probable. Rent	expense	is	recognized	over	the	term	of	the	lease.		The	Company	records	minimum	rental	expense	on	a	straight-line	basis	over	the base,	non-cancelable	lease	term	commencing	on	the	date	that	the	Company	takes	physical	possession	of	the	property	from	the	landlord, which	normally	includes	a	period	prior	to	store	opening	to	make	necessary	leasehold	improvements	and	install	store	fixtures.		When	a lease	contains	a	predetermined	fixed	escalation	of	the	minimum	rent,	the	Company	recognizes	the	related	rent	expense	on	a	straight-line basis	and	records	the	difference	between	the	recognized	rental	expense	and	the	amounts	payable	under	the	lease	as	deferred	rent.		The Company	also	receives	tenant	allowances,	which	are	recorded	in	deferred	incentive	rent	and	are	amortized	as	a	reduction	to	rent	expense over	the	term	of	the	lease.		Any	difference	between	the	calculated	expense	and	the	amounts	actually	paid	are	reflected	as	a	liability. Improvements	of	leased	properties	are	amortized	over	the	shorter	of	the	life	of	the	applicable	lease	term	or	the	estimated	useful	life	of	the asset.

Impairment	of	Long-Lived	Assets.	When	indicators	of	impairment	are	present,	the	Company	evaluates	the	carrying	value	of	long- lived	assets,	other	than	goodwill,	in	relation	to	the	operating	performance	and	future	undiscounted	cash	flows	or	the	appraised	values	of the	underlying	assets.		The	Company	may	adjust	the	net	book	value	of	the	underlying	assets	based	upon	such	cash	flow	analysis compared	to	the	book	value	and	may	also	consider	appraised	values.		Assets	to	be	disposed	of	are	adjusted	to	the	fair	value	less	the	cost to	sell	if	less	than	the	book	value.		The	Company	also	records	impairment	charges	to	reduce	the	carrying	value	of	certain	of	its	stores' assets	as	deemed	necessary	due	to	negative	sales	trends	and	cash	flows.

# Effects	of	Inflation

The	Company	believes	that	inflation	and/or	deflation	had	a	minimal	impact	on	its	overall	operations	during	2005,	2004	and	2003.

# Accounting	Pronouncements

In	December	2004,	the	Financial	Accounting	Standards	Board	("FASB")	issued	Statement	of	Financial	Accounting	Standards ("SFAS")	No.	123(R),	"Share-Based	Payment,"	which	will	require	an	entity	to	measure	compensation	cost	for	all	share-based	payments (including	grants	of	employee	stock	options)	at	fair	value.		The	Company	will	adopt	SFAS	No.	123(R)	during	the	first	quarter	of	2006 and	expects	to	apply	the	standard	using	the	modified	prospective	method,	which	requires	compensation	expense	to	be	recorded	for	new and	modified	awards	and	also	for	unvested	portions	of	previously	issued	and	outstanding	awards.	The	Company	expects	to	incur incremental	Selling,	general	and	administrative	expense	associated	with	the	adoption	of	approximately	$5	million	in	2006,	dependent upon	the	number	of	grants	and	their	related	fair	market	values.		See	Note	1	to	the	Consolidated	Financial	Statements	for	disclosure	of	the pro	forma	effects	of	stock	option	grants	as	determined	using	the	methodology	prescribed	under	SFAS	No.	123.

SFAS	123(R)	also	requires	the	benefits	of	tax	deductions	in	excess	of	recognized	compensation	cost	be	reported	as	a	financing cash	flow,	rather	than	as	an	operating	cash	flow	as

required	under	current	literature.	This	requirement	will	reduce	net	operating	cash	flows	and	increase	net	financing	cash	flows	in	periods after	adoption.	While	the	Company	cannot	estimate	what	those	amounts	will	be	in	the	future	(because	they	depend	on,	among	other things,	when	employees	exercise	stock	options),	the	amounts	of	operating	cash	flows	recognized	in	the	accompanying	Consolidated Statements	of	Cash	Flows	for	such	excess	tax	deductions	were	$6.5	million,	$9.7	million	and	$14.6	million	for	2005,	2004	and	2003, respectively.

On	January	24,	2006,	the	Compensation	Committee	("Committee")	of	the	Company's	Board	of	Directors	approved	the acceleration	of	vesting	for	6.4	million	of	the	Company's	outstanding	stock	options	awarded	prior	to	August	2,	2005.	This	acceleration was	effective	on	February	3,	2006.	Vesting	was	not	accelerated	for	stock	options	held	by	the	CEO	and	stock	options	granted	in	2005	to the	officers	of	the	Company	at	the	level	of	Executive	Vice	President	or	higher.		In	addition,	pursuant	to	that	Committee	action,	the vesting	of	all	outstanding	options	granted	on	or	after	August	2,	2005	but	prior	to	January	24,	2006,	other	than	options	granted	during	that time	period	to	the	officers	of	the	Company	at	the	level	of	Executive	Vice	President	or	higher,	accelerated	effective	as	of	the	date	that	is six	months	after	the	applicable	grant	date.		Certain	options	granted	on	January	24,	2006	to	certain	newly	hired	officers	below	the	level	of Executive	Vice	President	were	granted	with	a	six-month	vesting	period.		The	decision	to	accelerate	the	vesting	of	stock	options	was made	primarily	to	reduce	non-cash	compensation	expense	that	would	have	been	recorded	in	future	periods	following	the	adoption	of SFAS	No.	123(R)	in	the	first	quarter	of	fiscal	year	2006.		This	action	is	expected	to	enable	the	Company	to	eliminate	approximately	$28 million	of	expense,	before	income	taxes,	over	the	four	year	period	during	which	the	stock	options	would	have	vested,	subject	to	the impact	of	additional	adjustments	related	to	the	forfeiture	of	certain	stock	options.		The	Company	also	believes	this	decision	benefits employees.		In	connection	with	the	acceleration	and	in	accordance	with	the	provisions	of	APB	25,	the	Company	recorded	compensation expense	of	$0.9	million,	before	income	taxes,	during	2005.

In	March	2005,	the	FASB	issued	FASB	Interpretation	47,	"Accounting	for	Conditional	Asset	Retirement	Obligations"	("FIN 47"),	which	is	effective	no	later	than	the	end	of	fiscal	years	ending	after	December	15,	2005.	This	Interpretation	clarifies	that	the	term conditional	asset	retirement	obligation	as	used	in	FASB	Statement	No.	143,	"Accounting	for	Asset	Retirement	Obligations,"	refers	to	a legal	obligation	to	perform	an	asset	retirement	activity	in	which	the	timing	and	(or)	method	of	settlement	are	conditional	on	a	future event	that	may	or	may	not	be	within	the	control	of	the	entity.		The	obligation	to	perform	the	asset	retirement	activity	is	unconditional even	though	uncertainty	exists	about	the	timing	and	(or)	method	of	settlement.		Thus,	the	timing	and	(or)	method	of	settlement	may	be conditional	on	a	future	event.		Accordingly,	an	entity	is	required	to	recognize	a	liability	for	the	fair	value	of	a	conditional	asset	retirement obligation	if	the	fair	value	of	the	liability	can	be	reasonably	estimated.		The	fair	value	of	a	liability	for	the	conditional	asset	retirement obligation	should	be	recognized	when	incurred—generally	upon	acquisition,	construction,	or	development	and	(or)	through	the	normal operation	of	the	asset.		Uncertainty	about	the	timing	and	(or)	method	of	settlement	of	a	conditional	asset	retirement	obligation	should	be factored	into	the	measurement	of	the	liability	when	sufficient	information	exists.				Statement	143	acknowledges	that	in	some	cases, sufficient	information	may	not	be	available	to	reasonably	estimate	the	fair	value	of	an	asset	retirement	obligation.	This	Interpretation	also clarifies	when	an	entity	would	have	sufficient	information	to	reasonably	estimate	the	fair	value	of	an	asset	retirement	obligation.		The Company	adopted	the

provisions	of	FIN	47	during	the	fourth	quarter	of	2005,	and	this	adoption	did	not	have	a	material	impact	on	the	Company's	Consolidated Financial	Statements	as	a	whole.

# Non-GAAP	disclosures

The	Company	has	included	in	this	document	free	cash	flow	generated	in	2005	and	2004.	Free	cash	flow	is	a	measure	not	derived in	accordance	with	generally	accepted	accounting	principles	("GAAP").	The	Company	believes	that	this	information	is	useful	to investors	as	an	indicator	of	the	cash	flow	generating	capacity	of	the	Company's	operations.	It	is	also	a	useful	metric	to	analyze	in conjunction	with	net	income	to	determine	whether	there	is	any	significant	non-cash	component	to	the	Company's	net	income.	This information	should	not	be	considered	a	substitute	for	any	measures	derived	in	accordance	with	GAAP.	Management	may	use	this information	to	better	understand	the	Company's	underlying	operating	results.	A	reconciliation	of	the	Company's	calculation	of	free	cash flow	to	the	most	comparable	measure	derived	in	accordance	with	GAAP	is	set	forth	below.

|  |  | For	the	years	ended |  |
| :--- | :--- | :--- | :--- |
| (In\tthousands) | February\t3,\n2006 | January\t28,\n2005 | January\t30,\n2004 |
|  | (53\tweeks) | (52\tweeks) | (52\tweeks) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents\t(a) | (32,221) | (113,069) | \t214,115 |
| Less\tissuance\tof\tlong-term\tborrowings | (14,495) | - | - |
| Plus\trepurchases\tof\tcommon\tstock | 297,602 | 209,295 | 29,687 |
| Free\tcash\tflow | $\t250,886 | $\t96,226 | $\t243,802 |

(a) Equal	to	the	sum	of	net	cash	flows	from	operating	activities,	net	cash	flows	from	investing	activities	and	net	cash	flows from	financing	activities.

# ITEM	7A. QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

# Financial	Risk	Management

The	Company	is	exposed	to	market	risk	primarily	from	adverse	changes	in	interest	rates.		To	minimize	such	risk,	the	Company may	periodically	use	financial	instruments,	including	derivatives.		As	a	matter	of	policy,	the	Company	does	not	buy	or	sell	financial instruments	for	speculative	or	trading	purposes	and	all	financial	instrument	transactions	must	be	authorized	and	executed	pursuant	to approval	by	the	Board	of	Directors.		All	financial	instrument	positions	taken	by	the	Company	are	used	to	reduce	risk	by	hedging	an underlying	economic	exposure.		Because	of	high	correlation	between	the	financial	instrument	and	the	underlying	exposure	being	hedged, fluctuations	in	the	value	of	the	financial	instruments	are	generally	offset	by	reciprocal	changes	in	the	value	of	the	underlying	economic exposure.		The	financial	instruments	used	by	the	Company	are	straightforward	instruments	with	liquid	markets.

The	Company	has	cash	flow	exposure	relating	to	variable	interest	rates	associated	with	its	revolving	line	of	credit	and	tax increment	financing,	and	may	periodically	seek	to	manage	this	risk	through	the	use	of	interest	rate	derivatives.		The	primary	interest	rate exposure	on	variable

rate	obligations	is	based	on	the	London	Interbank	Offered	Rate	("LIBOR").		The	Company	was	not	party	to	any	interest	rate	derivatives in	2005	or	2004.

At	February	3,	2006	and	January	28,	2005,	the	fair	value	of	the	Company's	debt,	excluding	capital	lease	obligations,	was approximately	$281.0	million	and	$275.9	million,	respectively	(net	of	the	fair	value	of	a	note	receivable	on	the	South	Boston,	Virginia DC	of	approximately	$49.5	million	and	$50.0	million,	respectively,	as	further	discussed	in	Note	7	to	the	Consolidated	Financial Statements),	based	upon	the	estimated	market	value	of	the	debt	at	those	dates.		Such	fair	value	exceeded	the	carrying	values	of	the	debt at	February	3,	2006	and	January	28,	2005	by	approximately	$24.2	million	and	$32.7	million,	respectively.

Based	upon	the	Company's	variable	rate	borrowing	levels,	a	1%	adverse	change	in	interest	rates	would	have	resulted	in	a	pre-tax reduction	of	earnings	and	cash	flows	on	an	annualized	basis	of	approximately	$0.1	million	in	2005	and	less	than	$0.1	million	in	2004.		In 2003,	the	Company	had	no	outstanding	variable	rate	borrowings.		Based	upon	the	Company's	outstanding	indebtedness	at	February	3, 2006	and	January	28,	2005,	a	1%	reduction	in	interest	rates	would	have	resulted	in	an	increase	in	the	fair	value	of	the	Company's	fixed rate	debt	of	approximately	$12.2	million	and	$14.2	million,	respectively.

# ITEM	8. FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# Report	of	Independent	Registered	Public	Accounting	Firm

# To	the	Board	of	Directors	and	Shareholders	of

# Goodlettsville,	Tennessee

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Dollar	General	Corporation	and	subsidiaries	as	of	February	3, 2006	and	January	28,	2005,	and	the	related	consolidated	statements	of	income,	shareholders'	equity,	and	cash	flows	for	each	of	the	three years	in	the	period	ended	February	3,	2006.		These	financial	statements	are	the	responsibility	of	the	Company's	management.		Our responsibility	is	to	express	an	opinion	on	these	financial	statements	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States). 	Those	standards	require	that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are free	of	material	misstatement.		An	audit	includes	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the financial	statements.		An	audit	also	includes	assessing	the	accounting	principles	used	and	significant	estimates	made	by	management,	as well	as	evaluating	the	overall	financial	statement	presentation.		We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position of	Dollar	General	Corporation	and	subsidiaries	as	of	February	3,	2006	and	January	28,	2005,	and	the	consolidated	results	of	their operations	and	their

cash	flows	for	each	of	the	three	years	in	the	period	ended	February	3,	2006,	in	conformity	with	U.S.	generally	accepted	accounting principles.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the effectiveness	of	Dollar	General	Corporation	and	subsidiaries'	internal	control	over	financial	reporting	as	of	February	3,	2006,	based	on criteria	established	in	Internal	Control	–	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway Commission	and	our	report	dated	March	16,	2006	expressed	an	unqualified	opinion	thereon.

Nashville,	Tennessee

# CONSOLIDATED	BALANCE	SHEETS

# (In	thousands	except	per	share	amounts)

|  | February	3,<br>2006 | January	28,<br>2005 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $200,609 | $232,830 |
| Short-term\tinvestments | 8,850 | 42,925 |
| Merchandise\tinventories | 1,474,414 | 1,376,537 |
| Deferred\tincome\ttaxes | 11,912 | 24,908 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 67,140 | 53,702 |
| Total\tcurrent\tassets | 1,762,925 | 1,730,902 |
| Net\tproperty\tand\tequipment | 1,192,172 | 1,080,838 |
| Other\tassets,\tnet | 37,090 | 29,264 |
| Total\tassets | $2,992,187 | $2,841,004 |
| LIABILITIES\tAND\tSHAREHOLDERS'\tEQUITY |  |  |
| Current\tliabilities: |  |  |
| Current\tportion\tof\tlong-term\tobligations | $8,785 | $12,860 |
| Accounts\tpayable | 508,386 | 409,327 |
| Accrued\texpenses\tand\tother | 372,920 | 333,889 |
| Income\ttaxes\tpayable | 43,706 | 69,616 |
| Total\tcurrent\tliabilities | 933,797 | 825,692 |
| Long-term\tobligations | 269,962 | 258,462 |
| Deferred\tincome\ttaxes | 67,633 | 72,385 |
| Commitments\tand\tcontingencies |  |  |
| Shareholders'\tequity: |  |  |
| Series\tB\tjunior\tparticipating\tpreferred\tstock,\tstated |  |  |
| value\t$0.50\tper\tshare;\tShares\tauthorized: |  |  |
| 10,000;\tIssued:\t\tNone | - | - |
| Common\tstock,\tpar\tvalue\t$0.50\tper\tshare; |  |  |
| Shares\tauthorized:\t500,000;\tIssued: |  |  |
| 2005-315,679;\t2004-328,172 | 157,840 | 164,086 |
| Additional\tpaid-in\tcapital | 462,383 | 421,600 |
| Retained\tearnings | 1,106,165 | 1,102,457 |
| Accumulated\tother\tcomprehensive\tloss | (794) | (973) |
| Other\tshareholders'\tequity | (4,799) | (2,705) |
| Total\tshareholders'\tequity | 1,720,795 | 1,684,465 |
| Total\tliabilities\tand\tshareholders'\tequity | $2,992,187 | $2,841,004 |

# The	accompanying	notes	are	an	integral	part	of	the	consolidated	financial	statements.

# CONSOLIDATED	STATEMENTS	OF	INCOME

|  |  | For	the	years	ended |  |
| :--- | :--- | :--- | :--- |
|  | February\t3,\n2006 | January\t28,\n2005 | January\t30,\n2004 |
|  | (53\tweeks) | (52\tweeks) | (52\tweeks) |
| Net\tsales | $8,582,237 | $7,660,927 | $6,871,992 |
| Cost\tof\tgoods\tsold | 6,117,413 | 5,397,735 | 4,853,863 |
| Gross\tprofit | 2,464,824 | 2,263,192 | 2,018,129 |
| Selling,\tgeneral\tand\tadministrative | 1,902,957 | 1,706,216 | 1,500,103 |
| Penalty\texpense | - | - | 10,000 |
| Operating\tprofit | 561,867 | 556,976 | 508,026 |
| Interest\tincome | (9,001) | (6,575) | (4,103) |
| Interest\texpense | 26,226 | 28,794 | 35,606 |
| Income\tbefore\tincome\ttaxes | 544,642 | 534,757 | 476,523 |
| Income\ttaxes | 194,487 | 190,567 | 177,521 |
| Net\tincome | $350,155 | $344,190 | $299,002 |
| Earnings\tper\tshare:\n\t\t\t\t\t\t\t\tBasic | $1.09 | $1.04 | $0.89 |
| \t\t\t\t\t\t\t\tDiluted | $1.08 | $1.04 | $0.89 |
| Weighted\taverage\tshares:\n\t\t\t\t\t\t\t\t\tBasic | 321,835 | 329,376 | 334,697 |
| \t\t\t\t\t\t\t\t\tDiluted | 324,133 | 332,068 | 337,636 |

# CONSOLIDATED	STATEMENTS	OF	SHAREHOLDERS'	EQUITY

|  |  |  | (In	thousands	except	per	share	amounts) | (In	thousands	except	per	share	amounts) | (In	thousands	except	per	share	amounts) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Common\nStock\nShares | Common\nStock | Additional\nPaid-in\nCapital | Retained\nEarnings | Accumulated\nOther\nComprehensive\nLoss | Other\nShareholders'\nEquity | Total |
| Balances,\tJanuary\t31,\t2003 | 333,340 | $\t166,670 | $\t313,269 | $\t\t\t791,597 | $\t\t\t\t\t\t\t\t\t\t\t(1,349) | $\t\t\t\t\t\t\t\t(2,742) | $1,267,445 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |
| Net\tincome | - | - | - | 299,002 | - | - | 299,002 |
| Reclassification\tof\tnet\tloss\ton\tderivatives | - | - | - | - | 188 | - | 188 |
| Comprehensive\tincome |  |  |  |  |  |  | 299,190 |
| Cash\tdividends,\t$0.14\tper\tcommon\tshare | - | - | - | (46,883) | - | - | (46,883) |
| Issuance\tof\tcommon\tstock\tunder\tstock\nincentive\tplans | 4,240 | 2,120 | 47,365 | - | - | - | 49,485 |
| Tax\tbenefit\tfrom\tstock\toption\texercises | - | - | 14,565 | - | - | - | 14,565 |
| Repurchases\tof\tcommon\tstock | (1,519) | (759) | - | (28,928) | - | - | (29,687) |
| Purchase\tof\tcommon\tstock\tby\temployee\ndeferred\tcompensation\ttrust,\tnet\t(11\tshares) | - | - | (157) | - | - | 3 | (154) |
| Issuance\tof\trestricted\tstock | 129 | 64 | 1,904 | - | - | (1,968) | - |
| Amortization\tof\tunearned\tcompensation\ton\nrestricted\tstock | - | - | - | - | - | 354 | 354 |
| Other\tequity\ttransactions | - | - | (16) | - | - | - | (16) |
| Balances,\tJanuary\t30,\t2004 | 336,190 | $\t168,095 | $\t376,930 | $1,014,788 | $\t\t\t\t\t\t\t\t\t\t\t(1,161) | $\t\t\t\t\t\t\t\t(4,353) | $1,554,299 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |
| Net\tincome | - | - | - | 344,190 | - | - | 344,190 |
| Reclassification\tof\tnet\tloss\ton\tderivatives | - | - | - | - | 188 | - | 188 |
| Comprehensive\tincome |  |  |  |  |  |  | 344,378 |
| Cash\tdividends,\t$0.16\tper\tcommon\tshare | - | - | - | (52,682) | - | - | (52,682) |
| Issuance\tof\tcommon\tstock\tunder\tstock\nincentive\tplans | 2,875 | 1,437 | 32,691 | - | - | - | 34,128 |
| Tax\tbenefit\tfrom\tstock\toption\texercises | - | - | 9,657 | - | - | - | 9,657 |
| Repurchases\tof\tcommon\tstock | (11,020) | (5,510) | - | (203,785) | - | - | (209,295) |
| Purchase\tof\tcommon\tstock\tby\temployee\ndeferred\tcompensation\ttrust,\tnet\t(25\tshares) | - | - | (92) | - | - | (377) | (469) |
| Issuance\tof\trestricted\tstock\tand\trestricted\nstock\tunits,\tnet | 128 | 64 | 2,398 | - | - | (2,462) | - |
| Amortization\tof\tunearned\tcompensation\ton\nrestricted\tstock\tand\trestricted\tstock\tunits | - | - | - | - | - | 1,779 | 1,779 |
| Deferred\tcompensation\tobligation | - | - | - | - | - | 2,708 | 2,708 |
| Other\tequity\ttransactions | (1) | - | 16 | (54) | - | - | (38) |
| Balances,\tJanuary\t28,\t2005 | 328,172 | $\t164,086 | $\t421,600 | $1,102,457 | $\t\t\t\t\t\t\t\t\t\t\t(973) | $\t\t\t\t\t\t\t\t(2,705) | $1,684,465 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |
| Net\tincome | - | - | - | 350,155 | - | - | 350,155 |
| Reclassification\tof\tnet\tloss\ton\tderivatives | - | - | - | - | 179 | - | 179 |
| Comprehensive\tincome |  |  |  |  |  |  | 350,334 |
| Cash\tdividends,\t$0.175\tper\tcommon\tshare | - | - | - | (56,183) | - | - | (56,183) |
| Issuance\tof\tcommon\tstock\tunder\tstock\nincentive\tplans | 2,249 | 1,125 | 28,280 | - | - | - | 29,405 |
| Tax\tbenefit\tfrom\tstock\toption\texercises | - | - | 6,457 | - | - | - | 6,457 |
| Repurchases\tof\tcommon\tstock | (14,977) | (7,489) | - | (290,113) | - | - | (297,602) |
| Sales\tof\tcommon\tstock\tby\temployee\tdeferred\ncompensation\ttrust,\tnet\t(42\tshares) | - | - | 95 | - | - | 788 | 883 |
| Issuance\tof\trestricted\tstock\tand\trestricted\nstock\tunits,\tnet | 249 | 125 | 5,151 | - | - | (5,276) | - |
| Amortization\tof\tunearned\tcompensation\ton |  |  |  |  |  |  |  |
| restricted\tstock\tand\trestricted\tstock\tunits | - | - | - | - | - | 2,394 | 2,394 |
| Acceleration\tof\tvesting\tof\tstock\toptions\t(see\nNote\t9) | - | - | 938 | - | - | - | 938 |
| Other\tequity\ttransactions | (14) | (7) | (138) | (151) | - | - | (296) |
| Balances,\tFebruary\t3,\t2006 | 315,679 | $\t157,840 | $\t462,383 | $1,106,165 | $\t\t\t\t\t\t\t\t\t\t\t(794) | $\t\t\t\t\t\t\t\t(4,799) | $1,720,795 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

# (In	thousands)

|  |  | For	the	years	ended |  |
| :--- | :--- | :--- | :--- |
|  | February\t3,\n2006 | January\t28,\n2005 | January\t30,\n2004 |
|  | (53\tweeks) | (52\tweeks) | (52\tweeks) |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tincome | $\t350,155 | $\t344,190 | $\t299,002 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\noperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 186,824 | 164,478 | 154,457 |
| Deferred\tincome\ttaxes | 8,244 | 25,751 | 18,611 |
| Tax\tbenefit\tfrom\tstock\toption\texercises | 6,457 | 9,657 | 14,565 |
| Change\tin\toperating\tassets\tand\tliabilities: |  |  |  |
| Merchandise\tinventories | (97,877) | (219,396) | (34,110) |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | (13,438) | (3,666) | (16,304) |
| Accounts\tpayable | 87,230 | 22,258 | 33,265 |
| Accrued\texpenses\tand\tother | 40,376 | 35,048 | 60,523 |
| Income\ttaxes | (26,017) | 23,793 | (21,464) |
| Other | 13,531 | (10,598) | 5,520 |
| Net\tcash\tprovided\tby\toperating\tactivities | 555,485 | 391,515 | 514,065 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (284,112) | (288,294) | (140,139) |
| Purchases\tof\tshort-term\tinvestments | (132,775) | (221,700) | (201,950) |
| Sales\tof\tshort-term\tinvestments | 166,850 | 247,501 | 134,725 |
| Purchase\tof\tpromissory\tnotes | - | - | (49,582) |
| Purchases\tof\tlong-term\tinvestments | (16,995) | - | - |
| Insurance\tproceeds\trelated\tto\tproperty\tand\tequipment | 1,210 | - | - |
| Proceeds\tfrom\tsale\tof\tproperty\tand\tequipment | 1,419 | 3,324 | 269 |
| Net\tcash\tused\tin\tinvesting\tactivities | (264,403) | (259,169) | (256,677) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Borrowings\tunder\trevolving\tcredit\tfacility | 232,200 | 195,000 | - |
| Repayments\tof\tborrowings\tunder\trevolving\tcredit\tfacility | (232,200) | (195,000) | - |
| Issuance\tof\tlong-term\tobligations | 14,495 | - | - |
|  | (14,310) | (16,417) | (15,907) |
| Repayments\tof\tlong-term\tobligations |  |  |  |
| Payment\tof\tcash\tdividends | (56,183) | (52,682) | (46,883) |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 29,405 | 34,128 | 49,485 |
| Repurchases\tof\tcommon\tstock | (297,602) | (209,295) | (29,687) |
| Other\tfinancing\tactivities | 892 | (1,149) | (281) |
| Net\tcash\tused\tin\tfinancing\tactivities | (323,303) | (245,415) | (43,273) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | (32,221) | (113,069) | \t214,115 |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\tyear | 232,830 | 345,899 | 131,784 |
| Cash\tand\tcash\tequivalents,\tend\tof\tyear | $\t200,609 | $\t232,830 | $\t345,899 |
| Supplemental\tcash\tflow\tinformation: |  |  |  |
| Cash\tpaid\tduring\tyear\tfor: |  |  |  |
| Interest | $\t25,747 | $\t26,748 | $\t31,256 |
| Income\ttaxes | $\t205,802 | $\t133,100 | $\t165,248 |

| payment,	included	in	Accounts	payable | $	24,750 | $	12,921 | $	9,643 |
| :--- | :--- | :--- | :--- |
| Purchases\tof\tproperty\tand\tequipment\tunder\tcapital\tlease\nobligations | $\t7,197 | $\t5,722 | $\t996 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1. Basis	of	presentation	and	accounting	policies

# Basis	of	presentation

These	notes	contain	references	to	the	years	2006,	2005,	2004	and	2003,	which	represent	fiscal	years	ending	or	ended	February	2, 2007,	February	3,	2006,	January	28,	2005	and	January	30,	2004,	respectively.	Fiscal	year	2006	will	be,	and	each	of	2004	and	2003	was,	a 52-week	accounting	period	while	2005	was	a	53-week	accounting	period.	The	Company's	fiscal	year	ends	on	the	Friday	closest	to January	31.	The	consolidated	financial	statements	include	all	subsidiaries	of	the	Company,	except	for	its	not-for-profit	subsidiary	the assets	and	revenues	of	which	are	not	material.		Intercompany	transactions	have	been	eliminated.

The	Company	leases	four	of	its	distribution	centers	("DCs")	from	lessors,	which	meet	the	definition	of	a	Variable	Interest	Entity ("VIE")	as	described	by	FASB	Interpretation	No.	46,	"Consolidation	of	Variable	Interest	Entities"	("FIN	46"),	as	revised.	Two	of	these DCs	have	been	recorded	as	financing	obligations	whereby	the	property	and	equipment,	along	with	the	related	lease	obligations,	are reflected	in	the	consolidated	balance	sheets.		The	other	two	DCs,	excluding	the	equipment,	have	been	recorded	as	operating	leases	in accordance	with	SFAS	No.	98,	"Accounting	for	Leases."		The	Company	is	not	the	primary	beneficiary	of	these	VIEs	and,	accordingly, has	not	included	these	entities	in	its	consolidated	financial	statements.

# Business	description

The	Company	sells	general	merchandise	on	a	retail	basis	through	7,929	stores	(as	of	February	3,	2006)	located	primarily	in	the southern,	southwestern,	midwestern	and	eastern	United	States.		The	Company	has	DCs	in	Scottsville,	Kentucky;	Ardmore,	Oklahoma; South	Boston,	Virginia;	Indianola,	Mississippi;	Fulton,	Missouri;	Alachua,	Florida;	Zanesville,	Ohio;	and	Jonesville,	South	Carolina. 	The	Company	also	has	a	DC	under	construction	in	Marion,	Indiana.

The	Company	purchases	its	merchandise	from	a	wide	variety	of	suppliers.	Approximately	11%	of	the	Company's	purchases	in 2005	were	made	from	Procter	and	Gamble.		No	other	supplier	accounted	for	more	than	3%	of	the	Company's	purchases	in	2005.

# Cash	and	cash	equivalents

Cash	and	cash	equivalents	include	highly	liquid	investments	with	insignificant	interest	rate	risk	and	original	maturities	of	three months	or	less	when	purchased.		Such	investments	primarily	consist	of	money	market	funds,	certificates	of	deposit	and	commercial paper.		The	carrying	amounts	of	these	items	are	a	reasonable	estimate	of	their	fair	value	due	to	the	short	maturity	of	these	investments.

Payments	due	from	banks	for	third-party	credit	card,	debit	card	and	electronic	benefit	transactions	("EBT")	classified	as	cash	and cash	equivalents	totaled	approximately	$7.8	million	and	$4.8	million	at	February	3,	2006	and	January	28,	2005,	respectively.

The	Company's	cash	management	system	provides	for	daily	investment	of	available	balances	and	the	funding	of	outstanding checks	when	presented	for	payment.		Outstanding	but	unpresented	checks	totaling	approximately	$124.2	million	and	$112.3	million	at February	3,	2006	and	January	28,	2005,	respectively,	have	been	included	in	Accounts	payable	in	the	consolidated	balance	sheets.		Upon presentation	for	payment,	these	checks	are	funded	through	available	cash	balances	or	the	Company's	existing	credit	facility.

The	Company	has	certain	cash	and	cash	equivalents	balances	that	are	subject	to	restrictions	and	are	not	available	for	general corporate	purposes,	as	further	described	below	under	"Investments	in	debt	and	equity	securities."

# Investments	in	debt	and	equity	securities

The	Company	accounts	for	its	investment	in	debt	and	marketable	equity	securities	in	accordance	with	Statement	of	Financial Accounting	Standards	("SFAS")	No.	115,	"Accounting	for	Certain	Investments	in	Debt	and	Equity	Securities,"	and	accordingly, classifies	them	as	held-to-maturity,	available-for-sale,	or	trading.		Debt	securities	categorized	as	held-to-maturity	are	stated	at	amortized cost.		Debt	and	equity	securities	categorized	as	available-for-sale	are	stated	at	fair	value,	with	any	unrealized	gains	and	losses,	net	of deferred	income	taxes,	reported	as	a	component	of	Accumulated	other	comprehensive	loss.		Trading	securities	(primarily	mutual	funds held	pursuant	to	deferred	compensation	and	supplemental	retirement	plans,	as	further	discussed	in	Note	8)	are	stated	at	fair	value,	with changes	in	fair	value	recorded	in	income	as	a	component	of	Selling,	general	and	administrative	("SG&A")	expense.

In	general,	the	Company	invests	excess	cash	in	shorter-dated,	highly	liquid	investments	such	as	money	market	funds,	certificates of	deposit,	and	commercial	paper.		Depending	on	the	type	of	securities	purchased	(debt	versus	equity)	as	well	as	the	Company's intentions	with	respect	to	the	potential	sale	of	such	securities	before	their	stated	maturity	dates,	such	securities	have	been	classified	as held-to-maturity	or	available-for-sale.		Given	the	short	maturities	of	such	investments	(except	for	those	securities	described	in	further detail	below),	the	carrying	amounts	approximate	the	fair	values	of	such	securities.

Beginning	in	fiscal	year	2003,	the	Company	began	investing	in	auction	rate	securities,	which	are	debt	instruments	having	longer- dated	(in	some	cases,	many	years)	legal	maturities,	but	with	interest	rates	that	are	generally	reset	every	28-35	days	under	an	auction system.		Because	auction	rate	securities	are	frequently	re-priced,	they	trade	in	the	market	like	short-term	investments.		As	available-for- sale	securities,	these	investments	are	carried	at	fair	value,	which	approximates	cost	given	that	the	average	duration	of	such	securities	held by	the	Company	is	less	than	40	days.		Despite	the	liquid	nature	of	these	investments,	the	Company	categorizes	them	as	short-term investments	instead	of	cash	and	cash	equivalents	due	to	the	underlying	legal	maturities	of	such	securities.		However,	they	have	been classified	as	current	assets	as	they	are	generally	available	to	support	the	Company's	current	operations.

In	fiscal	year	2005,	the	Company's	South	Carolina-based	wholly	owned	captive	insurance	subsidiary,	Ashley	River	Insurance Company	("ARIC"),	had	investments	in	U.S.	Government	securities,	short	and	long-term	corporate	obligations,	and	asset	backed obligations.	These	investments	are	held	pursuant	to	South	Carolina	regulatory	requirements	to	maintain	30%

of	ARIC's	liability	for	insurance	losses	in	the	form	of	certain	specified	types	of	assets	and	as	such,	these	investments	are	not	available	for general	corporate	purposes.	At	February	3,	2006,	these	investments	included	the	following	amounts	reflected	in	the	Company's consolidated	balance	sheet:	cash	and	cash	equivalents	of	$17.6	million,	short-term	investments	of	$8.9	million	and	long-term	investments included	in	other	assets	of	$16.9	million.

The	Company's	investment	in	the	secured	promissory	notes	issued	by	the	third-party	entity	from	which	the	Company	leases	its DC	in	South	Boston,	Virginia,	as	discussed	in	Note	7,	has	been	classified	as	a	held-to-maturity	security.	Historical	cost	information pertaining	to	investments	in	mutual	funds	by	participants	in	the	Company's	supplemental	retirement	and	compensation	deferral	plans classified	as	trading	securities	is	not	readily	available	to	the	Company.

On	February	3,	2006	and	January	28,	2005,	held-to-maturity,	available-for-sale	and	trading	securities	consisted	of	the	following (in	thousands):

| February	3,	2006 | Cost | Gains | Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Held-to-maturity\tsecurities |  |  |  |  |
| Bank\tand\tcorporate\tdebt | $59,196 | $- | $55 | $59,141 |
| U.S.\tGovernment\tsecurities | 7,590 | - | 12 | 7,578 |
| Asset-backed\tsecurities | 3,847 | 5 | 6 | 3,846 |
| Other\tdebt\tsecurities | 47,151 | 2,319 | - | 49,470 |
|  | 117,784 | 2,324 | 73 | 120,035 |
| Available-for-sale\tsecurities\nEquity\tsecurities | 16,300 | - | - | 16,300 |
| Trading\tsecurities\nEquity\tsecurities | 14,873 | - | - | 14,873 |
| Total\tdebt\tand\tequity\tsecurities | $148,957 | $2,324 | $73 | $151,208 |

| January	28,	2005 | Cost | Gains | Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Held-to-maturity\tsecurities |  |  |  |  |
| Bank\tand\tcorporate\tdebt | $45,422 | $- | $- | $45,422 |
| Other\tdebt\tsecurities | 48,179 | 1,808 | - | 49,987 |
|  | 93,601 | 1,808 | - | 95,409 |
| Available-for-sale\tsecurities |  |  |  |  |
| Equity\tsecurities | 38,618 | - | - | 38,618 |
| Other\tdebt\tsecurities | 42,425 | - | - | 42,425 |
|  | 81,043 | - | - | 81,043 |
| Trading\tsecurities\nEquity\tsecurities | 11,932 | - | - | 11,932 |
| Total\tdebt\tand\tequity\tsecurities | $186,576 | $1,808 | $- | $188,384 |

On	February	3,	2006	and	January	28,	2005,	these	investments	were	included	in	the	following	accounts	in	the	consolidated balance	sheets	(in	thousands):

| February	3,	2006 | Held-to-<br>Maturity<br>Securities | Available-<br>for-Sale<br>Securities | Trading<br>Securities |
| :--- | :--- | :--- | :--- |
| Cash\tand\tcash\tequivalents | $44,870 | $16,300 | $- |
| Short-term\tinvestments | 8,850 | - | - |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | - | - | 14,515 |
| Other\tassets,\tnet | 16,913 | - | 358 |
| Current\tportion\tof\tlong-term\tobligations |  |  |  |
| (see\tNote\t5) | 1,108 | - | - |
| Long-term\tobligations\t(see\tNote\t5) | 46,043 | - | - |
|  | $117,784 | $16,300 | $14,873 |
| January\t28,\t2005 |  |  |  |
| Cash\tand\tcash\tequivalents | $44,922 | $38,618 | $- |
| Short-term\tinvestments | 500 | 42,425 | - |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | - | - | 11,932 |
| Current\tportion\tof\tlong-term\tobligations\n(see\tNote\t5) | 1,048 | - | - |
| Long-term\tobligations\t(see\tNote\t5) | 47,131 | - | - |
|  | $93,601 | $81,043 | $11,932 |

The	contractual	maturities	of	held-to-maturity	and	available-for-sale	securities	as	of	February	3,	2006	were	as	follows	(in thousands):

|  | Held-to-Maturity	Securities | Held-to-Maturity	Securities | Available-for-Sale	Securities | Available-for-Sale	Securities |
| :--- | :--- | :--- | :--- | :--- |
|  | Cost | Fair\tValue | Cost | Fair\tValue |
| Less\tthan\tone\tyear | $53,638 | $53,624 | $- | $- |
| One\tto\tthree\tyears | 13,929 | 13,877 | - | - |
| Greater\tthan\tthree\tyears | 50,217 | 52,534 | - | - |
| Equity\tsecurities | - | - | 16,300 | 16,300 |
|  | $117,784 | $120,035 | $16,300 | $16,300 |

For	the	years	ended	February	3,	2006,	January	28,	2005,	and	January	30,	2004,	gross	realized	gains	and	losses	on	the	sales	of available-for-sale	securities	were	not	material.		The	cost	of	securities	sold	is	based	upon	the	specific	identification	method.

# Merchandise	inventories

Inventories	are	stated	at	the	lower	of	cost	or	market	with	cost	determined	using	the	retail	last-in,	first-out	("LIFO")	method.	The excess	of	current	cost	over	LIFO	cost	was	approximately	$5.8	million	at	February	3,	2006	and	$6.3	million	at	January	28,	2005.	Current cost	is	determined	using	the	retail	first-in,	first-out	method.		LIFO	reserves	decreased	$0.5	million	and	$0.2	million	in	2005	and	2004, respectively,	and	increased	$0.7	million	in	2003.		Costs	directly	associated	with	warehousing	and	distribution	are	capitalized	into inventory.

In	2005,	the	Company	expanded	the	number	of	inventory	departments	it	utilizes	for	its	gross	profit	calculation	from	10	to	23.	The impact	of	this	change	in	estimate	on	the	Company's

consolidated	2005	results	of	operations	was	an	estimated	reduction	of	gross	profit	and	a	corresponding	decrease	to	inventory,	at	cost,	of $5.2	million.

# Store	pre-opening	costs

Pre-opening	costs	related	to	new	store	openings	and	the	construction	periods	are	expensed	as	incurred.

# Property	and	equipment

Property	and	equipment	are	recorded	at	cost.		The	Company	provides	for	depreciation	and	amortization	on	a	straight-line	basis over	the	following	estimated	useful	lives:

| Land	improvements | 20 |
| :--- | :--- |
| Buildings | 39-40 |
| Furniture,\tfixtures\tand\tequipment | 3-10 |

Improvements	of	leased	properties	are	amortized	over	the	shorter	of	the	life	of	the	applicable	lease	term	or	the	estimated	useful life	of	the	asset.

# Impairment	of	long-lived	assets

When	indicators	of	impairment	are	present,	the	Company	evaluates	the	carrying	value	of	long-lived	assets,	other	than	goodwill, in	relation	to	the	operating	performance	and	future	cash	flows	or	the	appraised	values	of	the	underlying	assets.			The	Company	may adjust	the	net	book	value	of	the	underlying	assets	based	upon	such	cash	flow	analysis	compared	to	the	book	value	and	may	also	consider appraised	values.		Assets	to	be	disposed	of	are	adjusted	to	the	fair	value	less	the	cost	to	sell	if	less	than	the	book	value.		The	Company recorded	impairment	charges	of	approximately	$0.5	million	and	$0.6	million	in	2004	and	2003,	respectively,	and	$4.7	million	prior	to 2003	to	reduce	the	carrying	value	of	its	Homerville,	Georgia	DC	(which	was	sold	in	2004).		The	Company	also	recorded	impairment charges	of	approximately	$0.6	million	in	2005	and	$0.2	million	in	each	of	2004	and	2003	to	reduce	the	carrying	value	of	certain	of	its stores'	assets	as	deemed	necessary	due	to	negative	sales	trends	and	cash	flows	at	these	locations.	These	charges	are	included	in	SG&A expense.

# Other	assets

Other	assets	consist	primarily	of	long-term	investments,	debt	issuance	costs	which	are	amortized	over	the	life	of	the	related obligations,	utility	and	security	deposits,	life	insurance	policies	and	goodwill.

# Vendor	rebates

The	Company	records	vendor	rebates,	primarily	consisting	of	new	store	allowances,	volume	purchase	rebates	and	promotional allowances,	when	realized.		The	rebates	are	recorded	as	a	reduction	to	inventory	purchases,	at	cost,	which	has	the	effect	of	reducing	cost of	goods	sold,	as	prescribed	by	Emerging	Issues	Task	Force	("EITF")	Issue	No.	02-16,	"Accounting	by	a	Customer	(including	a Reseller)	for	Certain	Consideration	Received	from	a	Vendor".

# Rent	expense

Rent	expense	is	recognized	over	the	term	of	the	lease.		The	Company	records	minimum	rental	expense	on	a	straight-line	basis over	the	base,	non-cancelable	lease	term	commencing	on	the	date	that	the	Company	takes	physical	possession	of	the	property	from	the landlord,	which	normally	includes	a	period	prior	to	store	opening	to	make	necessary	leasehold	improvements	and	install	store	fixtures. 	When	a	lease	contains	a	predetermined	fixed	escalation	of	the	minimum	rent,	the	Company	recognizes	the	related	rent	expense	on	a straight-line	basis	and	records	the	difference	between	the	recognized	rental	expense	and	the	amounts	payable	under	the	lease	as	deferred rent.		The	Company	also	receives	tenant	allowances,	which	are	recorded	in	deferred	incentive	rent	and	are	amortized	as	a	reduction	to rent	expense	over	the	term	of	the	lease.		Any	difference	between	the	calculated	expense	and	the	amounts	actually	paid	are	reflected	as	a liability	in	Accrued	expenses	and	other	in	the	consolidated	balance	sheets	and	totaled	approximately	$25.0	million	and	$18.0	million	at February	3,	2006	and	January	28,	2005,	respectively.

The	Company	recognizes	contingent	rental	expense	when	the	achievement	of	specified	sales	targets	are	considered	probable,	in accordance	with	EITF	Issue	No.	98-9,	"Accounting	for	Contingent	Rent."	The	amount	expensed	but	not	paid	as	of	February	3,	2006	and January	28,	2005	was	approximately	$9.3	million	and	$8.6	million,	respectively,	and	is	included	in	Accrued	expenses	and	other	in	the consolidated	balance	sheets.	(See	Notes	3	and	7).

# Insurance	reserves

The	Company	retains	a	significant	portion	of	risk	for	its	workers'	compensation,	employee	health,	general	liability,	property	and automobile	claim	exposures.		Accordingly,	provisions	are	made	for	the	Company's	estimates	of	such	risks.		Actuaries	are	utilized	to determine	the	undiscounted	future	claim	costs	for	the	workers'	compensation,	general	liability,	and	health	claim	risks.		To	the	extent	that subsequent	claim	costs	vary	from	those	estimates,	future	results	of	operations	will	be	affected.	Ashley	River	Insurance	Company	(or ARIC,	as	defined	above),	a	South	Carolina-based	wholly	owned	captive	insurance	subsidiary	of	the	Company,	charges	the	operating subsidiary	companies	premiums	to	insure	the	retained	workers'	compensation	and	non-property	general	liability	exposures.		Pursuant	to South	Carolina	insurance	regulations,	ARIC	has	cash	and	cash	equivalents	and	investment	balances	that	are	subject	to	restrictions	and	are not	available	for	general	corporate	purposes,	as	further	described	above	under	"Investments	in	debt	and	equity	securities."	ARIC currently	insures	no	unrelated	third-party	risk.	The	Greater	Cumberland	Insurance	Company,	formerly	a	Vermont-based	wholly	owned captive	insurance	subsidiary	of	the	Company,	was	liquidated	in	2005.

# Fair	value	of	financial	instruments

The	carrying	amounts	reflected	in	the	consolidated	balance	sheets	for	cash,	cash	equivalents,	short-term	investments,	receivables and	payables	approximate	their	respective	fair	values.		At	February	3,	2006	and	January	28,	2005,	the	fair	value	of	the	Company's	debt, excluding	capital	lease	obligations,	was	approximately	$281.0	million	and	$275.9	million,	respectively	(net	of	the	fair	value	of	a	note receivable	on	the	South	Boston,	Virginia	DC	of	approximately	$49.5	million	and	$50.0	million,	respectively,	as	further	discussed	in	Note 7),

based	upon	the	estimated	market	value	of	the	debt	at	those	dates.		Such	fair	value	exceeded	the	carrying	values	of	the	debt	at	February	3, 2006	and	January	28,	2005	by	approximately	$24.2	million	and	$32.7	million,	respectively.	Fair	values	are	based	primarily	on	quoted prices	for	those	or	similar	instruments.		A	discussion	of	the	carrying	value	and	fair	value	of	the	Company's	derivative	financial instruments	is	included	in	the	section	entitled	"Derivative	financial	instruments"	below.

# Derivative	financial	instruments

The	Company	accounts	for	derivative	financial	instruments	in	accordance	with	the	provisions	of	SFAS	No.	133,	"Accounting	for Derivative	Instruments	and	Hedging	Activities",	as	amended	by	SFAS	Nos.	137,	138	and	149	and	interpreted	by	numerous	Financial Accounting	Standards	Board	("FASB")	Issues.	These	statements	require	the	Company	to	recognize	all	derivative	instruments	on	the balance	sheet	at	fair	value,	and	contain	accounting	rules	for	hedging	instruments,	which	depend	on	the	nature	of	the	hedge	relationship.

The	Company	has	historically	used	derivative	financial	instruments	primarily	to	reduce	its	exposure	to	adverse	fluctuations	in interest	rates	and,	to	a	much	lesser	extent,	other	market	exposures.

As	a	matter	of	policy,	the	Company	does	not	buy	or	sell	financial	instruments,	including	derivatives,	for	speculative	or	trading purposes	and	all	financial	instrument	transactions	must	be	authorized	and	executed	pursuant	to	the	approval	of	the	Board	of	Directors.	All financial	instrument	positions	taken	by	the	Company	are	used	to	reduce	risk	by	hedging	an	underlying	economic	exposure	and	are structured	as	straightforward	instruments	with	liquid	markets.	The	Company	primarily	executes	derivative	transactions	with	major financial	institutions.

The	following	table	summarizes	activity	in	Accumulated	other	comprehensive	loss	during	2005	related	to	derivative	transactions used	by	the	Company	in	prior	periods	to	hedge	cash	flow	exposures	relating	to	certain	debt	transactions	(in	thousands):

|  | Before-Tax<br>Amount | Income	Tax | After-Tax<br>Amount |
| :--- | :--- | :--- | :--- |
| Accumulated\tnet\tlosses\tas\tof\tJanuary\t28,\t2005 | $\t(1,539) | $\t566 | $\t(973) |
| Net\tlosses\treclassified\tfrom\tOther\tcomprehensive\nloss\tinto\tearnings | 286 | (107) | 179 |
| Accumulated\tnet\tlosses\tas\tof\tFebruary\t3,\t2006 | $\t(1,253) | $\t459 | $\t(794) |

The	balance	remaining	in	Accumulated	other	comprehensive	loss	at	February	3,	2006	relates	solely	to	deferred	losses	realized	in June	2000	on	the	settlement	of	an	interest	rate	derivative	that	was	designated	and	effective	as	a	cash	flow	hedge	of	the	Company's forecasted	issuance	of	its	$200	million	of	fixed	rate	notes	in	June	2000	(see	Note	5).	This	amount	will	be	reclassified	into	earnings	as	an adjustment	to	the	effective	interest	expense	on	the	fixed	rate	notes	through	their	maturity	date	in	June	2010.	The	Company	estimates	that it	will	reclassify	into	earnings	during	the	next	twelve	months	approximately	$0.2	million	of	the	net	amount	recorded	in	Other comprehensive	loss	as	of	February	3,	2006.

# Stock-based	compensation

The	Company	has	a	shareholder-approved	stock	incentive	plan	under	which	stock	options,	restricted	stock,	restricted	stock	units and	other	equity-based	awards	may	be	granted	to	officers,	directors	and	key	employees.		Prior	to	June	2003,	the	plan	provided	for automatic	annual	stock	option	grants	to	non-employee	directors	pursuant	to	a	non-discretionary	formula.		Those	stock	options	vested	one year	after	the	grant	date	and	generally	have	a	ten-year	life.

Stock	options	currently	are	granted	under	this	plan	at	the	market	price	on	the	grant	date	and	have	a	ten-year	life	subject	to	earlier termination	upon	death,	disability	or	cessation	of	employment.		Stock	options	granted	under	this	plan	(other	than	those	granted	to directors	pursuant	to	the	automatic	grant	provisions	discussed	above)	generally	vest	ratably	over	a	four-year	period,	with	certain exceptions	as	further	described	in	Note	9.	However,	on	January	24,	2006,	the	Compensation	Committee	of	the	Company's	Board	of Directors	accelerated	the	vesting	of	most	of	the	Company's	outstanding	stock	options	as	further	described	in	Note	9.

The	Company	accounts	for	stock	option	grants	in	accordance	with	Accounting	Principles	Board	Opinion	No.	25,	"Accounting	for Stock	Issued	to	Employees"	("APB	No.	25"),	and	related	interpretations.	Under	APB	No.	25,	compensation	expense	is	generally	not recognized	for	plans	in	which	the	exercise	price	of	the	stock	options	equals	the	market	price	of	the	underlying	stock	on	the	date	of	grant and	the	number	of	shares	subject	to	exercise	is	fixed.	Had	compensation	cost	for	the	Company's	stock-based	compensation	plans	been determined	based	on	the	fair	value	at	the	grant	date	for	awards	under	these	plans	consistent	with	the	methodology	prescribed	under SFAS	No.	123	(with	compensation	expense	amortized	ratably	over	the	applicable	vesting	periods),	net	income	and	earnings	per	share would	have	been	reduced	to	the	pro	forma	amounts	indicated	in	the	following	table.

| (Amounts	in	thousands	except	per	share	data) | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Net\tincome\t–\tas\treported | $\t350,155 | $\t344,190 | $\t299,002 |
| Less\tpro\tforma\teffect\tof\tstock-based\tcompensation\tcost,\tnet\nof\ttaxes | 32,621 | 10,724 | 7,867 |
| Net\tincome\t–\tpro\tforma | $\t317,534 | $\t333,466 | $\t291,135 |
| Earnings\tper\tshare\t–\tas\treported |  |  |  |
| Basic | $\t1.09 | $\t1.04 | $\t0.89 |
| Diluted | $\t1.08 | $\t1.04 | $\t0.89 |
| Earnings\tper\tshare\t–\tpro\tforma |  |  |  |
| Basic | $\t0.99 | $\t1.01 | $\t0.87 |
| Diluted | $\t0.98 | $\t1.00 | $\t0.86 |

The	increase	in	the	pro-forma	stock-based	compensation	cost	in	2005	was	the	result	of	the	acceleration	of	the	vesting	of	certain stock	options	as	further	discussed	in	Note	9.	The	decision	to	accelerate	the	vesting	of	stock	options	was	made	primarily	to	reduce	non- cash	compensation	expense	that	would	have	been	recorded	in	future	periods	following	the	adoption	of	SFAS	No.	123(R)	in	the	first quarter	of	fiscal	year	2006.

As	allowed	by	the	stock	incentive	plans,	the	Company	has	historically	extended	the	exercise	period	for	outstanding	stock	option grants	to	three	years	from	the	date	of	cessation	of	employment	with	the	Company	for	former	employees	who	meet	certain	"early retirement"	criteria	which	may	include	their	age	and	years	of	service,	to	the	extent	that	their	stock	options

were	fully	vested	at	the	date	their	employment	ended.	However,	this	practice	does	not	extend	the	ten-year	maximum	contractual	exercise term	following	the	date	of	grant.	Upon	the	adoption	of	SFAS	No.	123(R),	"Share-Based	Payment"	discussed	below,	the	Company	will be	required	to	record	compensation	costs	over	the	period	through	the	date	that	such	employees	are	no	longer	required	to	provide	service to	earn	the	award	(generally,	the	first	date	that	the	employee	is	eligible	to	retire).

The	Company	may	periodically	award	restricted	stock	or	restricted	stock	units	to	officers	and	other	key	employees	under	the stock	incentive	plan.		The	terms	of	the	stock	incentive	plan	limit	the	total	number	of	shares	of	restricted	stock	and	restricted	stock	units eligible	for	issuance	thereunder	to	a	maximum	of	4	million	shares.		Restricted	stock	awards	consist	of	a	fixed	number	of	shares	of common	stock	that	generally	vest	ratably	over	three	years.		Restricted	stock	units	represent	the	right	to	receive	one	share	of	common stock	for	each	unit	upon	vesting	and	generally	vest	ratably	over	three	years.		In	addition,	the	stock	incentive	plan	was	amended	in	June 2003	to	provide	for	the	automatic	annual	grant	of	4,600	restricted	stock	units	to	each	non-employee	director	(6,000	restricted	stock	units to	any	non-employee	director	serving	as	Chairman)	in	lieu	of	the	automatic	annual	stock	option	grants	to	directors	discussed	previously. The	initial	grant	of	these	restricted	stock	units	was	made	in	2004.		These	units	generally	vest	one	year	after	the	grant	date,	subject	to earlier	vesting	upon	retirement	or	other	circumstances	described	in	the	plan,	but	no	payout	shall	be	made	until	the	individual	has	ceased to	be	a	member	of	the	Board	of	Directors.		Dividends	or	dividend	equivalents,	as	the	case	may	be,	are	paid	or	accrued	on	the	grants	to officers	and	directors	of	restricted	stock	and	restricted	stock	units	at	the	same	rate	that	dividends	are	paid	to	shareholders	generally.

The	Company	accounts	for	restricted	stock	grants	in	accordance	with	APB	No.	25	and	related	interpretations.		Under	APB	No. 25,	the	Company	calculates	compensation	expense	as	the	difference	between	the	market	price	of	the	underlying	stock	on	the	date	of grant	and	the	purchase	price,	if	any,	and	recognizes	such	amount	on	a	straight-line	basis	over	the	period	in	which	the	restricted	stock award	is	earned	by	the	recipient.		The	Company	recognized	compensation	expense	relating	to	its	restricted	stock	awards	of approximately	$2.4	million,	$1.8	million	and	$0.4	million	in	2005,	2004	and	2003,	respectively	(see	Note	9).

# Revenue	and	gain	recognition

The	Company	recognizes	retail	sales	in	its	stores	at	the	time	the	customer	takes	possession	of	merchandise.		All	sales	are	net	of discounts	and	returns	and	exclude	sales	tax.		The	reserve	for	retail	merchandise	returns	is	based	on	the	Company's	prior	experience.	The Company	records	gain	contingencies	when	realized.

The	Company	began	gift	card	sales	in	the	third	quarter	of	2005.		The	Company	recognizes	gift	card	sales	revenue	at	the	time	of redemption.		The	liability	for	the	gift	cards	is	established	for	the	cash	value	at	the	time	of	purchase.	The	liability	for	outstanding	gift cards	is	recorded	in	Accrued	expenses	and	other.

# Advertising	costs

Advertising	costs	are	expensed	as	incurred	and	were	$15.1	million,	$7.9	million	and	$5.4	million	in	2005,	2004	and	2003, respectively.		These	costs	primarily	related	to	targeted	circulars	supporting	new	stores	and	in-store	signage.	Additionally,	beginning	in 2005,	the	Company	expanded	its	marketing	and	advertising	efforts	with	the	sponsorship	of	a	National	Association	for	Stock	Car	Auto Racing	("NASCAR")	team.

# Capitalized	interest

To	assure	that	interest	costs	properly	reflect	only	that	portion	relating	to	current	operations,	interest	on	borrowed	funds	during	the construction	of	property	and	equipment	is	capitalized.		Interest	costs	capitalized	were	approximately	$3.3	million,	$3.6	million	and	$0.2 million	in	2005,	2004	and	2003,	respectively.

# Income	taxes

The	Company	reports	income	taxes	in	accordance	with	SFAS	No.	109,	"Accounting	for	Income	Taxes."		Under	SFAS	No.	109, the	asset	and	liability	method	is	used	for	computing	future	income	tax	consequences	of	events	that	have	been	recognized	in	the Company's	consolidated	financial	statements	or	income	tax	returns.		Deferred	income	tax	expense	or	benefit	is	the	net	change	during	the year	in	the	Company's	deferred	income	tax	assets	and	liabilities.

# Management	estimates

The	preparation	of	financial	statements	and	related	disclosures	in	conformity	with	accounting	principles	generally	accepted	in	the United	States	requires	management	to	make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	consolidated	financial	statements	and	the	reported	amounts	of	revenues and	expenses	during	the	reporting	periods.		Actual	results	could	differ	from	those	estimates.

In	December	2004,	the	Financial	Accounting	Standards	Board	("FASB")	issued	Statement	of	Financial	Accounting	Standards ("SFAS")	No.	123(R),	"Share-Based	Payment,"	which	will	require	an	entity	to	measure	compensation	cost	for	all	share-based	payments (including	grants	of	employee	stock	options)	at	fair	value.		The	Company	will	adopt	SFAS	No.	123(R)	during	the	first	quarter	of	2006 and	expects	to	apply	the	standard	using	the	modified	prospective	method,	which	requires	compensation	expense	to	be	recorded	for	new and	modified	awards	and	also	for	unvested	portions	of	previously	issued	and	outstanding	awards.	The	Company	expects	to	incur incremental	SG&A	expense	associated	with	the	adoption	of	approximately	$5	million	in	2006,	dependent	upon	the	number	of	grants	and their	related	fair	market	values.		See	Stock-based	compensation	above	for	disclosure	of	the	pro	forma	effects	of	stock	option	grants	as determined	using	the	methodology	prescribed	under	SFAS	No.	123.

SFAS	No.	123(R)	also	requires	the	benefits	of	tax	deductions	in	excess	of	recognized	compensation	cost	be	reported	as	a financing	cash	flow,	rather	than	as	an	operating	cash	flow	as

On	January	24,	2006,	the	Compensation	Committee	("Committee")	of	the	Company's	Board	of	Directors	approved	the acceleration	of	vesting	for	6.4	million	of	the	Company's	outstanding	stock	options	awarded	prior	to	August	2,	2005.	The	vesting acceleration	was	effective	February	3,	2006.	Vesting	was	not	accelerated	for	stock	options	held	by	the	CEO	and	stock	options	granted	in 2005	to	the	officers	of	the	Company	at	the	level	of	Executive	Vice	President	or	higher.		In	addition,	pursuant	to	that	Committee	action, the	vesting	of	all	outstanding	options	granted	on	or	after	August	2,	2005	but	prior	to	January	24,	2006,	other	than	options	granted	during that	time	period	to	the	officers	of	the	Company	at	the	level	of	Executive	Vice	President	or	higher,	accelerated	effective	as	of	the	date	that is	six	months	after	the	applicable	grant	date.		Certain	options	granted	on	January	24,	2006	to	certain	newly	hired	officers	below	the	level of	Executive	Vice	President	were	granted	with	a	six-month	vesting	period.		The	decision	to	accelerate	the	vesting	of	stock	options	was made	primarily	to	reduce	non-cash	compensation	expense	that	would	have	been	recorded	in	future	periods	following	the	adoption	of SFAS	No.	123(R)	in	the	first	quarter	of	fiscal	year	2006.		This	action	is	expected	to	enable	the	Company	to	eliminate	approximately	$28 million	of	expense,	before	income	taxes,	over	the	four	year	period	during	which	the	stock	options	would	have	vested,	subject	to	the impact	of	additional	adjustments	related	to	the	forfeiture	of	certain	stock	options.		The	Company	also	believes	this	decision	benefits employees.		In	connection	with	the	acceleration	and	in	accordance	with	the	provisions	of	APB	25,	the	Company	recorded	compensation expense	of	$0.9	million,	before	income	taxes,	during	2005.

provisions	of	FIN	47	during	the	fourth	quarter	of	2005,	and	such	adoption	did	not	have	a	material	impact	on	the	Company's	consolidated financial	statements	as	a	whole.

# Reclassifications

Certain	reclassifications	of	the	2004	and	2003	amounts	have	been	made	to	conform	to	the	2005	presentation.

Property	and	equipment	is	recorded	at	cost	and	summarized	as	follows:

| (In	thousands) | 2005 | 2004 |
| :--- | :--- | :--- |
| Land\tand\tland\timprovements | $147,039 | $145,194 |
| Buildings | 381,460 | 333,667 |
| Leasehold\timprovements | 209,701 | 191,103 |
| Furniture,\tfixtures\tand\tequipment | 1,437,324 | 1,196,094 |
| Construction\tin\tprogress | 46,016 | 74,277 |
|  | 2,221,540 | 1,940,335 |
| Less\taccumulated\tdepreciation\tand\tamortization | 1,029,368 | 859,497 |
| Net\tproperty\tand\tequipment | $1,192,172 | $ 1,080,838 |

Depreciation	expense	related	to	property	and	equipment	was	approximately	$186.1	million,	$163.1	million	and	$150.9	million	in 2005,	2004	and	2003,	respectively.	Amortization	of	capital	lease	assets	is	included	in	depreciation	expense.

# 3. Accrued	expenses	and	other

Accrued	expenses	and	other	consist	of	the	following:

| (In	thousands) | 2005 | 2004 |
| :--- | :--- | :--- |
| Compensation\tand\tbenefits | $53,784 | $60,635 |
| Insurance | 154,693 | 130,506 |
| Taxes\t(other\tthan\ttaxes\ton\tincome) | 58,967 | 45,005 |
| Other | 105,476 | 97,743 |
|  | $372,920 | $333,889 |

Other	accrued	expenses	primarily	include	liabilities	for	deferred	rent,	freight	expense,	contingent	rent	expense,	interest, electricity,	and	common	area	maintenance	charges.

The	provision	(benefit)	for	income	taxes	consists	of	the	following:

| (In	thousands) | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Current: |  |  |  |
| Federal | $175,344 | $155,497 | $145,072 |
| Foreign | 1,205 | 1,169 | - |
| State | 9,694 | 8,150 | 13,838 |
|  | 186,243 | 164,816 | 158,910 |
| Deferred: |  |  |  |
| Federal | 8,479 | 21,515 | 17,224 |
| Foreign | 17 | 21 | - |
| State | (252) | 4,215 | 1,387 |
|  | 8,244 | 25,751 | 18,611 |
|  | $194,487 | $190,567 | $177,521 |

A	reconciliation	between	actual	income	taxes	and	amounts	computed	by	applying	the	federal	statutory	rate	to	income	before income	taxes	is	summarized	as	follows:

| on	earnings	before |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| income\ttaxes | $190,625 | 35.0\t% | $187,165 | 35.0\t% | $166,783 | 35.0\t% |
| State\tincome\ttaxes,\tnet\tof\tfederal\nincome\ttax\tbenefit | 6,223 | 1.1 | 8,168 | 1.5 | 10,773 | 2.3 |
| Jobs\tcredits,\tnet\tof\tfederal\nincome\ttaxes | (4,503) | (0.8) | (5,544) | \t(1.0) | (3,817) | (0.8) |
| Decrease\tin\tvaluation\tallowances | (88) | (0.0) | (106) | \t(0.0) | (582) | (0.1) |
| Non-deductible\tpenalty | - | - | - | - | 3,500 | 0.7 |
| Other | 2,230 | 0.4 | 884 | 0.1 | 864 | 0.2 |
|  | $194,487 | 35.7\t% | $190,567 | 35.6\t% | $177,521 | 37.3\t% |

While	the	2005	and	2004	rates	were	similar	overall,	the	rates	contained	offsetting	differences.		Non-recurring	factors	causing	the 2005	tax	rate	to	increase	when	compared	to	the	2004	tax	rate	include	a	reduction	in	federal	jobs	credits	of	approximately	$1.0	million, additional	net	foreign	income	tax	expense	of	approximately	$0.8	million	and	a	decrease	in	the	contingent	income	tax	reserve	due	to resolution	of	contingent	liabilities	that	is	$3.6	million	less	than	the	decrease	that	occurred	in	2004.		Non-recurring	factors	causing	the 2005	tax	rate	to	decrease	when	compared	to	the	2004	tax	rate	include	the	recognition	of	state	tax	credits	of	approximately	$2.3	million related	to	the	Company's	construction	of	a	distribution	center	in	Indiana	and	a	non-recurring	benefit	of	approximately	$2.6	million related	to	an	internal	restructuring	that	was	completed	during	2005.

The	2004	rate	was	lower	than	the	2003	rate	primarily	due	to	the	reversal	of	certain	contingent	income	tax	liabilities	of approximately	$6.2	million	in	2004,	when	the	Company	adjusted	its	tax	contingency	reserve	based	upon	the	results	of	two	state	income tax	examinations.	The	tax	rate	in	2003	was	negatively	impacted	by	the	$10.0	million	penalty	expense	in	2003,	related	to	the	restatement of	the	Company's	2001	and	earlier	financial	statements,	which	was	not	deductible	for	income	tax	purposes.

Deferred	taxes	reflect	the	effects	of	temporary	differences	between	carrying	amounts	of	assets	and	liabilities	for	financial reporting	purposes	and	the	amounts	used	for	income	tax	purposes.	Significant	components	of	the	Company's	deferred	tax	assets	and liabilities	are	as	follows:

| (In	thousands) | 2005 | 2004 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets: |  |  |
| Deferred\tcompensation\texpense | $15,166 | $17,310 |
| Accrued\texpenses\tand\tother | 3,916 | 4,006 |
| Accrued\trent | 7,137 | 4,883 |
| Accrued\tinsurance | 9,240 | 25,950 |
| Deferred\tgain\ton\tsale/leasebacks | 2,465 | 2,624 |
| Other | 3,712 | 3,755 |
| State\ttax\tnet\toperating\tloss\tcarryforwards,\tnet\tof\tfederal\ttax | 7,416 | 9,180 |
| State\ttax\tcredit\tcarryforwards,\tnet\tof\tfederal\ttax | 4,711 | 1,982 |
|  | 53,763 | 69,690 |
| Less\tvaluation\tallowances | (2,038) | (2,126) |
| Total\tdeferred\ttax\tassets | 51,725 | 67,564 |
| Deferred\ttax\tliabilities: |  |  |
| Property\tand\tequipment | (74,609) | (82,807) |
| Inventories | (32,301) | (31,635) |
| Other | (536) | (599) |
| Total\tdeferred\ttax\tliabilities | (107,446) | (115,041) |
| Net\tdeferred\ttax\tliabilities | $(55,721) | $(47,477) |

Net	deferred	tax	liabilities	are	reflected	separately	on	the	consolidated	balance	sheets	as	current	and	noncurrent	deferred	income taxes.	The	following	table	summarizes	net	deferred	income	tax	liabilities	from	the	consolidated	balance	sheets:

| (In	thousands) | 2005 | 2004 |
| :--- | :--- | :--- |
| Current\tdeferred\tincome\ttax\tassets,\tnet | $11,912 | $24,908 |
| Noncurrent\tdeferred\tincome\ttax\tliabilities,\tnet | (67,633) | (72,385) |
| Net\tdeferred\ttax\tliabilities | $(55,721) | $(47,477) |

State	net	operating	loss	carryforwards	as	of	February	3,	2006,	totaled	approximately	$186	million	and	will	expire	beginning	in 2006	through	2023.		The	Company	also	has	state	credit	carryforwards	of	approximately	$7.3	million	that	will	expire	beginning	in	2006 through	2016.

The	valuation	allowance,	as	of	2005,	has	been	provided	principally	for	certain	state	tax	credit	carryforwards.		In	2005,	after	an internal	restructuring,	all	valuation	allowances	related	to	state	net	operating	loss	carryforwards	were	removed	resulting	in	a	reduction	in the	valuation	allowance	of	approximately	$1.1	million.		This	decrease	was	offset	by	additions	to	the	valuation	allowance	applied	to certain	state	tax	credit	carryforwards	of	approximately	$0.9	million	due	to

the	same	internal	restructuring.		The	remaining	change	in	the	valuation	allowance,	an	increase	of	approximately	$0.1	million,	related primarily	to	changes	in	state	tax	credits	that	were	unrelated	to	the	2005	internal	restructuring.

Approximately	$1.0	million	of	the	2003	valuation	allowance	reduction	was	due	to	certain	state	tax	law	changes	during	the	year which	caused	the	future	recognition	of	certain	state	tax	credit	carryforwards	to	be	considered	more	likely	than	not	to	occur,	thereby resulting	in	the	reduction	of	a	valuation	allowance	created	in	an	earlier	year.		The	change	in	the	valuation	allowance,	including	the changes	noted	above,	was	a	decrease	of	$0.1	million,	$0.1	million	and	$0.6	million	in	2005,	2004,	and	2003,	respectively.		Based	upon expected	future	income	and	available	tax	planning	strategies,	management	believes	that	it	is	more	likely	than	not	that	the	results	of operations	will	generate	sufficient	taxable	income	to	realize	the	deferred	tax	assets	after	giving	consideration	to	the	valuation	allowance.

The	Company	estimates	its	contingent	income	tax	liabilities	based	on	its	assessment	of	probable	income	tax-related	exposures	and the	anticipated	settlement	of	those	exposures	translating	into	actual	future	liabilities.	As	of	February	3,	2006	and	January	28,	2005,	the Company's	accrual	for	these	contingent	liabilities,	included	in	Income	taxes	payable	in	the	consolidated	balance	sheets,	was approximately	$13.4	million	and	$13.5	million,	respectively,	and	the	related	accrued	interest	included	in	Accrued	expenses	and	other	in the	consolidated	balance	sheets	was	approximately	$6.2	million	and	$6.9	million	respectively.

As	of	February	3,	2006	and	January	28,	2005,	the	Company	had	additional	exposure	in	the	amount	of	$3.8	million	and	$3.0 million,	respectively,	related	to	contingent	income	tax	liabilities	that	had	a	reasonable	possibility	of	being	recognized	as	a	loss	in	a	future period.		These	additional	amounts	relate	principally	to	income	tax	audits.		As	the	Company	does	not	consider	it	probable	that	a	loss	has yet	been	incurred	related	to	these	items,	no	portion	of	these	liabilities	has	been	recorded.

# 5. Current	and	long-term	obligations

Current	and	long-term	obligations	consist	of	the	following:

| (In	thousands) | February	3,	2006 | January	28,	2005 |
| :--- | :--- | :--- |
| 8\t5/8%\tNotes\tdue\tJune\t15,\t2010,\tnet\tof\tdiscount\tof\t$189\tand\t$232\nat\tFebruary\t3,\t2006\tand\tJanuary\t28,\t2005,\trespectively | $199,789 | $199,768 |
| Tax\tincrement\tfinancing\tdue\tFebruary\t1,\t2035 | 14,495 | - |
| Capital\tlease\tobligations\t(see\tNote\t7) | 22,028 | 28,178 |
| Financing\tobligations\t(see\tNote\t7) | 42,435 | 43,376 |
|  | 278,747 | 271,322 |
| Less:\tcurrent\tportion | (8,785) | (12,860) |
| Long-term\tportion | $269,962 | $258,462 |

The	Company's	existing	revolving	credit	facility	(the	"Credit	Facility")	has	a	current	maximum	commitment	of	$250	million	and expires	in	June	2009.		The	Credit	Facility	contains	provisions	that	would	allow	the	maximum	commitment	to	be	increased	to	up	to	$400 million	upon	mutual	agreement	of	the	Company	and	its	lenders.	The	Credit	Facility	is	unsecured.	The	Company	pays	interest	on	funds borrowed	under	the	Credit	Facility	at	rates	that	are	subject	to

change	based	upon	the	ratio	of	the	Company's	debt	to	EBITDA	(as	defined	in	the	Credit	Facility).		The	Company	has	two	interest	rate options,	base	rate	(which	is	usually	equal	to	prime	rate)	or	LIBOR.		Under	the	Credit	Facility,	the	facility	fees	can	range	from	12.5	to 37.5	basis	points;	the	all-in	drawn	margin	under	the	LIBOR	option	can	range	from	LIBOR	plus	87.5	to	212.5	basis	points;	and	the	all-in drawn	margin	under	the	base	rate	option	can	range	from	the	base	rate	plus	12.5	to	62.5	basis	points.	During	2005	and	2004,	the	Company had	peak	borrowings	of	$100.3	million	and	$73.1	million,	respectively,	under	the	Credit	Facility.	The	Credit	Facility	contains	financial covenants,	which	include	limits	on	certain	debt	to	cash	flow	ratios,	a	fixed	charge	coverage	test,	and	minimum	allowable	consolidated net	worth	($1.56	billion	at	February	3,	2006).		As	of	February	3,	2006,	the	Company	was	in	compliance	with	all	of	these	covenants.	As of	February	3,	2006,	the	Company	had	no	outstanding	borrowings	or	standby	letters	of	credit	outstanding	under	the	Credit	Facility.

In	July	2005,	as	an	inducement	for	the	Company	to	select	Marion,	Indiana	as	the	site	for	construction	of	a	new	DC,	the	Economic Development	Board	of	Marion	approved	a	tax	increment	financing	in	the	amount	of	$14.5	million.	The	principal	amounts	on	this financing	are	due	to	be	repaid	during	fiscal	years	2015	to	2035.	Pursuant	to	this	financing,	proceeds	from	the	issuance	of	certain	revenue bonds	were	loaned	to	the	Company	in	connection	with	the	construction	of	this	DC.			The	variable	interest	rate	on	this	loan	is	based	on	the weekly	remarketing	of	the	bonds,	which	are	supported	by	a	bank	letter	of	credit,	and	ranged	from	3.52%	to	4.60%	in	2005.

At	February	3,	2006	and	January	28,	2005,	the	Company	had	commercial	letter	of	credit	facilities	totaling	$195.0	million	and $215.0,	respectively,	of	which	$85.1	million	and	$98.8	million,	respectively,	were	outstanding	for	the	funding	of	imported	merchandise purchases.

In	2000,	the	Company	issued	$200	million	principal	amount	of	8	5/8%	Notes	due	June	2010	(the	"Notes").	The	Notes	require semi-annual	interest	payments	in	June	and	December	of	each	year	through	June	15,	2010,	at	which	time	the	entire	balance	becomes	due and	payable.		The	Notes	contain	certain	restrictive	covenants.		At	January	28,	2005,	the	Company	was	in	compliance	with	all	such covenants.

# 6. Earnings	per	share

The	amounts	reflected	below	are	in	thousands	except	per	share	data.

|  |  | 2005 |  |
| :--- | :--- | :--- | :--- |
|  | Net | Weighted\tAverage | Per\tShare |
|  | Income | Shares | Amount |
| Basic\tearnings\tper\tshare | $350,155 | 321,835 | $1.09 |
| Effect\tof\tdilutive\tstock\toptions,\trestricted\tstock\nand\trestricted\tstock\tunits |  | 2,298 |  |
| Diluted\tearnings\tper\tshare | $350,155 | 324,133 | $1.08 |

Basic	earnings	per	share	was	computed	by	dividing	net	income	by	the	weighted	average	number	of	shares	of	common	stock outstanding	during	the	year.		Diluted	earnings	per	share	was	determined	based	on	the	dilutive	effect	of	stock	options	using	the	treasury stock	method.

Options	to	purchase	shares	of	common	stock	that	were	outstanding	at	the	end	of	the	respective	fiscal	year,	but	were	not	included in	the	computation	of	diluted	earnings	per	share	because	the	options'	exercise	prices	were	greater	than	the	average	market	price	of	the common	shares,	were	7.9	million,	7.3	million	and	5.1	million	in	2005,	2004	and	2003,	respectively.

# 7. Commitments	and	contingencies

As	of	February	3,	2006,	the	Company	was	committed	under	capital	and	operating	lease	agreements	and	financing	obligations	for most	of	its	retail	stores,	four	of	its	DCs,	and	certain	of	its	furniture,	fixtures	and	equipment.		The	majority	of	the	Company's	stores	are subject	to	short-term	leases	(usually	with	initial	or	primary	terms	of	three	to	five	years)	with	multiple	renewal	options	when	available. 	The	Company	also	has	stores	subject	to	build-to-suit	arrangements	with	landlords,	which	typically	carry	a	primary	lease	term	of	between 7	and	10	years	with	multiple	renewal	options.	Approximately	half	of	the	stores	have	provisions	for	contingent	rentals	based	upon	a percentage	of	defined	sales	volume.		Certain	leases	contain	restrictive	covenants.		As	of	February	3,	2006,	the	Company	is	not	aware	of any	material	violations	of	such	covenants.

In	January	1999	and	April	1997,	the	Company	sold	its	DCs	located	in	Ardmore,	Oklahoma	and	South	Boston,	Virginia, respectively,	for	100%	cash	consideration.		Concurrent	with	the	sale	transactions,	the	Company	leased	the	properties	back	for	periods	of 23	and	25	years,	respectively.		The	transactions	have	been	recorded	as	financing	obligations	rather	than	sales	as	a	result	of,	among	other things,	the	lessor's	ability	to	put	the	properties	back	to	the	Company	under	certain	circumstances.		The	property	and	equipment,	along with	the	related	lease	obligations,	associated	with	these	transactions	are	recorded	in	the	consolidated	balance	sheets.

In	May	2003,	the	Company	purchased	two	secured	promissory	notes	(the	"DC	Notes")	from	Principal	Life	Insurance	Company totaling	$49.6	million.	The	DC	Notes	represent	debt	issued	by	a	third	party	entity	from	which	the	Company	leases	its	DC	in	South Boston,	Virginia.	The	DC	Notes	are	being	accounted	for	as	"held	to	maturity"	debt	securities	in	accordance	with

the	provisions	of	SFAS	No.	115.		However,	by	acquiring	the	DC	Notes,	the	Company	is	holding	the	debt	instruments	pertaining	to	its lease	financing	obligation	and,	because	a	legal	right	of	offset	exists,	has	reflected	the	acquired	DC	Notes	as	a	reduction	of	its	outstanding financing	obligations	in	its	consolidated	financial	statements	in	accordance	with	the	provisions	of	FASB	Interpretation	No.	39, "Offsetting	of	Amounts	Related	to	Certain	Contracts	–	An	Interpretation	of	APB	Opinion	No.	10	and	FASB	Statement	No.	105."		There was	no	gain	or	loss	recognized	as	a	result	of	this	transaction.

Future	minimum	payments	as	of	February	3,	2006,	for	capital	leases,	financing	obligations	and	operating	leases	are	as	follows:

| (In	thousands) | Capital<br>Leases | Financing<br>Obligations | Operating<br>Leases |
| :--- | :--- | :--- | :--- |
| 2006 | $\t9,293 | $\t\t9,283 | $\t281,615 |
| 2007 | 5,895 | \t9,564 | 235,959 |
| 2008 | 3,552 | \t9,510 | 188,266 |
| 2009 | 1,302 | \t8,915 | 149,196 |
| 2010 | 599 | \t8,915 | 120,270 |
| Thereafter | 7,635 | 128,992 | 393,542 |
| Total\tminimum\tpayments | 28,276 | \t175,179 | $\t1,368,848 |
| Less:\timputed\tinterest | (6,248) | (85,593) |  |
| Present\tvalue\tof\tnet\tminimum\tlease\npayments | 22,028 | \t89,586 |  |
| Less:\tpurchased\tpromissory\tnotes | - | (47,151) |  |
|  | 22,028 | 42,435 |  |
| Less:\tcurrent\tportion,\tnet | (7,862) | (923) |  |
| Long-term\tportion | $\t14,166 | $\t41,512 |  |

Capital	leases	were	discounted	at	an	effective	interest	rate	of	approximately	7.9%	at	February	3,	2006.		The	gross	amount	of property	and	equipment	recorded	under	capital	leases	and	financing	obligations	at	February	3,	2006	and	January	28,	2005,	was	$150.2 million	and	$183.8	million,	respectively.		Accumulated	depreciation	on	property	and	equipment	under	capital	leases	and	financing obligations	at	February	3,	2006	and	January	28,	2005,	was	$70.5	million	and	$94.5	million,	respectively.

Rent	expense	under	all	operating	leases	was	as	follows:

| (In	thousands) | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Minimum\trentals | $295,061 | $253,364 | $217,704 |
| Contingent\trentals | 17,245 | 15,417 | 14,302 |
|  | $312,306 | $268,781 | $232,006 |

# Legal	proceedings

On	March	14,	2002,	a	complaint	was	filed	in	the	United	States	District	Court	for	the	Northern	District	of	Alabama	(Edith	Brown, on	behalf	of	herself	and	others	similarly	situated	v.	Dolgencorp.	Inc.,	and	Dollar	General	Corporation,	CV02-C-0673-W	("Brown")). 	Brown	is	a	collective	action	against	the	Company	on	behalf	of	current	and	former	salaried	store	managers	claiming	that	these	individuals were	entitled	to	overtime	pay	and	should	not	have	been	classified

as	exempt	employees	under	the	Fair	Labor	Standards	Act	("FLSA").		Plaintiffs	seek	to	recover	overtime	pay,	liquidated	damages, declaratory	relief	and	attorneys'	fees.

On	January	12,	2004,	the	court	certified	an	opt-in	class	of	plaintiffs	consisting	of	all	persons	employed	by	the	Company	as	store managers	at	any	time	since	March	14,	1999,	who	regularly	worked	more	than	50	hours	per	week	and	either:	(1)	customarily	supervised less	than	two	employees	at	one	time;	(2)	lacked	authority	to	hire	or	discharge	employees	without	supervisor	approval;	or	(3)	sometimes worked	in	non-managerial	positions	at	stores	other	than	the	one	he	or	she	managed.		The	Company's	request	to	appeal	the	certification decision	on	a	discretionary	basis	to	the	11 th 	U.S.	Circuit	Court	of	Appeals	was	denied.

Notice	was	sent	to	prospective	class	members	and	the	deadline	for	individuals	to	opt	in	to	the	lawsuit	was	May	31,	2004. 	Approximately	5,000	individuals	opted	in.		Although	the	Company	has	several	pending	motions	that	may	dispose	of	all	or	portions	of the	case,	the	Company	is	unable	at	this	time	to	predict	whether	or	the	extent	to	which	any	of	these	motions	will	be	successful.		A	trial date	has	not	been	set.

Three	additional	lawsuits,	Tina	Depasquales	v.	Dollar	General	Corp.	(Southern	District	of	Georgia,	Savannah	Division,	CV	404- 096,	filed	May	12,	2004),	Karen	Buckley	v.	Dollar	General	Corp.	(Southern	District	of	Ohio,	C-2-04-484,	filed	June	8,	2004),	and	Sheila Ann	Hunsucker	v.	Dollar	General	Corp.	et	al.	(Western	District	of	Oklahoma,	Civ-04-165-R,	filed	February	19,	2004),	were	filed asserting	essentially	the	same	claims	as	the	Brown	case,	and	were	subsequently	consolidated	in	the	Northern	District	of	Alabama	where the	Brown	litigation	is	pending.	The	plaintiffs	in	the	Depasquales	and	the	Hunsucker	lawsuits	have	since	dismissed	their	cases	and	opted into	the	Brown	case.		The	Buckley	plaintiff	has	represented	to	the	Court	an	intent	to	abandon	the	federal	FLSA	claim	in	order	to	pursue	a class	action	under	Ohio's	state	law	equivalent	of	the	FLSA.

On	October	10,	2005,	the	Company	was	served	with	an	additional	lawsuit,	Moldoon,	et	al.	v.	Dolgencorp,	Inc.,	et	al.	(Western District	of	Louisiana,	Lake	Charles	Division,	CV05-0852,	filed	May	19,	2005),	filed	as	a	putative	collective	action	in	which	five	current or	former	store	managers	claim	to	have	been	improperly	classified	as	exempt	executive	employees	under	the	FLSA.		Plaintiffs	seek injunctive	relief,	back	wages,	liquidated	damages	and	attorneys'	fees.		Although	the	Company	has	answered	the	Moldoon	complaint, discovery	has	not	yet	begun.		At	this	time,	it	is	not	possible	to	predict	whether	the	Court	will	permit	this	action	to	proceed	collectively	or whether	the	action	will	be	consolidated	with	the	Brown	litigation.

The	Company	believes	that	its	store	managers	are	and	have	been	properly	classified	as	exempt	employees	under	the	FLSA	and that	the	actions	described	above	are	not	appropriate	for	collective	action	treatment.		The	Company	intends	to	vigorously	defend	these actions.		However,	no	assurances	can	be	given	that	the	Company	will	be	successful	in	that	defense	on	the	merits	or	otherwise,	and,	if	it	is not,	the	resolution	or	resolutions	could	have	a	material	adverse	effect	on	the	Company's	financial	statements	as	a	whole.

On	February	9,	2006,	a	complaint	was	filed	in	the	United	States	District	Court	for	the	Western	District	of	New	York	(Tammy Brickey,	Becky	Norman,	Rose	Rochow,	Sandra	Cogswell

and	Melinda	Sappington	v.	Dolgencorp,	Inc.	and	Dollar	General	Corporation,	Case	6:06-cv-06084-DGL	("Brickey").	The	Brickey plaintiffs	seek	to	proceed	collectively	under	the	FLSA	and	as	a	class	under	New	York	and	Ohio	wage	and	hour	statutes	on	behalf	of, among	others,	individuals	employed	by	the	Company	as	Assistant	Store	Managers	who	claim	to	be	owed	wages	(including	overtime wages)	under	those	statutes.	As	of	March	16,	2006,	the	Company	had	not	yet	been	served	with	the	Brickey	Complaint.		At	this	time,	it	is not	possible	to	predict	whether	the	court	will	permit	this	action	to	proceed	collectively	or	as	a	class.		However,	the	Company	believes that	this	action	is	not	appropriate	for	either	collective	or	class	treatment,	and	believes	that	its	wage	and	hour	policies	and	practices comply	with	both	federal	and	state	law.		Although	the	Company	plans	to	vigorously	defend	this	action	if	it	is	served,	no	assurances	can be	given	that	the	Company	will	be	successful	in	its	defense	on	the	merits	or	otherwise,	and,	if	it	is	not,	the	resolution	of	this	action	could have	a	material	adverse	effect	on	the	Company's	financial	statements	as	a	whole.

On	March	7,	2006,	a	complaint	was	filed	in	the	United	States	District	Court	for	the	Northern	District	of	Alabama	(Janet	Calvert v.	Dolgencorp,	Inc.,	Case	2:06-cv-00465-VEH)	("Calvert"),	in	which	the	plaintiff,	a	former	Store	Manager,	alleged	that	she	was	paid	less than	male	Store	Managers	because	of	her	sex,	in	violation	of	the	Equal	Pay	Act	("EPA")	and	Title	VII	of	the	Civil	Rights	Act	of	1964,	as amended	("Title	VII").		On	March	9,	2006,	the	Calvert	complaint	was	amended	to	include	seven	additional	plaintiffs,	who	also	allege	to have	been	paid	less	than	males	because	of	their	sex,	and	to	add	allegations	of	sex	discrimination	in	promotional	opportunities	and undefined	terms	and	conditions	of	employment.		In	addition	to	allegations	of	intentional	sex	discrimination,	the	amended	Calvert complaint	also	alleges	that	the	Company's	employment	policies	and	practices	have	a	disparate	impact	on	females.		The	amended	Calvert complaint	seeks	to	proceed	collectively	under	the	EPA	and	as	a	class	under	Title	VII.

As	of	March	16,	2006,	the	Company	had	not	yet	been	served	with	either	the	original	or	amended	Calvert	complaint.		At	this	time, it	is	not	possible	to	predict	whether	the	Court	will	permit	this	action	to	proceed	collectively	or	as	a	class.		However,	the	Company believes	that	this	case	is	not	appropriate	for	either	collective	or	class	treatment,	and	believes	that	its	policies	and	practices	comply	with the	EPA	and	Title	VII.		Although	the	Company	intends	to	vigorously	defend	this	action	if	it	is	served,	no	assurances	can	be	given	that	the Company	will	be	successful	in	its	defense	on	the	merits	or	otherwise,	and	if	it	is	not,	the	resolution	of	this	action	could	have	a	material adverse	effect	on	the	Company's	financial	statements	as	a	whole.

In	addition	to	the	matters	described	above,	the	Company	is	involved	in	other	legal	actions	and	claims	arising	in	the	ordinary course	of	business.	The	Company	believes,	based	upon	information	currently	available,	that	such	other	litigation	and	claims,	both individually	and	in	the	aggregate,	will	be	resolved	without	a	material	effect	on	the	Company's	financial	statements	as	a	whole.		However, litigation	involves	an	element	of	uncertainty.		Future	developments	could	cause	these	actions	or	claims	to	have	a	material	adverse	effect on	the	Company's	financial	statements	as	a	whole.

# 8. Benefit	plans

The	Dollar	General	Corporation	401(k)	Savings	and	Retirement	Plan	became	effective	on	January	1,	1998.		Balances	in	two earlier	plans	were	transferred	into	this	plan.	The	plan	covers

all	employees	subject	to	certain	eligibility	requirements.		The	plan	is	subject	to	the	Employee	Retirement	and	Income	Security	Act ("ERISA").

Participants	were	or	are	currently	permitted,	as	applicable,	to	contribute	between	1%	and	25%	of	their	annual	salary,	up	to	a maximum	of	$12,000	in	calendar	year	2003,	a	maximum	of	$13,000	in	calendar	year	2004	and	a	maximum	of	$14,000	in	calendar	year 2005.	Employees	who	are	over	age	50	were	permitted	to	contribute	an	additional	$4,000	in	catch-up	contributions	during	calendar	year 2005.	The	Company	currently	matches	employee	contributions,	including	catch-up	contributions,	at	a	rate	of	100%	of	employee contributions,	up	to	5%	of	annual	salary,	after	an	employee	has	been	employed	for	one	year	and	has	completed	a	minimum	of	1,000 hours	of	service.

A	participant's	right	to	claim	a	distribution	of	his	or	her	account	balance	is	dependent	on	ERISA	guidelines	and	Internal	Revenue Service	regulations.	All	active	employees	are	fully	vested	in	all	contributions	to	the	plan.	During	2005,	2004	and	2003,	the	Company expensed	approximately	$5.8	million,	$4.9	million	and	$2.7	million,	respectively,	for	matching	contributions.

The	Company	also	has	a	supplemental	retirement	plan	and	compensation	deferral	plan	for	a	select	group	of	management	and highly	compensated	employees.		The	supplemental	retirement	plan	is	a	noncontributory	defined	contribution	plan	with	annual	Company contributions	ranging	from	2%	to	12%	of	base	pay	plus	bonus	depending	upon	age	plus	years	of	service	and	job	grade.		Under	the compensation	deferral	plan,	participants	may	defer	up	to	65%	of	base	pay	and	up	to	100%	of	bonus	pay	and	the	Company	matches	base pay	deferrals	at	a	rate	of	100%	of	base	pay	deferral,	up	to	5%	of	annual	salary,	with	annual	salary	offset	by	the	amount	of	match-eligible salary	in	the	401(k)	plan.	Effective	January	1,	2003,	the	Company	amended	the	plan	to	clarify	certain	provisions	and	to	mirror	certain 401(k)	plan	employer	contribution	provisions	that	became	effective	on	January	1,	2003.	Effective	November	1,	2004,	the	plan	document was	amended	to	modify	eligibility,	comply	with	pending	federal	legislation,	and	enhance	investment	offerings.		Effective	January	1, 2005,	the	plan	was	amended	to	clarify	certain	provisions,	to	further	comply	with	federal	legislation	and	to	permit	former	employees	the ability	to	transfer	stock	accounts	for	a	limited	period	of	time.	An	employee	may	be	designated	for	participation	in	one	or	both	of	the plans,	according	to	the	eligibility	requirements	of	the	plans.		All	participants	are	100%	vested	in	their	compensation	deferral	plan accounts.		Supplemental	retirement	plan	accounts	generally	vest	at	the	earlier	of	the	participant's	attainment	of	age	50	or	the	participant's being	credited	with	10	or	more	"years	of	service"	or	upon	termination	of	employment	due	to	death	or	"total	and	permanent	disability"	or upon	a	"change	in	control,"	all	as	defined	in	the	plan.		The	Company	incurred	compensation	expense	for	these	plans	of	approximately $0.6	million	in	both	2005	and	2004	and	$0.5	million	in	2003.

The	supplemental	retirement	plan	and	compensation	deferral	plan	assets	are	invested	at	the	option	of	the	participant	in	either	an account	that	mirrors	the	performance	of	a	fund	or	funds	selected	by	the	Compensation	Committee	of	the	Company's	Board	of	Directors or	its	delegate	(the	"Mutual	Funds	Option"),	or	in	an	account	which	mirrors	the	performance	of	the	Company's	common	stock	(the "Common	Stock	Option").		Pursuant	to	a	provision	in	the	November	1,	2004	amendment	that	was	effective	January	1,	2005,	investments in	the	Common	Stock	Option	cannot	be	subsequently	diversified	and	investments	in	the	Mutual	Funds	Option	cannot	be	subsequently

transferred	into	the	Common	Stock	Option.		Effective	November	1,	2005,	certain	former	employees	who	were	receiving	distributions from	the	plan	were	given	a	limited	opportunity	until	January	31,	2006,	to	transfer	assets	out	of	the	Common	Stock	Option.

In	accordance	with	a	participant's	election,	a	participant's	compensation	deferral	plan	and	supplemental	retirement	plan	account balances	will	be	paid	in	cash	by	(a)	lump	sum,	(b)	monthly	installments	over	a	5,	10	or	15-year	period	or	(c)	a	combination	of	lump	sum and	installments.	The	vested	amount	will	be	payable	at	the	time	designated	by	the	plan	upon	the	participant's	termination	of	employment or	retirement,	except	that	participants	may	elect	to	receive	an	in-service	lump	sum	distribution	of	vested	amounts	credited	to	the compensation	deferral	account,	provided	that	the	date	of	distribution	is	a	date	that	is	no	sooner	than	five	years	after	the	end	of	the	year	in which	amounts	are	deferred.	In	addition,	a	participant	who	is	an	employee	may	request	to	receive	an	"unforeseeable	emergency hardship"	in-service	lump	sum	distribution	of	vested	amounts	credited	to	his	compensation	deferral	account.	Effective	January	1,	2005 for	active	participants,	account	balances	deemed	to	be	invested	in	the	Mutual	Funds	Option	are	payable	in	cash	and	account	balances deemed	to	be	invested	in	the	Common	Stock	Option	are	payable	in	shares	of	Dollar	General	common	stock	and	cash	in	lieu	of	fractional shares.		Prior	to	January	1,	2005,	all	account	balances	were	payable	in	cash.

Asset	balances	in	the	Mutual	Funds	Option	are	stated	at	fair	market	value,	which	is	based	on	quoted	market	prices,	and	are included	in	Prepaid	expenses	and	other	current	assets.		In	accordance	with	EITF	97-14	"Accounting	for	Deferred	Compensation Arrangements	Where	Amounts	Earned	Are	Held	in	a	Rabbi	Trust	and	Invested,"	the	Company's	stock	is	recorded	at	historical	cost	and included	in	Other	shareholders'	equity.		The	deferred	compensation	liability	related	to	the	Company	stock	for	active	plan	participants was	reclassified	to	shareholders'	equity	and	subsequent	changes	to	the	fair	value	of	the	obligation	will	not	be	recognized,	in	accordance with	the	provisions	of	EITF	97-14.	The	deferred	compensation	liability	related	to	the	Mutual	Funds	Option	is	recorded	at	the	fair	value of	the	investments	held	in	the	trust	and	is	included	in	Accrued	expenses	and	other	in	the	consolidated	balance	sheets.

During	2003,	the	Company	established	two	supplemental	executive	retirement	plans,	each	with	one	executive	participant.	During 2004,	one	of	these	plans	was	terminated	in	connection	with	the	termination	of	that	participant's	employment.		The	Company	accounts	for the	remaining	plan	in	accordance	with	SFAS	No.	87,	"Employers'	Accounting	for	Pensions",	as	amended	by	SFAS	No.	132, "Employers'	Disclosures	about	Pensions	and	Other	Postretirement	Benefits",	and	supplemented	by	SFAS	No.	130,	"Reporting Comprehensive	Income",	but	has	not	included	additional	disclosures	due	to	the	plan's	immateriality	to	the	consolidated	financial statements	as	a	whole.		Effective	January	25,	2006,	the	Board	approved	the	restatement	of	the	remaining	plan	to	clarify	certain provisions,	comply	with	pending	federal	legislation	and	establish	a	grantor	trust	to	hold	certain	assets	in	connection	with	the	plan.		The grantor	trust	provides	for	assets	to	be	placed	in	the	trust	upon	an	actual	or	potential	change	in	control	(as	defined	in	the	grantor	trust). 	The	assets	of	the	grantor	trust	are	subject	to	the	claims	of	the	Company's	creditors.

Non-employee	directors	may	defer	all	or	a	part	of	any	fees	normally	paid	by	the	Company	to	them	pursuant	to	a	voluntary nonqualified	compensation	deferral	plan.		The	compensation	eligible	for	deferral	includes	the	annual	retainer,	meeting	and	other	fees,	as well	as

any	per	diem	compensation	for	special	assignments,	earned	by	a	director	for	his	or	her	service	to	the	Company's	Board	of	Directors	or one	of	its	committees.		The	compensation	deferred	is	credited	to	a	liability	account,	which	is	then	invested	at	the	option	of	the	director,	in either	the	Mutual	Funds	Option	or	the	Common	Stock	Option.		In	accordance	with	a	director's	election,	the	deferred	compensation	will be	paid	in	a	lump	sum	or	in	monthly	installments	over	a	5,	10	or	15-year	period,	or	a	combination	of	both,	at	the	time	designated	by	the plan	upon	a	director's	resignation	or	termination	from	the	Board.	However,	a	director	may	request	to	receive	an	"unforeseeable emergency	hardship"	in-service	lump	sum	distribution	of	amounts	credited	to	his	account	in	accordance	with	the	terms	of	the	directors' deferral	plan.		All	deferred	compensation	will	be	immediately	due	and	payable	upon	a	"change	in	control"	(as	defined	in	the	directors' deferral	plan)	of	the	Company.	Effective	January	1,	2005,	account	balances	deemed	to	be	invested	in	the	Mutual	Funds	Option	are payable	in	cash	and	account	balances	deemed	to	be	invested	in	the	Common	Stock	Option	are	payable	in	shares	of	Dollar	General common	stock	and	cash	in	lieu	of	fractional	shares.		Prior	to	January	1,	2005,	all	account	balances	were	payable	in	cash.

The	Company	has	a	shareholder-approved	stock	incentive	plan	under	which	restricted	stock,	restricted	stock	units	(which represent	the	right	to	receive	one	share	of	common	stock	for	each	unit	upon	vesting),	stock	options	and	other	equity-based	awards	may be	granted	to	officers,	directors	and	key	employees.

All	stock	options	granted	in	2005,	2004	and	2003	under	the	terms	of	the	Company's	stock	incentive	plan	were	non-qualified stock	options	issued	at	a	price	equal	to	the	fair	market	value	of	the	Company's	common	stock	on	the	date	of	grant.		Non-qualified options	granted	under	these	plans	have	expiration	dates	no	later	than	10	years	following	the	date	of	grant.

Under	the	plan,	stock	option	grants	are	made	to	key	management	employees	including	officers,	as	well	as	other	employees,	as determined	by	the	Compensation	Committee	of	the	Board	of	Directors.		The	number	of	options	granted	is	directly	linked	to	the employee's	job	classification.		Beginning	in	2002,	vesting	provisions	for	options	granted	under	the	plan	changed	from	a	combination	of Company	performance-based	vesting	and	time-based	vesting	to	time-based	vesting	only.		All	options	granted	in	2005,	2004	and	2003 under	the	plan	were	originally	scheduled	to	vest	ratably	over	a	four-year	period,	except	for	a	grant	made	to	the	CEO	in	2003,	two-thirds of	which	vested	after	one	year	and	one-third	of	which	vested	after	two	years.

On	February	3,	2006,	the	vesting	of	all	outstanding	options	granted	prior	to	August	2,	2005,	other	than	options	previously	granted to	the	CEO	and	other	than	options	granted	in	2005	to	the	officers	of	the	Company	at	the	level	of	Executive	Vice	President	or	higher, accelerated	pursuant	to	a	January	24,	2006	action	of	the	Compensation	Committee	of	the	Company's	Board	of	Directors.	In	addition, pursuant	to	that	Compensation	Committee	action,	the	vesting	of	all	outstanding	options	granted	on	or	after	August	2,	2005	but	prior	to January	24,	2006,	other	than	options	granted	during	that	time	period	to	the	officers	of	the	Company	at	the	level	of	Executive	Vice President	or	higher,	accelerated	effective	as	of	the	date	that	is	six	months	after	the	applicable	grant	date.	Certain	options	granted	on January	24,	2006	to	certain	newly	hired	officers	below	the	level	of	Executive	Vice	President	were	granted	with	a	six-month	vesting period.	The

decision	to	accelerate	stock	options	resulted	in	2005	compensation	expense	of	$0.9	million,	before	income	taxes,	and	was	made primarily	to	reduce	non-cash	compensation	expense	to	be	recorded	in	future	periods	under	the	provisions	of	SFAS	No.	123(R),	to	be adopted	by	the	Company	during	2006.	The	future	expense	eliminated	as	a	result	of	the	decision	to	accelerate	the	vesting	of	options	is approximately	$28	million,	or	$17	million	net	of	income	taxes,	over	the	four	year	period	during	which	the	stock	options	would	have vested,	subject	to	the	impact	of	additional	adjustments	related	to	certain	stock	option	forfeitures.	The	Company	also	believes	this	decision benefits	employees.

Under	the	plan,	restricted	stock	and	restricted	stock	units	may	be	granted	to	employees,	including	officers,	as	determined	by	the Compensation	Committee	of	the	Board	of	Directors.	In	addition,	the	plan	provides	for	the	automatic	annual	grant	of	4,600	restricted stock	units	to	each	non-employee	director.		In	2005,	2004	and	2003,	the	Company	awarded	a	total	of	273,600,	166,300	and	50,000	shares of	restricted	stock	and	restricted	stock	units	to	certain	plan	participants	at	weighted	average	fair	values	of	$21.14,	$19.26	and	$19.37	per share,	respectively.		The	difference	between	the	market	price	of	the	underlying	stock	on	the	date	of	grant	and	the	purchase	price,	which was	set	at	zero	for	all	restricted	stock	and	restricted	stock	unit	awards	in	2005,	2004	and	2003,	was	recorded	as	unearned	compensation expense,	which	is	a	component	of	Other	shareholders'	equity,	and	is	being	amortized	to	expense	on	a	straight-line	basis	over	the restriction	period.		The	restricted	stock	and	restricted	stock	units	granted	to	employees	in	2005,	2004	and	2003	under	the	plan	generally vest	and	become	payable	ratably	over	a	three-year	period.		The	restricted	stock	units	granted	to	outside	directors	generally	vest	one	year after	the	grant	date	subject	to	acceleration	of	vesting	upon	retirement	or	other	circumstances	set	forth	in	the	plan,	but	no	payout	shall	be made	until	the	individual	has	ceased	to	be	a	member	of	the	Board	of	Directors.		Under	the	stock	incentive	plan,	recipients	of	restricted stock	are	entitled	to	receive	cash	dividends	and	to	vote	their	respective	shares,	but	are	prohibited	from	selling	or	transferring	restricted shares	prior	to	vesting.		Recipients	of	restricted	stock	units	are	entitled	to	accrue	dividend	equivalents	on	the	units	but	are	not	entitled	to vote,	sell	or	transfer	the	shares	underlying	the	units	prior	to	both	vesting	and	payout.		The	maximum	number	of	shares	of	restricted	stock or	restricted	stock	units	eligible	for	issuance	under	the	terms	of	this	plan	has	been	capped	at	4,000,000.		At	February	3,	2006,	3,510,841 shares	of	restricted	stock	or	restricted	stock	units	were	available	for	grant	under	the	plan.

During	2003,	the	Company	also	granted	stock	options	and	restricted	stock	in	transactions	that	were	not	made	under	the	stock incentive	plan.	The	Company	awarded	78,865	shares	of	restricted	stock	as	a	material	inducement	to	employment	to	its	CEO	at	a	fair value	of	$12.68	per	share.		The	difference	between	the	market	price	of	the	underlying	stock	and	the	purchase	price	on	the	date	of	grant, which	was	set	as	zero	for	this	restricted	stock	award,	was	recorded	as	unearned	compensation	expense,	and	is	being	amortized	to expense	on	a	straight-line	basis	over	the	restriction	period	of	five	years.		The	CEO	is	entitled	to	receive	cash	dividends	and	to	vote	these shares,	but	is	prohibited	from	selling	or	transferring	shares	prior	to	vesting.		Also	during	the	first	quarter	of	2003,	the	Company	awarded the	CEO,	as	a	material	inducement	to	employment,	an	option	to	purchase	500,000	shares	at	an	exercise	price	of	$12.68	per	share.	The option	generally	vests	at	a	rate	of	166,666	shares	on	the	second	anniversary	of	the	grant	date	and	333,334	shares	on	the	third	anniversary of	the	grant	date,	subject	to	accelerated	vesting	as	provided	in	the	CEO's	Employment	Agreement	or	in	the	plan.		The	option	will terminate	no	later	than	10	years	from	the	grant	date.

Pro	forma	information	regarding	net	income	and	earnings	per	share,	as	disclosed	in	Note	1,	has	been	determined	as	if	the Company	had	accounted	for	its	employee	stock-based	compensation	plans	under	the	fair	value	method	of	SFAS	No.	123.	The	fair	value of	options	granted	during	2005,	2004	and	2003	was	$6.33,	$6.36	and	$5.45,	respectively.	The	fair	value	of	each	stock	option	grant	was estimated	on	the	date	of	grant	using	the	Black-Scholes	option	pricing	model	with	the	following	assumptions:

|  | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Expected\tdividend\tyield | \t0.9% | \t0.9% | 0.9% |
| Expected\tstock\tprice\tvolatility | \t27.1% | \t35.5% | 36.9% |
| Weighted\taverage\trisk-free\tinterest\trate | \t4.2% | \t3.5% | 2.7% |
| Expected\tlife\tof\toptions\t(years) | \t5.0 | \t5.0 | 3.7 |

A	summary	of	the	balances	and	activity	for	all	of	the	Company's	stock	option	awards	for	the	last	three	fiscal	years	is	presented below:

|  | Options<br>Issued | Weighted	Average<br>Exercise	Price |
| :--- | :--- | :--- |
| Balance,\tJanuary\t31,\t2003 | \t26,916,571 | $15.73 |
| Granted | \t4,705,586 | 18.39 |
| Exercised | \t(4,240,438) | 11.68 |
| Canceled | \t(2,450,429) | 17.76 |
| Balance,\tJanuary\t30,\t2004 | \t24,931,290 | 16.75 |
| Granted | \t2,250,900 | 18.88 |
| Exercised | \t(2,874,828) | 11.87 |
| Canceled | \t(1,758,030) | 18.97 |
| Balance,\tJanuary\t28,\t2005 | \t22,549,332 | 17.42 |
| Granted | \t2,364,200 | 21.72 |
| Exercised | \t(2,248,951) | 13.07 |
| Canceled | \t(2,406,257) | 19.23 |
| Balance,\tFebruary\t3,\t2006 | \t20,258,324 | $18.19 |

The	following	table	summarizes	information	about	all	stock	options	outstanding	at	February	3,	2006:

|  |  | Options	Outstanding |  | Options	Exercisable | Options	Exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Range\tof | Number | Weighted\tAverage\nRemaining | Weighted\nAverage | Number | Weighted\tAverage |
| Exercise\tPrices | Outstanding | Contractual\tLife | Exercise\tPrice | Exercisable | \tExercise\tPrice |
| $\t\t6.29\t-\t$12.68 | \t1,914,579 | \t4.4 | \t$\t11.11 | \t1,581,245 | \t$\t10.78 |
| \t\t12.88\t-\t$18.55 | \t7,001,557 | \t5.0 | \t\t15.90 | \t6,800,557 | \t15.86 |
| \t\t18.74\t-\t$23.90 | \t11,342,188 | \t6.1 | \t\t20.80 | \t10,998,588 | \t20.79 |
| $\t\t6.29\t-\t$23.90 | \t20,258,324 | \t5.6 | \t$\t18.19 | \t19,380,390 | \t$\t18.24 |

At	February	3,	2006,	there	were	approximately	7.7	million	shares	available	for	grant	under	the	Company's	stock	incentive	plan. 	At	January	28,	2005	and	January	30,	2004,	respectively,	there	were	approximately	13.8	million	and	15.0	million	exercisable	options outstanding.

# 10. Capital	stock

The	Company	has	a	Shareholder	Rights	Plan	(the	"Plan"),	filed	with	the	Securities	and	Exchange	Commission,	under	which Series	B	Junior	Participating	Preferred	Stock	Purchase	Rights	(the	"Rights")	were	issued	for	each	outstanding	share	of	common	stock. 	The	Rights	were	attached	to	all	common	stock	outstanding	as	of	March	10,	2000,	and	will	be	attached	to	all	additional	shares	of common	stock	issued	prior	to	the	Plan's	expiration	on	February	28,	2010,	or	such	earlier	termination,	if	applicable.		The	Rights	entitle the	holders	to	purchase	from	the	Company	one	one-hundredth	of	a	share	(a	"Unit")	of	Series	B	Junior	Participating	Preferred	Stock	(the "Preferred	Stock"),	no	par	value,	at	a	purchase	price	of	$100	per	Unit,	subject	to	adjustment.		Initially,	the	Rights	will	attach	to	all certificates	representing	shares	of	outstanding	common	stock,	and	no	separate	Rights	Certificates	will	be	distributed.		The	Rights	will become	exercisable	upon	the	occurrence	of	a	triggering	event	as	defined	in	the	Plan.	The	triggering	events	generally	include	any unsolicited	attempt	to	acquire	more	than	15	percent	of	the	Company's	outstanding	common	stock.	The	practical	operation	of	the	Plan,	if triggered,	allows	a	holder	of	rights:	(a)	to	acquire	$200	of	the	Company's	common	stock	in	exchange	for	the	$100	purchase	price	in	the event	of	an	acquisition	of	the	Company	in	which	the	Company	is	the	surviving	entity;	and	(b)	in	the	event	of	an	acquisition	of	the Company	in	which	the	Company	is	not	the	surviving	entity,	to	acquire	$200	of	the	surviving	entity's	securities	in	exchange	for	the	$100 purchase	price.

On	September	30,	2005,	November	30,	2004	and	March	13,	2003,	the	Board	of	Directors	authorized	the	Company	to	repurchase up	to	10	million,	10	million	and	12	million	shares,	respectively,	of	its	outstanding	common	stock.	These	authorizations	allow	or	allowed, as	applicable,	for	purchases	in	the	open	market	or	in	privately	negotiated	transactions	from	time	to	time,	subject	to	market	conditions. The	objective	of	the	Company's	share	repurchase	initiative	is	to	enhance	shareholder	value	by	purchasing	shares	at	a	price	that	produces a	return	on	investment	that	is	greater	than	the	Company's	cost	of	capital.	Additionally,	share	repurchases	generally	are	undertaken	only	if such	purchases	result	in	an	accretive	impact	on	the	Company's	fully	diluted	earnings	per	share	calculation.		The	2005	authorization expires	September	30,	2006.	The	2004	and	2003	authorizations	were	completed	prior	to	their	expiration	dates.	During	2005,	the Company	purchased	approximately	5.5	million	shares	pursuant	to	the	2005	authorization	at	a	total	cost	of	$104.7	million,	and approximately	9.5	million	shares	pursuant	to	the	2004	authorization	at	a	total	cost	of	$192.9	million.	During	2004,	the	Company purchased	approximately	0.5	million	shares	pursuant	to	the	2004	authorization	at	a	total	cost	of	$10.9	million	and	approximately	10.5 million	shares	pursuant	to	the	2003	authorization	at	a	total	cost	of	$198.4	million.	During	2003,	the	Company	purchased	approximately 1.5	million	shares	pursuant	to	the	2003	authorization	at	a	total	cost	of	$29.7	million.

# 11. Segment	reporting

The	Company	manages	its	business	on	the	basis	of	one	reportable	segment.		See	Note	1	for	a	brief	description	of	the	Company's business.		As	of	February	3,	2006,	all	of	the	Company's	operations	were	located	within	the	United	States	with	the	exception	of	an immaterial	Hong	Kong	subsidiary	formed	to	assist	in	the	process	of	importing	certain	merchandise	that	began	operations	in	early	2004. 	The	following	data	is	presented	in	accordance	with	SFAS	No.	131,	"Disclosures	about	Segments	of	an	Enterprise	and	Related Information."

| (In	thousands) | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- |
| Classes\tof\tsimilar\tproducts: |  |  |  |
| Highly\tconsumable | $5,606,466 | $4,825,051 | $4,206,878 |
| Seasonal | 1,348,769 | 1,263,991 | 1,156,114 |
| Home\tproducts | 907,826 | 879,476 | 860,867 |
| Basic\tclothing | 719,176 | 692,409 | 648,133 |
| Net\tsales | $8,582,237 | $7,660,927 | $6,871,992 |

# 12. Quarterly	financial	data	(unaudited)

The	following	is	selected	unaudited	quarterly	financial	data	for	the	fiscal	years	ended	February	3,	2006	and	January	28,	2005. 	With	the	exception	of	the	fourth	quarter	of	2005,	which	was	a	14-week	accounting	period,	each	quarter	listed	below	was	a	13-week accounting	period.	The	sum	of	the	four	quarters	for	any	given	year	may	not	equal	annual	totals	due	to	rounding.	Amounts	are	in thousands	except	per	share	data.

| Quarter | First | Second | Third | Fourth |
| :--- | :--- | :--- | :--- | :--- |
| 2005: |  |  |  |  |
| Net\tsales | $1,977,829 | $2,066,016 | $2,057,888 | $2,480,504 |
| Gross\tprofit | 563,349 | 591,530 | 579,016 | 730,929 |
| Operating\tprofit | 106,921 | 121,070 | 101,612 | 232,264 |
| Net\tincome | 64,900 | 75,558 | 64,425 | 145,272 |
| Basic\tearnings\tper\tshare | 0.20 | 0.23 | 0.20 | 0.46 |
| Diluted\tearnings\tper\tshare | 0.20 | 0.23 | 0.20 | 0.46 |
| 2004: |  |  |  |  |
| Net\tsales | $1,747,959 | $1,836,243 | $1,879,187 | $2,197,538 |
| Gross\tprofit | 512,250 | 536,980 | 553,985 | 659,977 |
| Operating\tprofit | 114,550 | 108,126 | 113,956 | 220,344 |
| Net\tincome | 67,849 | 71,322 | 71,126 | 133,893 |
| Basic\tearnings\tper\tshare | 0.20 | 0.22 | 0.22 | 0.41 |
| Diluted\tearnings\tper\tshare | 0.20 | 0.22 | 0.22 | 0.41 |

In	2005,	the	Company	expanded	the	number	of	departments	it	utilizes	for	its	gross	profit	calculation	from	10	to	23.	The	estimated impact	of	this	change	was	a	reduction	of	the	Company's	net	income	and	related	per	share	amounts	above	of	$2.1	million	($0.01	per diluted	share),	$2.2	million	($0.01	per	diluted	share)	and	$6.8	million	($0.02	per	diluted	share)	in	the	first,	second	and	third	quarters	of 2005,	respectively,	and	a	$7.7	million	($0.02	per	diluted	share)	increase	in	the	Company's	fourth	quarter	2005	net	income	and	related	per share	amounts.	The	second	quarter	2004	net	income	and	related	per	share	amounts	above	include	a	favorable	income	tax	adjustment	of approximately	$6.2	million	($0.02	per	diluted	share)	which	resulted	from	net	reductions	in	certain	contingent	income	tax	liabilities.

# 13. Guarantor	subsidiaries

All	of	the	Company's	subsidiaries,	except	for	its	not-for-profit	subsidiary	for	which	the	assets	and	revenues	are	not	material	(the "Guarantors"),	have	fully	and	unconditionally	guaranteed	on	a	joint	and	several	basis	the	Company's	obligations	under	certain outstanding	debt	obligations.		Each	of	the	Guarantors	is	a	direct	or	indirect	wholly	owned	subsidiary	of	the	Company.

The	following	consolidating	schedules	present	condensed	financial	information	on	a	combined	basis.	Dollar	amounts	are	in thousands.

|  | DOLLAR<br>GENERAL<br>CORPORATION | GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| BALANCE\tSHEET: |  |  |  |  |
| ASSETS |  |  |  |  |
| Current\tassets: |  |  |  |  |
| Cash\tand\tcash\tequivalents | $110,410 | $90,199 | $- | $200,609 |
| Short-term\tinvestments | - | 8,850 | - | 8,850 |
| Merchandise\tinventories | - | 1,474,414 | - | 1,474,414 |
| Deferred\tincome\ttaxes | 11,808 | 104 | - | 11,912 |
| Prepaid\texpenses\tand\tother\tcurrent\nassets | 89,100 | 794,873 | (816,833) | 67,140 |
| Total\tcurrent\tassets | 211,318 | 2,368,440 | (816,833) | 1,762,925 |
| Property\tand\tequipment,\tat\tcost | 199,396 | 2,022,144 | - | 2,221,540 |
| Less\taccumulated\tdepreciation\nand\tamortization | 94,701 | 934,667 | - | 1,029,368 |
| Net\tproperty\tand\tequipment | 104,695 | 1,087,477 | - | 1,192,172 |
| Other\tassets,\tnet | 2,379,255 | 31,603 | (2,373,768) | 37,090 |
| Total\tassets | $2,695,268 | $3,487,520 | $(3,190,601) | $2,992,187 |
| LIABILITIES\tAND\nSHAREHOLDERS'\tEQUITY |  |  |  |  |
| Current\tliabilities: |  |  |  |  |
| Current\tportion\tof\tlong-term |  |  |  |  |
| obligations | $(800) | $9,585 | $- | $8,785 |
| Accounts\tpayable | 789,497 | 536,097 | (817,208) | 508,386 |
| Accrued\texpenses\tand\tother | 25,473 | 347,072 | 375 | 372,920 |
| Income\ttaxes\tpayable | 89 | 43,617 | - | 43,706 |
| Total\tcurrent\tliabilities | 814,259 | 936,371 | (816,833) | 933,797 |
| Long-term\tobligations | 153,756 | 1,429,116 | (1,312,910) | 269,962 |
| Deferred\tincome\ttaxes | 6,458 | 61,175 | - | 67,633 |
| Shareholders'\tequity: |  |  |  |  |
| Preferred\tstock | - | - | - | - |
| Common\tstock | 157,840 | 23,853 | (23,853) | 157,840 |
| Additional\tpaid-in\tcapital | 462,383 | 673,612 | (673,612) | 462,383 |
| Retained\tearnings | 1,106,165 | 363,393 | (363,393) | 1,106,165 |
| Accumulated\tother\tcomprehensive\nloss | (794) | - | - | (794) |
| Other\tshareholders'\tequity | (4,799) | - | - | (4,799) |
| Total\tshareholders'\tequity | 1,720,795 | 1,060,858 | (1,060,858) | 1,720,795 |
| Total\tliabilities\tand\tshareholders'\nequity | $2,695,268 | $3,487,520 | $(3,190,601) | $2,992,187 |

|  | DOLLAR	GENERAL<br>CORPORATION | As	of	January	28,	2005<br>GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| BALANCE\tSHEET: |  |  |  |  |
| ASSETS |  |  |  |  |
| Current\tassets: |  |  |  |  |
| Cash\tand\tcash\tequivalents | $127,170 | $105,660 | $- | $232,830 |
| Short-term\tinvestments | 42,425 | 500 | - | 42,925 |
| Merchandise\tinventories | - | 1,376,537 | - | 1,376,537 |
| Deferred\tincome\ttaxes | 10,024 | 14,884 | - | 24,908 |
| Prepaid\texpenses\tand\tother\ncurrent\tassets | 23,305 | 1,740,029 | (1,709,632) | 53,702 |
| Total\tcurrent\tassets | 202,924 | 3,237,610 | (1,709,632) | 1,730,902 |
| Property\tand\tequipment,\tat\tcost | 184,618 | 1,755,717 | - | 1,940,335 |
| Less\taccumulated\tdepreciation |  |  |  |  |
| and\tamortization | 78,661 | 780,836 | - | 859,497 |
| Net\tproperty\tand\tequipment | 105,957 | 974,881 | - | 1,080,838 |
| Other\tassets,\tnet | 3,376,578 | 58,373 | (3,405,687) | 29,264 |
| Total\tassets | $3,685,459 | $4,270,864 | $(5,115,319) | $2,841,004 |
| LIABILITIES\tAND\nSHAREHOLDERS'\tEQUITY |  |  |  |  |
| Current\tliabilities: |  |  |  |  |
| Current\tportion\tof\tlong-term\nobligations | $4,399 | $8,461 | $- | $12,860 |
| Accounts\tpayable | 1,763,024 | 355,904 | (1,709,601) | 409,327 |
| Accrued\texpenses\tand\tother | 37,378 | 296,511 | - | 333,889 |
| Income\ttaxes\tpayable | - | 69,647 | (31) | 69,616 |
| Total\tcurrent\tliabilities | 1,804,801 | 730,523 | (1,709,632) | 825,692 |
| Long-term\tobligations | 190,769 | 1,261,998 | (1,194,305) | 258,462 |
| Deferred\tincome\ttaxes | 5,424 | 66,961 | - | 72,385 |
| Shareholders'\tequity: |  |  |  |  |
| Preferred\tstock | - | - | - | - |
| Common\tstock | 164,086 | 23,853 | (23,853) | 164,086 |
| Additional\tpaid-in\tcapital | 421,600 | 1,243,468 | (1,243,468) | 421,600 |
| Retained\tearnings | 1,102,457 | 944,061 | (944,061) | 1,102,457 |
| Accumulated\tother\tcomprehensive\nloss | (973) | - | - | (973) |
| Other\tshareholders'\tequity | (2,705) | - | - | (2,705) |
| Total\tshareholders'\tequity | 1,684,465 | 2,211,382 | (2,211,382) | 1,684,465 |
| Total\tliabilities\tand\tshareholders'\nequity | $3,685,459 | $4,270,864 | $(5,115,319) | $2,841,004 |

|  | DOLLAR	GENERAL<br>CORPORATION | For	the	year	ended	February	3,	2006<br>GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| STATEMENTS\tOF\tINCOME: |  |  |  |  |
| Net\tsales | $162,805 | $8,582,237 | $(162,805) | $8,582,237 |
| Cost\tof\tgoods\tsold | - | 6,117,413 | - | 6,117,413 |
| Gross\tprofit | 162,805 | 2,464,824 | (162,805) | 2,464,824 |
| Selling,\tgeneral\tand\tadministrative | 139,879 | 1,925,883 | (162,805) | 1,902,957 |
| Operating\tprofit | 22,926 | 538,941 | - | 561,867 |
| Interest\tincome | (31,677) | (509) | 23,185 | (9,001) |
| Interest\texpense | 20,208 | 29,203 | (23,185) | 26,226 |
| Income\tbefore\tincome\ttaxes | 34,395 | 510,247 | - | 544,642 |
| Income\ttaxes | 12,852 | 181,635 | - | 194,487 |
| Equity\tin\tsubsidiaries'\tearnings,\tnet\tof\ntaxes | 328,612 | - | (328,612) | - |
| Net\tincome | $350,155 | $328,612 | $(328,612) | $350,155 |

|  |  | For	the	year	ended	January	28,	2005 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | DOLLAR\tGENERAL\nCORPORATION | GUARANTOR\nSUBSIDIARIES | ELIMINATIONS | CONSOLIDATED\nTOTAL |
| STATEMENTS\tOF\tINCOME: |  |  |  |  |
| Net\tsales | $171,369 | $7,660,927 | $(171,369) | $7,660,927 |
| Cost\tof\tgoods\tsold | - | 5,397,735 | - | 5,397,735 |
| Gross\tprofit | 171,369 | 2,263,192 | (171,369) | 2,263,192 |
| Selling,\tgeneral\tand\tadministrative | 138,111 | 1,739,474 | (171,369) | 1,706,216 |
| Operating\tprofit | 33,258 | 523,718 | - | 556,976 |
| Interest\tincome | (6,182) | (393) | - | (6,575) |
| Interest\texpense | 21,435 | 7,359 | - | 28,794 |
| Income\tbefore\tincome\ttaxes | 18,005 | 516,752 | - | 534,757 |
| Income\ttaxes | 7,667 | 182,900 | - | 190,567 |
| Equity\tin\tsubsidiaries'\tearnings,\tnet\tof\ntaxes | 333,852 | - | (333,852) | - |
| Net\tincome | $344,190 | $333,852 | $(333,852) | $344,190 |

|  | DOLLAR	GENERAL<br>CORPORATION | For	the	year	ended	January	30,	2004<br>GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| STATEMENTS\tOF\tINCOME: |  |  |  |  |
| Net\tsales | $169,467 | $6,871,992 | $(169,467) | $6,871,992 |
| Cost\tof\tgoods\tsold | - | 4,853,863 | - | 4,853,863 |
| Gross\tprofit | 169,467 | 2,018,129 | (169,467) | 2,018,129 |
| Selling,\tgeneral\tand\tadministrative | 132,445 | 1,537,125 | (169,467) | 1,500,103 |
| Penalty\texpense | 10,000 | - | - | 10,000 |
| Operating\tprofit | 27,022 | 481,004 | - | 508,026 |
| Interest\tincome | (3,720) | (383) | - | (4,103) |
| Interest\texpense | 25,336 | 10,270 | - | 35,606 |
| Income\tbefore\tincome\ttaxes | 5,406 | 471,117 | - | 476,523 |
| Income\ttaxes | 6,560 | 170,961 | - | 177,521 |
| Equity\tin\tsubsidiaries'\tearnings,\tnet\nof\ttaxes | 300,156 | - | (300,156) | - |
| Net\tincome | $299,002 | $300,156 | $(300,156) | $299,002 |

|  | DOLLAR<br>GENERAL<br>CORPORATION | GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| STATEMENTS\tOF\tCASH\tFLOWS: |  |  |  |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |  |
| Net\tincome | $350,155 | $328,612 | $(328,612) | $350,155 |
| Adjustments\tto\treconcile\tnet\tincome\tto |  |  |  |  |
| net\tcash\tprovided\tby\toperating |  |  |  |  |
| activities: |  |  |  |  |
| Depreciation\tand\tamortization | 20,046 | 166,778 | - | 186,824 |
| Deferred\tincome\ttaxes | (750) | 8,994 | - | 8,244 |
| Tax\tbenefit\tfrom\tstock\toption\nexercises | 6,457 | - | - | 6,457 |
| Equity\tin\tsubsidiaries'\tearnings,\nnet | (328,612) | - | 328,612 | - |
| Change\tin\toperating\tassets\tand\nliabilities: |  |  |  |  |
| Merchandise\tinventories | - | (97,877) | - | (97,877) |
| Prepaid\texpenses\tand\nother\tcurrent\tassets | (4,112) | (9,326) | - | (13,438) |
| Accounts\tpayable | (26,052) | 113,282 | - | 87,230 |
| Accrued\texpenses\tand\nother | (12,210) | 52,586 | - | 40,376 |
| Income\ttaxes | 13 | (26,030) | - | (26,017) |
| Other | 5,817 | 7,714 | - | 13,531 |
| Net\tcash\tprovided\tby\toperating\nactivities | 10,752 | 544,733 | - | 555,485 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (18,089) | (266,023) | - | (284,112) |
| Purchases\tof\tshort-term\tinvestments | (123,925) | (8,850) | - | (132,775) |
| Sales\tof\tshort-term\tinvestments | 166,350 | 500 | - | 166,850 |
| Purchases\tof\tlong-term\tinvestments | - | (16,995) |  | (16,995) |
| Insurance\tproceeds\trelated\tto\nproperty\tand\tequipment | - | 1,210 | - | 1,210 |
| Proceeds\tfrom\tsale\tof\tproperty\tand\nequipment | 100 | 1,319 | - | 1,419 |
| Net\tcash\tprovided\tby\t(used\tin)\ninvesting\tactivities | 24,436 | (288,839) | - | (264,403) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |  |
| Borrowings\tunder\trevolving\tcredit\nfacility | 232,200 | - | - | 232,200 |
| Repayments\tof\tborrowings\tunder\nrevolving\tcredit\tfacility | (232,200) | - | - | (232,200) |
| Issuance\tof\tlong-term\tobligations | - | 14,495 | - | 14,495 |
| Repayments\tof\tlong-term\tobligations | (4,969) | (9,341) | - | (14,310) |
| Payment\tof\tcash\tdividends | (56,183) | - | - | (56,183) |
| Proceeds\tfrom\texercise\tof\tstock\noptions | 29,405 | - | - | 29,405 |
| Repurchases\tof\tcommon\tstock | (297,602) | - | - | (297,602) |
| Changes\tin\tintercompany\tnote\nbalances,\tnet | 276,509 | (276,509) | - | - |
| Other\tfinancing\tactivities | 892 | - | - | 892 |
| Net\tcash\tused\tin\tfinancing\tactivities | (51,948) | (271,355) | - | (323,303) |
| Net\tdecrease\tin\tcash\tand\tcash\nequivalents | (16,760) | (15,461) | - | (32,221) |
| Cash\tand\tcash\tequivalents,\tbeginning\nof\tyear | 127,170 | 105,660 | - | 232,830 |
| Cash\tand\tcash\tequivalents,\tend\tof\nyear | $110,410 | $90,199 | - | $200,609 |

|  |  | For	the	year	ended	January	28,	2005 | For	the	year	ended	January	28,	2005 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | DOLLAR\tGENERAL\nCORPORATION | GUARANTOR\nSUBSIDIARIES | ELIMINATIONS | CONSOLIDATED\nTOTAL |
| STATEMENTS\tOF\tCASH\tFLOWS: |  |  |  |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |  |
| Net\tincome | $344,190 | $333,852 | $(333,852) | $344,190 |
| Adjustments\tto\treconcile\tnet\tincome\tto |  |  |  |  |
| net\tcash\tprovided\tby\toperating |  |  |  |  |
| activities: |  |  |  |  |
| Depreciation\tand\tamortization | 17,181 | 147,297 | - | 164,478 |
| Deferred\tincome\ttaxes | 5,516 | 20,235 | - | 25,751 |
| Tax\tbenefit\tfrom\tstock\toption\nexercises | 9,657 | - | - | 9,657 |
| Equity\tin\tsubsidiaries'\tearnings,\nnet | (333,852) | - | 333,852 | - |
| Change\tin\toperating\tassets\tand\nliabilities: |  |  |  |  |
| Merchandise\tinventories | - | (219,396) | - | (219,396) |
| Prepaid\texpenses\tand\tother\ncurrent\tassets | 652 | (4,318) | - | (3,666) |
| Accounts\tpayable | 10,665 | 11,593 | - | 22,258 |
| Accrued\texpenses\tand\tother | (8,351) | 43,399 | - | 35,048 |
| Income\ttaxes | 4,751 | 19,042 | - | 23,793 |
| Other | (1,347) | (9,251) | - | (10,598) |
| Net\tcash\tprovided\tby\toperating\nactivities | 49,062 | 342,453 | - | 391,515 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (20,443) | (267,851) | - | (288,294) |
| Purchases\tof\tshort-term\tinvestments | (220,200) | (1,500) | - | (221,700) |
| Sales\tof\tshort-term\tinvestments | 245,000 | 2,501 | - | 247,501 |
| Proceeds\tfrom\tsale\tof\tproperty\tand\nequipment | 3 | 3,321 | - | 3,324 |
| Net\tcash\tprovided\tby\t(used\tin)\ninvesting\tactivities | 4,360 | (263,529) | - | (259,169) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |  |
| Borrowings\tunder\trevolving\tcredit\nfacility | 195,000 | - | - | 195,000 |
| Repayments\tof\tborrowings\tunder\nrevolving\tcredit\tfacility | (195,000) | - | - | (195,000) |
| Repayments\tof\tlong-term\tobligations | (7,847) | (8,570) | - | (16,417) |
| Payment\tof\tcash\tdividends | (52,682) | - | - | (52,682) |
| Proceeds\tfrom\texercise\tof\tstock\noptions | 34,128 | - | - | 34,128 |
| Repurchases\tof\tcommon\tstock | (209,295) | - | - | (209,295) |
| Changes\tin\tintercompany\tnote\nbalances,\tnet | 25,586 | (25,586) | - | - |
| Other\tfinancing\tactivities | (1,149) | - | - | (1,149) |
| Net\tcash\tused\tin\tfinancing\tactivities | (211,259) | (34,156) | - | (245,415) |
| Net\tincrease\t(decrease)\tin\tcash\tand\ncash\tequivalents | (157,837) | 44,768 | - | (113,069) |
| Cash\tand\tcash\tequivalents,\tbeginning\nof\tyear | 285,007 | 60,892 | - | 345,899 |
| Cash\tand\tcash\tequivalents,\tend\tof\tyear | $127,170 | $105,660 | - | $232,830 |

|  | DOLLAR<br>GENERAL<br>CORPORATION | GUARANTOR<br>SUBSIDIARIES | ELIMINATIONS | CONSOLIDATED<br>TOTAL |
| :--- | :--- | :--- | :--- | :--- |
| STATEMENTS\tOF\tCASH\tFLOWS: |  |  |  |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |  |
| Net\tincome | $299,002 | $300,156 | $(300,156) | $299,002 |
| Adjustments\tto\treconcile\tnet\tincome\tto |  |  |  |  |
| net\tcash\tprovided\tby\t(used\tin) |  |  |  |  |
| operating\tactivities: |  |  |  |  |
| Depreciation\tand\tamortization | 19,961 | 134,496 | - | 154,457 |
| Deferred\tincome\ttaxes | (2,102) | 20,713 | - | 18,611 |
| Tax\tbenefit\tfrom\tstock\toption\nexercises | 14,565 | - | - | 14,565 |
| Equity\tin\tsubsidiaries'\tearnings,\nnet | (300,156) | - | 300,156 | - |
| Change\tin\toperating\tassets\tand |  |  |  |  |
| liabilities: |  |  |  |  |
| Merchandise\tinventories | - | (34,110) | - | (34,110) |
| Prepaid\texpenses\tand\tother\ncurrent\tassets | (7,323) | (8,981) | - | (16,304) |
| Accounts\tpayable | (50,489) | 83,754 | - | 33,265 |
| Accrued\texpenses\tand\tother | 15,752 | 44,771 | - | 60,523 |
| Income\ttaxes | 4,079 | (25,543) | - | (21,464) |
| Other | 1,964 | 3,556 | - | 5,520 |
| Net\tcash\tprovided\tby\t(used\tin)\noperating\tactivities | (4,747) | 518,812 | - | 514,065 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (15,526) | (124,613) | - | (140,139) |
| Purchases\tof\tshort-term\tinvestments | (199,950) | (2,000) | - | (201,950) |
| Sales\tof\tshort-term\tinvestments | 132,725 | 2,000 | - | 134,725 |
| Purchase\tof\tpromissory\tnotes | (49,582) | - | - | (49,582) |
| Proceeds\tfrom\tsale\tof\tproperty\tand\nequipment | 39 | 230 | - | 269 |
| Contribution\tof\tcapital | (10) | - | 10 | - |
| Net\tcash\tused\tin\tinvesting\tactivities | (132,304) | (124,383) | 10 | (256,677) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |  |
| Repayments\tof\tlong-term\tobligations | (7,753) | (8,154) | - | (15,907) |
| Payment\tof\tcash\tdividends | (46,883) | - | - | (46,883) |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 49,485 | - | - | 49,485 |
| Repurchases\tof\tcommon\tstock | (29,687) | - | - | (29,687) |
| Issuance\tof\tcommon\tstock,\tnet | - | 10 | (10) | - |
| Changes\tin\tintercompany\tnote\tbalances,\nnet | 384,378 | (384,378) | - | - |
| Other\tfinancing\tactivities | (281) | - | - | (281) |
| Net\tcash\tprovided\tby\t(used\tin)\nfinancing\tactivities | 349,259 | (392,522) | (10) | (43,273) |
| Net\tincrease\tin\tcash\tand\tcash\nequivalents | 212,208 | 1,907 | - | 214,115 |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\nyear | 72,799 | 58,985 | - | 131,784 |
| Cash\tand\tcash\tequivalents,\tend\tof\tyear | $285,007 | $60,892 | $- | $345,899 |

# ITEM	9. CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL DISCLOSURE

Not	Applicable.

# ITEM	9A. CONTROLS	AND	PROCEDURES

(a) Disclosure	Controls	and	Procedures.		The	Company	maintains	disclosure	controls	and	procedures	that	are	designed	to ensure	that	information	relating	to	the	Company	and	its	consolidated	subsidiaries	required	to	be	disclosed	in	the	Company's	periodic filings	under	the	Securities	Exchange	Act	of	1934	is	recorded,	processed,	summarized	and	reported	in	a	timely	manner	in	accordance with	the	requirements	of	the	Exchange	Act,	and	that	such	information	is	accumulated	and	communicated	to	management,	including	the Company's	Chief	Executive	Officer	and	Chief	Financial	Officer,	as	appropriate,	to	allow	timely	decisions	regarding	required	disclosure. The	Company	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	management,	including	the	Chief	Executive Officer	and	the	Chief	Financial	Officer,	of	the	effectiveness	of	the	design	and	operation	of	these	disclosure	controls	and	procedures,	as such	term	is	defined	in	Exchange	Act	Rule	13a-15(e),	as	of	February	3,	2006.	Based	on	this	evaluation,	the	Chief	Executive	Officer	and the	Chief	Financial	Officer	each	concluded	that	the	Company's	disclosure	controls	and	procedures	were	effective	as	of	February	3,	2006.

(b) Management's	Annual	Report	on	Internal	Control	Over	Financial	Reporting.		The	management	of	Dollar	General prepared	and	is	responsible	for	the	consolidated	financial	statements	and	all	related	financial	information	contained	in	this	document. This	responsibility	includes	establishing	and	maintaining	effective	internal	control	over	financial	reporting	as	defined	in	Rule	13a-15(f) under	the	Securities	Exchange	Act	of	1934.	The	Company's	internal	control	over	financial	reporting	is	designed	to	provide	reasonable assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance with	accounting	principles	generally	accepted	in	the	United	States	of	America.

To	comply	with	the	requirements	of	Section	404	of	the	Sarbanes–Oxley	Act	of	2002,	management	designed	and	implemented	a structured	and	comprehensive	assessment	process	to	evaluate	its	internal	control	over	financial	reporting.	The	assessment	of	the effectiveness	of	the	Company's	internal	control	over	financial	reporting	was	based	on	criteria	established	in	Internal	Control—Integrated Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	Because	of	its	inherent	limitations,	a system	of	internal	control	over	financial	reporting	can	provide	only	reasonable	assurance	and	may	not	prevent	or	detect	misstatements. Management	regularly	monitors	its	internal	control	over	financial	reporting,	and	actions	are	taken	to	correct	any	deficiencies	as	they	are identified.	Based	on	its	assessment,	management	has	concluded	that	the	Company's	internal	control	over	financial	reporting	is	effective as	of	February	3,	2006.

Management's	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting	as	of	February	3,	2006,	has	been	audited by	Ernst	&	Young	LLP,	the	independent	registered	public	accounting	firm	who	also	audited	the	Company's	consolidated	financial statements.	Ernst	&	Young's	attestation	report	on	management's	assessment	of	the	Company's	internal	control	over	financial	reporting	is contained	below.

# Attestation	Report	of	Independent	Registered	Public	Accounting	Firm	on	Internal	Control	Over	Financial	Reporting.

# on	Internal	Control	Over	Financial	Reporting

We	have	audited	management's	assessment,	included	in	the	accompanying	Management's	Annual	Report	on	Internal	Control Over	Financial	Reporting,	that	Dollar	General	Corporation	and	subsidiaries	maintained	effective	internal	control	over	financial	reporting as	of	February	3,	2006,	based	on	criteria	established	in	Internal	Control	–	Integrated	Framework	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission	(the	COSO	criteria).	Dollar	General	Corporation's	management	is	responsible	for maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial reporting.	Our	responsibility	is	to	express	an	opinion	on	management's	assessment	and	an	opinion	on	the	effectiveness	of	the	Company's internal	control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States). Those	standards	require	that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over financial	reporting	was	maintained	in	all	material	respects.	Our	audit	included	obtaining	an	understanding	of	internal	control	over financial	reporting,	evaluating	management's	assessment,	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal control,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted accounting	principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in accordance	with	authorizations	of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention or	timely	detection	of	unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also, projections	of	any	evaluation	of	effectiveness	to	future

periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance with	the	policies	or	procedures	may	deteriorate.

In	our	opinion,	management's	assessment	that	Dollar	General	Corporation	and	subsidiaries	maintained	effective	internal	control over	financial	reporting	as	of	February	3,	2006,	is	fairly	stated,	in	all	material	respects,	based	on	the	COSO	criteria.	Also,	in	our	opinion, Dollar	General	Corporation	and	subsidiaries	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of February	3,	2006,	based	on	the	COSO	criteria.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the consolidated	balance	sheets	of	Dollar	General	Corporation	and	subsidiaries	as	of	February	3,	2006	and	January	28,	2005,	and	the	related consolidated	statements	of	income,	shareholders'	equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	February	3,	2006 and	our	report	dated	March	16,	2006	expressed	an	unqualified	opinion	thereon.

/s/	Ernst	&	Young	LLP

(d) Changes	in	Internal	Control	Over	Financial	Reporting.		There	have	been	no	changes	during	the	quarter	ended	February	3, 2006	in	the	Company's	internal	control	over	financial	reporting	(as	defined	in	Exchange	Act	Rule	13a-15(f))	that	have	materially affected,	or	are	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# ITEM	9B. OTHER	INFORMATION

# PART	III

# ITEM	10. DIRECTORS	AND	EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

The	Company	makes	available	free	of	charge	within	the	Investing	section	of	its	Internet	website	at	www.dollargeneral.com,	and in	print	to	any	shareholder	who	requests,	the	Company's	Corporate	Governance	Principles,	the	charters	of	the	standing	committees	of	the Board	of	Directors,	and	the	Code	of	Business	Conduct	and	Ethics	adopted	by	the	Board	and	applicable	to	all	Company	directors,	officers and	employees.	Requests	for	copies	may	be	directed	to	Investor	Relations,	Dollar	General	Corporation,	100	Mission	Ridge, Goodlettsville,	TN	37072,	or	telephone	(615)	855-4000.	The	Company	intends	to	disclose	any	amendments	to	the	Code	of	Business Conduct	and	Ethics,	and	any	waiver	from	a	provision	of	that	Code	granted	to	the	Company's	Chief	Executive	Officer	or	Chief	Financial Officer,	on	the	Company's	Internet	website	promptly	following	the	amendment	or	waiver.		The	Company	may	elect	to	disclose	any	such amendment	or	waiver	in	a	report	on	Form	8-K	filed	with	the	SEC	either	in	addition	to	or	in	lieu	of	the	website	disclosure.	The information	contained	on	or	connected	to	the	Company's	Internet	website	is	not	incorporated	by	reference	into	this	Form	10-K	and should	not	be	considered	part	of	this	or	any	other	report	that	the	Company	files	with	or	furnishes	to	the	SEC.

The	information	required	by	this	Item	10	regarding	the	Company's	directors,	director	nominees,	audit	committee	financial experts,	audit	committee,	and	procedures	for	shareholders	to	recommend	director	nominees	is	contained	under	the	caption	"Proposal	1: Election	of	Directors—Who	are	the	nominees	this	year,"	"—What	are	the	backgrounds	of	this	year's	nominees,"	"—Are	there	any familial	relationships	between	any	of	the	nominees,"	"—What	are	the	standing	committees	of	the	Board"	and	"—Can	shareholders nominate	directors,"	all	in	the	Company's	definitive	Proxy	Statement	to	be	filed	for	its	2006	Annual	Meeting	of	Shareholders	to	be	held on	May	31,	2006	(the	"2006	Proxy	Statement"),	which	information	under	such	captions	is	incorporated	herein	by	reference.	Information required	by	this	Item	10	regarding	compliance	with	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	is	contained	under	the	caption "Section	16(a)	Beneficial	Ownership	Reporting	Compliance"	in	the	2006	Proxy	Statement,	which	information	under	such	caption	is incorporated	herein	by	reference.	Information	required	by	this	Item	10	regarding	the	Company's	executive	officers	is	contained	in	Part	I, Item	4A	of	this	Form	10-K,	which	information	under	such	caption	is	incorporated	herein	by	reference.

# ITEM	11. EXECUTIVE	COMPENSATION

The	information	required	by	this	Item	11	regarding	director	and	executive	officer	compensation	is	contained	under	the	captions "Proposal	1:	Election	of	Directors–How	are	directors	compensated"	and	"Executive	Compensation"	in	the	2006	Proxy	Statement,	which information	under	such	captions	is	incorporated	herein	by	reference.

# ITEM	12. SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED STOCKHOLDER	MATTERS

(a) Equity	Compensation	Plan	Information.		The	information	required	by	this	Item	12	regarding	equity	compensation	plan information	is	contained	under	the	caption	"Proposal	2:		Amendments	to	the	Dollar	General	Corporation	1998	Stock	Incentive	Plan"	in the	2006	Proxy	Statement,	which	information	under	such	caption	is	incorporated	herein	by	reference.

(b)		Other	Information.		The	information	required	by	this	Item	12	regarding	security	ownership	of	certain	beneficial	owners	and the	Company's	management	is	contained	under	the	caption	"Security	Ownership"	in	the	2006	Proxy	Statement,	which	information	under such	caption	is	incorporated	herein	by	reference.

# ITEM	13. CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS

The	information	required	by	this	Item	13	regarding	certain	relationships	and	related	transactions	is	contained	under	the	caption "Transactions	with	Management	and	Others"	in	the	2006	Proxy	Statement,	which	information	under	such	caption	is	incorporated	herein by	reference.

# ITEM	14. PRINCIPAL	ACCOUNTING	FEES	AND	SERVICES

The	information	required	by	this	Item	14	regarding	fees	paid	to	the	Company's	principal	accountant	and	the	pre-approval	policies and	procedures	established	by	the	Audit	Committee	of	the	Company's	Board	of	Directors	is	contained	under	the	caption	"Fees	Paid	to Auditor"	in	the	2006	Proxy	Statement,	which	information	under	such	caption	is	incorporated	herein	by	reference.

# PART	IV

# ITEM	15. EXHIBITS	AND	FINANCIAL	STATEMENT	SCHEDULES

(a) Report	of	Independent	Registered	Public	Accounting	Firm

(b) All	schedules	for	which	provision	is	made	in	the	applicable	accounting	regulations	of the	SEC	are	not	required	under	the	related	instructions,	are	inapplicable	or	the information	is	included	in	the	Consolidated	Financial	Statements	and,	therefore,	have been	omitted.

(c) Exhibits:		See	Exhibit	Index	immediately	following	the	signature	pages	hereto,	which Exhibit	Index	is	incorporated	by	reference	as	if	fully	set	forth	herein.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this report	to	be	signed	on	its	behalf	by	the	undersigned,	thereunto	duly	authorized.

We,	the	undersigned	directors	and	officers	of	the	Registrant,	hereby	severally	constitute	David	A.	Perdue	and	David	M.	Tehle, and	each	of	them	singly,	our	true	and	lawful	attorneys	with	full	power	to	them	and	each	of	them	to	sign	for	us,	and	in	our	names	in	the capacities	indicated	below,	any	and	all	amendments	to	this	Annual	Report	on	Form	10-K	filed	with	the	Securities	and	Exchange Commission.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons on	behalf	of	the	registrant	and	in	the	capacities	and	on	the	dates	indicated.

| /s/	Barbara	L.	Bowles<br>BARBARA	L.	BOWLES | Director | March	21,	2006 |
| :--- | :--- | :--- |
| /s/\tJames\tL.\tClayton\nJAMES\tL.\tCLAYTON | Director | March\t21,\t2006 |
| /s/\tReginald\tD.\tDickson\nREGINALD\tD.\tDICKSON | Director | March\t21,\t2006 |
|  | Director |  |
| E.\tGORDON\tGEE |  |  |
| /s/\tBarbara\tM.\tKnuckles\nBARBARA\tM.\tKNUCKLES | Director | March\t21,\t2006 |
| /s/\tJ.\tNeal\tPurcell\nJ.\tNEAL\tPURCELL | Director | March\t21,\t2006 |
| /s/\tJames\tD.\tRobbins | Director | March\t21,\t2006 |

# EXHIBIT	INDEX

4.4 First	Supplemental	Indenture,	dated	as	of	July	28,	2000,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as	trustee (incorporated	by	reference	to	the	Company's	Annual	Report	on	Form	10-K	for	the	year	ended	January	31,	2003,	filed	March	19, 2003).

4.5 Second	Supplemental	Indenture,	dated	as	of	June	18,	2001,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as	trustee (incorporated	by	reference	to	the	Company's	Annual	Report	on	Form	10-K	for	the	year	ended	January	31,	2003,	filed	March	19, 2003).

4.6 Third	Supplemental	Indenture,	dated	as	of	June	20,	2002,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as	trustee (incorporated	by	reference	to	the	Company's	Annual	Report	on	Form	10-K	for	the	year	ended	January	31,	2003,	filed	March	19, 2003).

4.7 Fourth	Supplemental	Indenture,	dated	as	of	December	11,	2002,	by	and	among	Dollar	General	Corporation,	the	guarantors named	therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as trustee	(incorporated	by	reference	to	the	Company's	Annual	Report	on	Form	10-K	for	the	year	ended	January	31,	2003,	filed March	19,	2003).

4.8 Fifth	Supplemental	Indenture,	dated	as	of	May	23,	2003,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(f/k/a	First	Union	National	Bank),	as	trustee	(incorporated	by reference	to	the

4.9 Sixth	Supplemental	Indenture,	dated	as	of	July	15,	2003,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(f/k/a	First	Union	National	Bank),	as	trustee	(incorporated	by reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	August	1,	2003,	filed	August	29,	2003).

4.10 Seventh	Supplemental	Indenture,	dated	as	of	May	23,	2005,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as	trustee (incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	July	29,	2005,	filed	August 25,	2005).

4.11 Eighth	Supplemental	Indenture,	dated	as	of	July	27,	2005,	by	and	among	Dollar	General	Corporation,	the	guarantors	named therein,	as	guarantors,	and	Wachovia	Bank,	National	Association	(formerly	known	as	First	Union	National	Bank),	as	trustee (incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	July	29,	2005,	filed	August 25,	2005).

10.1 Amended	and	Restated	Revolving	Credit	Agreement,	dated	as	of	June	30,	2004,	by	and	among	Dollar	General	Corporation,	the lenders	from	time	to	time	parties	thereto,	Keybank	National	Association,	Bank	of	America,	N.A.,	U.S.	Bank	National Association,	AmSouth	Bank	and	SunTrust	Bank	(incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q for	the	quarter	ended	July	30,	2004,	filed	August	26,	2004).

10.5 1993	Employee	Stock	Incentive	Plan	(incorporated	by	reference	to	the	Company's	Proxy	Statement	for	the	June	7,	1993,	Annual Meeting	of	Stockholders).*

10.7 1995	Outside	Directors	Stock	Option	Plan	(incorporated	by	reference	to	the	Company's	Proxy	Statement	for	the	June	5,	1995, Annual	Meeting	of	Stockholders).*

10.8 1998	Stock	Incentive	Plan,	as	amended	and	restated	effective	June	2,	2003,	and	as	further	modified	through	August	26,	2003	(the "1998	Stock	Incentive	Plan")	(incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended August	1,	2003,	filed	August	29,	2003).*

10.16 First	Amendment	to	the	Dollar	General	Corporation	CDP/SERP	Plan	(as	amended	and	restated	effective	November	1,	2004), executed	on	November	10,	2005	(incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter ended	October	28,	2005,	filed	November	22,	2005).*

10.17 Dollar	General	Corporation	Deferred	Compensation	Plan	for	Non-Employee	Directors	(as	amended	and	restated	effective November	1,	2004)	(incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	October 29,	2004,	filed	December	6,	2004).*

10.18 Dollar	General	Corporation	Annual	Incentive	Plan	(effective	March	16,	2005,	as	approved	by	shareholders	on	May	24,	2005) (incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	July	29,	2005,	filed	August 25,	2005).*

10.19 Dollar	General	Corporation	2005	Store	Support	Center	and	Distribution	Center	Teamshare	Bonus	Program	(incorporated	by reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	July	29,	2005,	filed	August	25,	2005).*

10.26 Employment	Agreement,	effective	as	of	April	2,	2003,	by	and	between	Dollar	General	Corporation	and	David	A.	Perdue (incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	May	2,	2003,	filed	May	29, 2003).*

10.27 Supplemental	Executive	Retirement	Plan	for	David	A.	Perdue	(As	Restated	Effective	January	1,	2005)	(incorporated	by	reference to	the	Company's	Current	Report	on	Form	8-K	dated	and	filed	January	25,	2006).*

10.28 Restricted	Stock	Agreement,	dated	April	2,	2003,	by	and	between	Dollar	General	Corporation	and	David	A.	Perdue	(incorporated by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	May	2,	2003,	filed	May	29,	2003).*

10.29 Nonqualified	Stock	Option	Agreement,	dated	April	2,	2003,	by	and	between	Dollar	General	Corporation	and	David	A.	Perdue (incorporated	by	reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	May	2,	2003,	filed	May	29, 2003).*

10.30 Employment	Agreement,	effective	June	7,	2004,	by	and	between	Dollar	General	Corporation	and	David	Tehle	(incorporated	by reference	to	the	Company's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	July	30,	2004,	filed	August	26,	2004).*

10.31 Employment	Agreement,	effective	December	1,	2005,	by	and	between	Dollar	General	Corporation	and	Beryl	Buley	(incorporated by	reference	to	the	Company's	Current	Report	on	Form	8-K	dated	November	21,	2005,	filed	November	28,	2005).*

10.32 Employment	Agreement,	effective	March	1,	2004,	by	and	between	Dollar	General	Corporation	and	Kathleen	Guion	(incorporated by	reference	to	the	Company's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	January	28,	2005,	filed	April	12,	2005).*



Question: what is the cost difference over lifo in the last two years?
Calculation:   cost_difference = 5.8 + 6.3
 answer = cost_difference
Answer: 12.1