**Form 10-Q**

 

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 
| **(Mark One)**                                                                                |
|-----------------------------------------------------------------------------------------------|
|                                                                                          |   |
| **ý**                                                                                    | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                          |
| **For the quarterly period ended May 31, 2003**                                               |
|                                                                                          |
| **OR**                                                                                        |
|                                                                                          |   |
| **o**                                                                                         | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                          |   |
| **Commission File  Number          1-6807** |

 

| **FAMILY  DOLLAR STORES, INC.**                                                                  |
|--------------------------------------------------------------------------------------------------|
| (Exact name of registrant as specified in  its charter)                                          |
|                                                                                             |   |   |
| **DELAWARE**                                                                                     |   | **56-0942963** |
| (State or other jurisdiction of  Incorporation or organization)                                  |   | (I.R.S. Employer  Identification No.) |
|                                                                                             |   |   |
| **P.O. Box 1017, 10401 Old Monroe Road  Charlotte, North Carolina**                              |   | **28201-1017** |
| (Address of principal executive offices)                                                         |   | (Zip Code) |
|                                                                                             |   |   |
| Registrant’s telephone number, including  area code    **704-847-6961** |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  ý   No  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12-b of the Exchange Act). Yes  ý   No  o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                    |   | **Outstanding  at June 27, 2003** |
|------------------------------|--------|-----------------------------------|
| Common Stock, $.10 par value |   | 171,975,840 shares                |

 

 

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**FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES**

 

**INDEX**

 
| **Part I  -   Financial Information**     |
|-----------------------------------------------------|
|                                                |   |
|                                                | **Item 1 -  Consolidated Condensed Financial Statements:** |
|                                                |   |
|                                                |   | **Consolidated Condensed Balance Sheets –  May 3l, 2003 and August 31, 2002** |
|                                                |   |   |
|                                                |   | **Consolidated Condensed Statements of Income  –  Quarter Ended May 31, 2003 and June 1, 2002** |
|                                                |   |   |
|                                                |   | **Consolidated Condensed Statements of Income –  Three Quarters Ended May 31, 2003 and June 1, 2002** |
|                                                |   |   |
|                                                |   | **Consolidated Condensed Statements of Cash  Flows –  Three Quarters Ended May 31, 2003 and June 1, 2002** |
|                                                |   |   |
|                                                |   | **Notes to Consolidated Condensed Financial  Statements** |
|                                                |   |   |
|                                                | **Item 2 – Management’s Discussion and  Analysis of Financial Condition and Results of Operations** |
|                                                |   |   |
|                                                | **Item 4 – Controls and Procedures** |
|                                                |   |   |
| **Part II – Other Information and Signatures** |
|                                                |   |   |
|                                                | **Item 1 - Legal Proceedings** |
|                                                |   |   |
|                                                | **Item 6 – Exhibits and Reports on form 8-K** |
|                                                |   |   |
|                                                | **Signatures** |
|                                                |   |   |
|                                                | **Certifications** |

 

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**FAMILY DOLLARSTORES, INC., AND SUBSIDIARIES**

 

**CONSOLIDATEDCONDENSED BALANCE SHEETS****(Unaudited)**

 
| **(In thousands, except share amounts)**                                                                                                           |   | **May 31,  2003** |          | **August 31,  2002** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------------|----------------------|------------|
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Assets**                                                                                                                                         |   |              | ** **    |                 | ** ** |
| **Current assets:**                                                                                                                                |   |              | ** **    |                 | ** ** |
| **Cash and cash equivalents (Note 2)**                                                                                                             |   | **$**             | **246,399**   | ** **           | **$**      | **220,265** | ** ** |
| **Merchandise inventories**                                                                                                                        |   | **771,809**       | ** **    | **766,631**          | ** ** |
| **Deferred income taxes**                                                                                                                          |   | **53,415**        | ** **    | **49,941**           | ** ** |
| **Income tax refund receivable**                                                                                                                   |   | **—**        | ** **    | **6,469**            | ** ** |
| **Prepayments and other current assets**                                                                                                           |   | **30,964**        | ** **    | **12,553**           | ** ** |
| **Total current assets**                                                                                                                           |   | **1,102,587**     | ** **    | **1,055,859**        | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Property and equipment, net**                                                                                                                    |   | **757,038**       | ** **    | **685,617**          | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Other assets**                                                                                                                                   |   | **13,931**        | ** **    | **13,143**           | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
|                                                                                                                                               |   | **$**             | **1,873,556** |                 | **$**      | **1,754,619** | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Liabilities and  Shareholders’ Equity**                                                                                                     |   |              | ** **    |                 | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Current liabilities:**                                                                                                                           |   |              | ** **    |                 | ** ** |
| **Accounts payable and accrued liabilities**                                                                                                       |   | **$**             | **523,785**   | ** **           | **$**      | **530,780** | ** ** |
| **Income taxes payable**                                                                                                                           |   | **4,602**         | ** **    | **—**           | ** ** |
| **Total current liabilities**                                                                                                                      |   | **528,387**       | ** **    | **530,780**          | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Deferred income taxes**                                                                                                                          |   | **75,393**        | ** **    | **68,891**           | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
| **Shareholders’ equity (Notes 5 and 6):**                                                                                                     |   |              | ** **    |                 | ** ** |
| **Preferred stock, $1 par; authorized and unissued 500,000 shares**                                                                                |   |              | ** **    |                 | ** ** |
| **Common stock, $.10 par;  authorized 600,000,000 shares;  issued 186,648,533 shares at May 31, 2003,  and 185,830,901 shares at August 31, 2002** |   | **18,665**        | ** **    | **18,583**           | ** ** |
| **Capital in excess of par**                                                                                                                       |   | **81,051**        | ** **    | **63,294**           | ** ** |
| **Retained earnings**                                                                                                                              |   | **1,280,839**     | ** **    | **1,118,015**        | ** ** |
|                                                                                                                                               |   | **1,380,555**     |          | **1,199,892**        | ** ** |
| **Less common stock held in treasury, at cost (14,701,283 shares at May  31, 2003 and 12,501,666 at August 31, 2002)**                             |   | **110,779**       | ** **    | **44,944**           | ** ** |
| **Total shareholders’ equity**                                                                                                                |   | **1,269,776**     | ** **    | **1,154,948**        | ** ** |
|                                                                                                                                               |   |              | ** **    |                 | ** ** |
|                                                                                                                                               |   | **$**             | **1,873,556** |                 | **$**      | **1,754,619** | ** ** |

 

See notes toconsolidated condensed financial statements

 

2

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**FAMILY DOLLARSTORES, INC., AND SUBSIDIARIES**

 

**CONSOLIDATEDCONDENSED STATEMENTS OF INCOME**

**(Unaudited)**

 
|                                               |   | **Quarter Ended** |          |
|----------------------------------------------------|--------|-------------------|---------------|
| **(In thousands, except per share amounts)**       |   | **May 31,  2003** |          | **June 1,  2002** |   |
|                                               |   |              | ** **    |   | ** ** |
| **Net sales**                                      |   | **$**             | **1,176,877** | ** ** | **$** | **1,022,082** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Cost and expenses:**                             |   |              | ** **    |   | ** ** |
| **Cost of sales**                                  |   | **768,495**       | ** **    | **666,735** | ** ** |
| **Selling, general and administrative expenses**   |   | **298,767**       | ** **    | **259,189** | ** ** |
|                                               |   | **1,067,262**     |          | **925,924** | ** ** |
| **Income before provision for taxes on income**    |   | **109,615**       | ** **    | **96,158** | ** ** |
| **Provision for taxes on income**                  |   | **40,010**        | ** **    | **35,098** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Net income**                                     |   | **$**             | **69,605**    | ** ** | **$** | **61,060** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Net income per common share - Basic (Note 6)**   |   | **$**             | **0.40**      | ** ** | **$** | **0.35** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Average shares - Basic (Note 6)**                |   | **172,075**       | ** **    | **173,074** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Net income per common share - Diluted (Note 6)** |   | **$**             | **0.40**      | ** ** | **$** | **0.35** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Average shares - Diluted (Note 6)**              |   | **173,049**       | ** **    | **174,357** | ** ** |
|                                               |   |              | ** **    |   | ** ** |
| **Dividends per common share**                     |   | **$**             | **0.075**     | ** ** | **$** | **0.065** | ** ** |

 

See notes toconsolidated condensed financial statements.

 

3

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**FAMILY DOLLAR STORES,INC., AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED****STATEMENTS OF INCOME(Unaudited)**

 
|                                               |   | **Three Quarters  Ended** |          |
|----------------------------------------------------|--------|---------------------------|---------------|
| **(In thousands, except per share amounts)**       |   | **May 31,  2003**         |          | **June 1,  2002** |   |
|                                               |   |                      | ** **    |   | ** ** |
| **Net sales**                                      |   | **$**                     | **3,541,697** | ** ** | **$** | **3,104,380** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Cost and expenses:**                             |   |                      | ** **    |   | ** ** |
| **Cost of sales**                                  |   | **2,334,962**             | ** **    | **2,049,875** | ** ** |
| **Selling, general and administrative expenses**   |   | **892,092**               | ** **    | **778,859** | ** ** |
|                                               |   | **3,227,054**             |          | **2,828,734** | ** ** |
| **Income before provision for taxes on income**    |   | **314,643**               | ** **    | **275,646** | ** ** |
| **Provision for taxes on income**                  |   | **114,845**               | ** **    | **100,611** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Net income**                                     |   | **$**                     | **199,798**   | ** ** | **$** | **175,035** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Net income per common share - Basic (Note 6)**   |   | **$**                     | **1.16**      | ** ** | **$** | **1.01** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Average shares - Basic (Note 6)**                |   | **172,434**               | ** **    | **172,641** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Net income per common share - Diluted (Note 6)** |   | **$**                     | **1.15**      | ** ** | **$** | **1.01** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Average shares - Diluted (Note 6)**              |   | **173,344**               | ** **    | **173,968** | ** ** |
|                                               |   |                      | ** **    |   | ** ** |
| **Dividends per common share**                     |   | **$**                     | **0.215**     | ** ** | **$** | **0.19** | ** ** |

 

See notes toconsolidated condensed financial statements.

 

4

----

 

**FAMILY DOLLARSTORES, INC., AND SUBSIDIARIES**

 

**CONSOLIDATEDCONDENSED STATEMENTS OF CASH FLOWS****(Unaudited)**

 
|                                                                                   |   | **Three Quarters  Ended** |        |
|----------------------------------------------------------------------------------------|--------|---------------------------|-------------|
| **(In thousands)**                                                                     |   | **May 31,  2003**         |        | **June 1,  2002** |   |
| **Cash flows from operating activities:**                                              |   |                      | ** **  |   | ** ** |
| **Net income**                                                                         |   | **$**                     | **199,798** | ** ** | **$** | **175,035** | ** ** |
| **Adjustments to reconcile net income to net cash provided by operating  activities:** |   |                      | ** **  |   | ** ** |
| **Depreciation and amortization**                                                      |   | **65,339**                | ** **  | **56,706** | ** ** |
| **Deferred income taxes**                                                              |   | **3,028**                 | ** **  | **3,544** | ** ** |
| **Loss on disposition of property and equipment**                                      |   | **2,207**                 | ** **  | **1,577** | ** ** |
| **Changes in operating assets and liabilities:**                                       |   |                      |        |   |   |
| **Merchandise inventories**                                                            |   | **(5,178**                | **)**       | **12,536** | ** ** |
| **Income tax refund receivable**                                                       |   | **6,469**                 | ** **  | **4,936** | ** ** |
| **Prepayments and other current assets**                                               |   | **(18,411**               | **)**       | **1,776** | ** ** |
| **Other assets**                                                                       |   | **(788**                  | **)**       | **1,988** | ** ** |
| **Accounts payable and accrued liabilities**                                           |   | **(8,625**                | **)**       | **15,268** | ** ** |
| **Income taxes payable**                                                               |   | **4,602**                 | ** **  | **10,580** | ** ** |
|                                                                                   |   | **248,441**               |        | **283,946** | ** ** |
| **Cash flows from investing activities:**                                              |   |                      | ** **  |   | ** ** |
| **Capital expenditures**                                                               |   | **(139,989**              | **)**       | **(136,615** | **)** |
| **Proceeds from dispositions of property and equipment**                               |   | **1,022**                 | ** **  | **2,108** | ** ** |
|                                                                                   |   | **(138,967**              | **)**       | **(134,507** | **)** |
| **Cash flows from financing activities:**                                              |   |                      |        |   |   |
| **Net purchases of stock for treasury**                                                |   | **(65,835**               | **)**       | **5** | ** ** |
| **Exercise of employee stock options**                                                 |   | **17,839**                | ** **  | **20,242** | ** ** |
| **Payment of dividends**                                                               |   | **(35,344**               | **)**       | **(31,903** | **)** |
|                                                                                   |   | **(83,340**               | **)**       | **(11,656** | **)** |
|                                                                                   |   |                      | ** **  |   | ** ** |
| **Net change in cash and cash equivalents**                                            |   | **26,134**                | ** **  | **137,783** | ** ** |
|                                                                                   |   |                      | ** **  |   | ** ** |
| **Cash and cash equivalents at beginning of period**                                   |   | **220,265**               | ** **  | **21,753** | ** ** |
|                                                                                   |   |                      | ** **  |   | ** ** |
| **Cash and cash equivalents at end of period**                                         |   | **$**                     | **246,399** | ** ** | **$** | **159,536** | ** ** |
|                                                                                   |   |                      | ** **  |   | ** ** |
| **Supplemental disclosure of cash flow information:**                                  |   |                      | ** **  |   | ** ** |
| **Cash paid during the period for:**                                                   |   |                      | ** **  |   | ** ** |
| **Interest**                                                                           |   | **$**                     | **—**  | ** ** | **$** | **158** | ** ** |
| **Income taxes**                                                                       |   | **96,087**                | ** **  | **72,588** | ** ** |

 

See notes toconsolidated condensed financial statements.

 

5

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**FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES**

 

**NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

 

1.                           In the opinion of theCompany, the accompanying unaudited consolidated condensed financial statementscontain all adjustments (consisting of only normal recurring accruals)necessary to present fairly the financial position as of May 31, 2003, and theresults of operations for the quarter and the three quarters ended May 31, 2003and June 1, 2002, and the cash flows for the three quarters ended May 31, 2003,and June 1, 2002.  For further information,refer to the consolidated financial statements and footnotes included in theCompany’s annual report on Form 10-K for the year ended August 31, 2002.

 

The results of operations for the threequarters ended May 31, 2003, are not necessarily indicative of the results tobe expected for the full year.

 

The Company manages its business on the basisof one reportable segment.

 

2.                           The Company considers allhighly liquid investments with an original maturity of three months or less tobe “cash equivalents.”  The carryingamount of the Company’s cash equivalents approximates fair value due to theshort maturities of these investments. The Company maintains cash deposits with major banks which from time totime may exceed federally insured limits. The Company periodically assesses the financial condition of theinstitutions and believes that the risk of any loss is minimal.

 

3.                           The preparation of theCompany’s consolidated financial statements, in conformity with generallyaccepted accounting principles in the United States of America, requiresmanagement to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assetsand liabilities, the disclosure of contingent assets and liabilities at thedate of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from these estimates.

 

4.                           The Company has unsecuredrevolving credit facilities with banks for short-term borrowings of up to $200million.  One hundred million dollars ofthe facilities expires on May 27, 2004, and the remaining $100 million expireson May 31, 2005.  Borrowings under thesefacilities are at a variable interest rate based on short-term market interestrates.  The Company may convert up to$100 million of the facilities expiring on May 31, 2005, into a five-year termloan, at the bank’s variable prime rate.

 

5.                           The Company’s non-qualifiedstock option plan provides for the granting of options to key employees topurchase shares of common stock at prices not less than the fair market valueon the date of grant.  Options expirefive years from the date of grant and are exercisable to the extent of 40%after the second anniversary of the grant and an additional 30% at each of thefollowing two anniversary dates on a cumulative basis.

 

6

----

 

The Company accounts for stock options granted to employees using theintrinsic value method, under which no compensation expense is recorded sincethe exercise price of the stock options is equal to the market price of theunderlying stock on the date of the grant. Had compensation cost for the stock options issued been determinedconsistent with Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Compensation,” net income and net income per sharewould have been reduced to the following pro forma amounts (in thousands,except per share amounts):

 
|                                         |   | **Quarter  Ended** |       | **Three  Quarters Ended** |       |
|----------------------------------------------|--------|--------------------|------------|---------------------------|------------|
|                                         |   | **May 31,  2003**  |       | **June 1,  2002**         |       | **May 31,  2003** |   | **June 1,  2002** |   |
| **Net income-as  reported**                  |   | **$**              | **69,605** | ** **                | **$**      | **61,060** | ** ** | **$** | **199,798** | ** ** | **$** | **175,035** | ** ** |
|                                         |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Pro forma  stock-based compensation cost** |   | **(1,540**         | **)**      | **(1,043**                | **)**      | **(4,482** | **)** | **(3,221** | **)** |
|                                         |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Net income–pro  forma**               |   | **$**              | **68,065** | ** **                | **$**      | **60,017** | ** ** | **$** | **195,316** | ** ** | **$** | **171,814** | ** ** |
|                                         |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Net income per  share as reported:**       |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Basic**                                    |   | **$**              | **.40**    | ** **                | **$**      | **.35** | ** ** | **$** | **1.16** | ** ** | **$** | **1.01** | ** ** |
| **Diluted**                                  |   | **$**              | **.40**    | ** **                | **$**      | **.35** | ** ** | **$** | **1.15** | ** ** | **$** | **1.01** | ** ** |
|                                         |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Net income per  share–pro forma:**    |   |               | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| **Basic**                                    |   | **$**              | **.40**    | ** **                | **$**      | **.35** | ** ** | **$** | **1.13** | ** ** | **$** | **1.00** | ** ** |
| **Diluted**                                  |   | **$**              | **.39**    | ** **                | **$**      | **.34** | ** ** | **$** | **1.13** | ** ** | **$** | **.99** | ** ** |

 

The assumptions used to calculate the fair value of options granted areevaluated and revised, as necessary, to reflect market conditions andexperience.

 

The following is a summary of transactions under the plan during thethree quarters ended May 31, 2003 and June 1, 2002 (In thousands, except pershare amounts).

 
|                      |   | **Three  Quarters Ended**           |       |
|---------------------------|--------|-------------------------------------|------------|
|                      |   | **May 31,  2003**                   |       | **June l,  2002** |   |
|                      |   | **Number of  shares  under option** |       | **Option price  per share** |   | **Number of  shares  under option** |   | **Option price  per share** |   |
| **Outstanding-beginning** |   | **4,411**                           | ** ** | **$11.38-$35.50** | ** ** | **4,386** | ** ** | **$  5.58-$30.25** | ** ** |
| **Granted**               |   | **1,686**                           | ** ** | **$24.75-$34.50** | ** ** | **1,402** | ** ** | **$24.25-$35.50** | ** ** |
| **Exercised**             |   | **(818**                            | **)**      | **$11.38-$27.25** | ** ** | **(1,149** | **)** | **$  5.58-$24.75** | ** ** |
| **Cancelled**             |   | **(88**                             | **)**      |   |   | **(108** | **)** |   | ** ** |
| **Outstanding-ending**    |   | **5,191**                           | ** ** | **$14.25-$35.50** | ** ** | **4,531** | ** ** | **$  9.67-$35.50** | ** ** |
|                      |   |                                | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Exercisable options**   |   | **1,141**                           | ** ** | **$14.25-$27.75** | ** ** | **1,154** | ** ** | **$  9.67-$24.75** | ** ** |

 

6.                           Basic net income per commonshare is computed by dividing net income by the weighted average number ofshares outstanding during each period. Diluted net income per common share gives effect to all securitiesrepresenting potential common shares that were dilutive and outstanding duringthe period.  In the calculation ofdiluted net income per common share, the denominator includes the number ofadditional common shares that would have been outstanding if the Company’soutstanding stock options had been exercised.

 

On October 9, 2002, the Company announcedthat the Board of Directors authorized the purchase of up to 5 million sharesof its outstanding common stock from time to time as market conditionswarrant.  As of May 31, 2003, theCompany had purchased in the open market, 2,202,200 shares at a cost of $65.9million.

 

7

----

 

The following table sets forth the computation ofbasic and diluted net income per common share (In thousands, except per shareamounts):

 
|                                               |   | **Quarter Ended** |       |
|----------------------------------------------------|--------|-------------------|------------|
|                                               |   | **May 31,  2003** |       | **June 1,  2002** |   |
| **Basic Net Income  Per Share:**                   |   |              | ** ** |   | ** ** |
|                                               |   |              |       |   |   |
| **Net Income**                                     |   | **$**             | **69,605** | ** ** | **$** | **61,060** | ** ** |
|                                               |   |              | ** ** |   | ** ** |
| **Weighted Average  Number of Shares Outstanding** |   | **172,075**       | ** ** | **173,074** | ** ** |
|                                               |   |              |       |   |   |
| **Net Income Per  Common Share - Basic**           |   | **$**             | **0.40**   | ** ** | **$** | **0.35** | ** ** |
|                                               |   |              | ** ** |   | ** ** |
| **Diluted Net  Income Per Share:**                 |   |              | ** ** |   | ** ** |
|                                               |   |              |       |   |   |
| **Net Income**                                     |   | **$**             | **69,605** | ** ** | **$** | **61,060** | ** ** |
|                                               |   |              | ** ** |   | ** ** |
| **Weighted Average  Number of Shares Outstanding** |   | **172,075**       | ** ** | **173,074** | ** ** |
|                                               |   |              | ** ** |   | ** ** |
| **Effect of  Dilutive Securities - Stock Options** |   | **974**           | ** ** | **1,283** | ** ** |
| **Average Shares -  Diluted**                      |   | **173,049**       | ** ** | **174,357** | ** ** |
|                                               |   |              |       |   |   |
| **Net Income Per  Common Share - Diluted**         |   | **$**             | **0.40**   | ** ** | **$** | **0.35** | ** ** |

 
|                                               |   | **Three Quarters Ended** |        |
|----------------------------------------------------|--------|--------------------------|-------------|
|                                               |   | **May 31,  2003**        |        | **June 1,  2002** |   |
| **Basic Net Income  Per Share:**                   |   |                     | ** **  |   | ** ** |
|                                               |   |                     |        |   |   |
| **Net Income**                                     |   | **$**                    | **199,798** | ** ** | **$** | **175,035** | ** ** |
|                                               |   |                     | ** **  |   | ** ** |
| **Weighted Average  Number of Shares Outstanding** |   | **172,434**              | ** **  | **172,641** | ** ** |
|                                               |   |                     |        |   |   |
| **Net Income Per  Common Share - Basic**           |   | **$**                    | **1.16**    | ** ** | **$** | **1.01** | ** ** |
|                                               |   |                     | ** **  |   | ** ** |
| **Diluted Net  Income Per Share:**                 |   |                     | ** **  |   | ** ** |
|                                               |   |                     |        |   |   |
| **Net Income**                                     |   | **$**                    | **199,798** | ** ** | **$** | **175,035** | ** ** |
|                                               |   |                     | ** **  |   | ** ** |
| **Weighted Average  Number of Shares Outstanding** |   | **172,434**              | ** **  | **172,641** | ** ** |
|                                               |   |                     | ** **  |   | ** ** |
| **Effect of  Dilutive Securities - Stock Options** |   | **910**                  | ** **  | **1,327** | ** ** |
| **Average Shares -  Diluted**                      |   | **173,344**              | ** **  | **173,968** | ** ** |
|                                               |   |                     |        |   |   |
| **Net Income Per  Common Share - Diluted**         |   | **$**                    | **1.15**    | ** ** | **$** | **1.01** | ** ** |

 

8

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7.                           On January 30, 2001, JaniceMorgan and Barbara Richardson, two individuals who have held the position ofStore Manager for subsidiaries of the Company, filed a Complaint against theCompany in the United States District Court for the Northern District ofAlabama.  The Complaint has been amendedto add as plaintiffs five more individuals who had held the position of StoreManager for subsidiaries of the Company. Thereafter, notice of the pendency of the lawsuit was sent toapproximately 13,000 current and former Store Managers holding the position onor after July 1, 1999.  Based oncurrently available information, approximately 2,500 of those have filedconsent forms and joined the lawsuit as plaintiffs, including approximately2,075 former Store Managers and approximately 425 current Store Managers.  Although the opt-in period ended by theterms of the notice on February 25, 2003, the Court has allowed later-filedopt-in plaintiffs to remain as parties and the case is proceeding as acollective action under the Fair Labor Standards Act (“FLSA”).  The Complaint alleges that the Companyviolated the FLSA by classifying the plaintiffs and other similarly situatedcurrent and former Store Managers as “exempt” employees who are not entitled toovertime compensation.  Plaintiffs seekto recover unpaid overtime compensation, prejudgment interest, liquidateddamages, an award of attorneys’ fees, costs and expenses, and such other reliefas the Court may deem proper.  Thelawsuit is in the discovery phase and the Company is vigorously defending thisaction.  The trial is currently set tocommence on November 10, 2003.  As ageneral matter, the Company believes that the Store Managers are “exempt”employees under the FLSA and have been properly compensated and that theCompany has meritorious defenses that should enable it to ultimatelyprevail.  However, the outcome of anylitigation is inherently uncertain and no assurances can be given that theCompany will be successful in defending this action; moreover, as a collectiveaction the determination with respect to each individual plaintiff depends inpart on the facts and circumstances which relate solely to that plaintiff.  If there is an adverse verdict on themerits, particularly regarding the issues generally applicable to the collectiveclaims, the Company may be subject to liability for damages that could have amaterial adverse effect on the Company’s financial position or results ofoperation.

 

8.                           In March 2003, the EmergingIssues Task Force (EITF) reached final consensus on EITF Issue No. 02-16,“Accounting by a Customer (including a Reseller) for Cash ConsiderationReceived from a Vendor” (EITF 02-16). Under EITF 02-16, cash considerationreceived from a vendor is presumed to be a reduction of the purchase cost ofmerchandise and should be reflected as a reduction of cost of sales or revenueas prescribed in the consensus unless it can be demonstrated this offsets anincremental expense in which case it can be netted against that expense.  The new guidance should be applied to newarrangements, including modifications of existing arrangements, entered intoafter December 31, 2002.  During thequarter, the Company reflected the new guidance for new and modified vendoragreements.  This had no significantimpact on the Company’s financial statements.

 

9

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**MAMAGEMENT****’SDISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

Thisdiscussion summarizes the significant factors affecting the consolidatedresults of operations and financial condition of the Company for the periodsended May 31, 2003 and June 1, 2002. This discussion should be read in conjunction with the ConsolidatedCondensed Financial Statements and Notes to Consolidated Condensed FinancialStatements included in this quarterly report. For further information, refer to the Consolidated Financial Statementsand Notes to Consolidated Financial Statements included in the Company’s annualreport on Form 10-K for the year ended August 31, 2002.

 

Liquidity and Capital Resources

 

At May 31, 2003, the Company had working capital of $574.2 million withcash and cash equivalents of approximately $246.4 million and no outstandingborrowings.  Changes in working capitaland cash and cash equivalents during the first three quarters of fiscal 2003and fiscal 2002 were primarily the result of earnings, capital expendituresand, in fiscal 2003, repurchases of the Company’s Common Stock.  At May 31, 2003, inventories on a per storebasis were at approximately the same level as at June 1, 2002.  Cash and cash equivalents at the end of thefirst three quarters of fiscal 2003 were impacted by increased accruedliabilities and by increased accounts payable leverage (accounts payable as apercentage of merchandise inventory) resulting from improved inventory turnoverdue to supply chain initiatives as compared to the end of the first threequarters of fiscal 2002.  Cash and cashequivalents were also impacted by an increase in prepaid rent.

 

Capitalexpenditures for the first three quarters of fiscal 2003, were approximately$140.0 million, and are currently expected to be approximately $200 to $225million for fiscal 2003.  The majorityof planned capital expenditures for fiscal 2003 is related to the Company’s newstore expansion; existing store expansion, relocation and renovation; and tothe completion of construction of the seventh full-service distributioncenter.  The new store expansion andseventh distribution center will require additional investment in merchandiseinventories.  In fiscal 2003, theCompany currently plans to open 475 stores and close 65 stores for a netaddition of 410 stores, compared with the opening of 525 stores and closing of50 stores for a net addition of 475 stores in fiscal 2002.  In the last two years, the Company’straditional opportunistic approach to locating potential new sites has becomemore strategic with the objective of improving new store performance.  The Company is realizing this objective withthe sales performance of new stores (stores open less than 13 months) equal tomore than 90% of the chain average in the first three quarters of fiscal2003.  With this approach and bettersite selection processes, approximately 60% of new stores are targeted to openin urban markets in fiscal 2003.  Infiscal 2002, approximately 40% of new stores opened in urban markets.  The time it is taking to open new stores inurban markets, including time for the permitting process and the completion ofleasehold improvements and new construction, is substantially longer than thetime for opening stores in non-urban markets. The Company also currently plansto expand or relocate approximately 105 stores and renovate approximately 40stores in fiscal

 

10

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2003, compared with the expansion or relocation of 121 stores andrenovation of 42 stores in fiscal 2002. In the first three quarters of fiscal 2003, the Company opened 285stores, closed 62 stores, expanded or relocated 79 stores and renovated 35stores.  The openings in the thirdquarter this year included the first store in Wyoming, and the Company nowoperates in 43 states.  In fiscal 2004,the Company’s preliminary plan is to add approximately 10% net new stores and11% net square footage growth and continue its program of expanding, relocatingand renovating stores.  The Companyoccupies most of its stores under operating leases.  Store opening, closing, expansion, relocation, and renovationplans, as well as overall capital expenditure plans, are continuously reviewedand are subject to change.

 

The Companyhas unsecured revolving credit facilities with banks for short-term borrowingsof up to $200 million.  One hundredmillion dollars of the facilities expires on May 27, 2004, and the remaining$100 million expires on May 31, 2005. The Company has no borrowings against these facilities at May 31,2003.  Cash flow from current operationsis expected to be sufficient to meet planned liquidity and capital resourceneeds, including store expansion and other capital spending programs and anyrepurchase of the Company’s Common Stock. In addition, the Company has available revolving credit facilities asdiscussed above.

 

On October 9,2002, the Company announced that the Board of Directors authorized the purchaseof up to 5 million shares of its outstanding Common Stock from time to time asmarket conditions warrant.  As of May31, 2003, the Company had purchased in the open market, 2,202,200 shares at acost of $65.9 million.

 

The followingtable shows the Company’s obligations and commitments as of May 31, 2003 tomake future payments under contractual obligations (in thousands):

 
|                                   |   | **Payments  Due During One Year Fiscal Period Ending** |        |
|----------------------------------------|--------|--------------------------------------------------------|-------------|
| **Contractual Obligations**            |   | **Total**                                              |        | **May  2004** |   | **May  2005** |   | **May  2006** |   | **May  2007** |   | **May  2008** |   | **Thereafter** |   |
|                                   |   |                                                   |        |   |   |   |   |   |   |   |   |   |   |   |   |
| **Merchandise letters of credit**      |   | **$**                                                  | **111,066** | ** ** | **$** | **111,066** | ** ** | **$** |   | ** ** | **$** |   | ** ** | **$** |   | ** ** | **$** |   | ** ** | **$** |   |   |
| **Operating leases**                   |   | **734,350**                                            | ** **  | **182,393** | ** ** | **156,573** | ** ** | **126,691** | ** ** | **94,159** | ** ** | **58,064** | ** ** | **116,470** | ** ** |
| **Construction obligations**           |   | **28,764**                                             | ** **  | **28,764** | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   |   |
| **Total Contractual Cash Obligations** |   | **$**                                                  | **874,180** | ** ** | **$** | **322,223** | ** ** | **$** | **156,573** | ** ** | **$** | **126,691** | ** ** | **$** | **94,159** | ** ** | **$** | **58,064** | ** ** | **$** | **116,470** |   |

 

The followingtable shows the Company’s other commercial commitments as of May 31, 2003 (inthousands):

 
| **Other Commercial Commitments** |   | **Total  Amounts  Committed** |       |
|----------------------------------|--------|-------------------------------|------------|
|                             |   |                          |       |
| **Standby letters of credit**    |   | **$**                         | **45,994** | ** ** |
| **Surety bonds**                 |   | **5,986**                     | ** ** |
| **Total Commercial Commitments** |   | **$**                         | **51,980** |   |

 

A substantial portion of the outstanding amount of standby letters ofcredit and surety bonds (which are primarily renewed on an annual basis) areused as surety for future premium and deductible payments to the Company’sworkers’ compensation and general liability insurance carrier.  The Company accrues for these future paymentliabilities as described in the “Critical Accounting Policies” section of thisdiscussion.

 

11

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Results of Operations

 

Net sales

 

Net salesincreased 15.1% in the quarter ended May 31, 2003, as compared with the quarterended June 1, 2002, and increased 14.1% in the three quarters ended May 31,2003, as compared with the three quarters ended June 1, 2002.  The sales increases were attributable toincreased sales in existing stores and sales from new stores opened as part ofthe Company’s store expansion program. Sales during the quarter ended May 31, 2003, of apparel and otherseasonal merchandise were adversely impacted in April and May this year bycool, wet weather in portions of the Company’s operating area.  Sales for the fiscal year to date were alsoadversely impacted as a result of the elimination of an advertising circularthat was distributed last fiscal year at the end of November and beginning ofDecember.  With the elimination of thiscircular, the Company now distributes only one circular per year.

 

Sales inexisting stores increased 4.6% in the quarter ended May 31, 2003, above thecomparable period in fiscal 2002, with sales of hardlines merchandiseincreasing approximately 5.4% and sales of softlines merchandise increasingapproximately 2.2%.  In the thirdquarter of fiscal 2003, the customer count, as measured by the number ofregister transactions in existing stores, increased approximately 3.6% and theaverage transaction increased approximately 0.8% to $8.72.  Sales in existing stores increased 3.5% inthe three quarters ended May 31, 2003, above the comparable period in fiscal2002, with sales of hardlines merchandise increasing approximately 4.0% andsales of softlines merchandise increasing approximately 1.9%.  The customer count increased approximately1.3% and the average transaction increased approximately 2.0% to $8.95.  Hardlines as a percentage of total salesincreased to approximately 76.1% in the third quarter of fiscal 2003 comparedto approximately 75.5% in the third quarter of fiscal 2002, and increased toapproximately 76.8% in the first three quarters of fiscal 2003 compared toapproximately 76.4% in the first three quarters of fiscal 2002.  Softlines as a percentage of sales decreasedto 23.9% in the third quarter of fiscal 2003 (with hanging apparel and shoesrepresenting 13.5%, basic apparel 4.1% and domestics 6.3%) compared to 24.5% inthe third quarter of fiscal 2002 (with hanging apparel and shoes representing13.8%, basic apparel 4.2% and domestics 6.5%). Softlines as a percentage of sales decreased to 23.2% in the first threequarters of fiscal 2003 (with hanging apparel and shoes representing 12.3%,basic apparel 4.4% and domestics 6.5%) compared to 23.6% in the first threequarters of fiscal 2002 (with hanging apparel and shoes representing 12.2%,basic apparel 4.6% and domestics 6.8%). By the end of the second quarter of fiscal 2003, all stores hadanniversaried last year’s program in which the Company eliminated approximatelyone-half of the shoe inventories. Therefore, the sales of hardlines and softlines is now on a morecomparative basis year over year. The Company’s current plan is for sales inexisting stores in the fourth quarter to increase in the 3% to 5% range.

 

Hardlinesmerchandise includes primarily household chemical and paper products, healthand beauty aids, candy, snack and other food, electronics, housewares andgiftware, toys, school supplies, hardware and automotive supplies.  Softlines merchandise includes men’s,women’s, boy’s, girl’s and infant’s clothing and accessories, shoes, anddomestic items such as blankets, sheets and towels.

 

The averagenumber of stores open during the first three quarters of fiscal 2003 was 10.4%more than during the first three quarters of fiscal 2002.  The Company had 4,840 stores in operation atMay 31, 2003, as compared with 4,431 stores in operation at June 1, 2002,representing an increase of approximately 9.2%.

 

12

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Cost of Sales

 

Cost of salesincreased 15.3% in the quarter ended May 31, 2003, as compared with the quarterended June 1, 2002, and increased 13.9% in the three quarters ended May 31,2003, as compared to the three quarters ended June 1, 2002.  These increases primarily reflected theadditional sales volume between years. Cost of sales, as a percentage of net sales, was 65.3% in the quarterended May 31, 2003, compared with 65.2% in the quarter ended June 1, 2002, andwas 65.9% in the three quarters ended May 31, 2003, compared with 66.0% in thethree quarters ended June 1, 2002.  Theslight increase in the cost of sales percentage for the third quarter of fiscal2003 was due in part to markdowns taken in the home fashions, domestics andhousewares areas as the Company is introducing new assortments in thoseareas.  Increased transportation fuelcosts also impacted the cost of sales percentage.  The slight decrease in the cost of sales percentage for the firstthree quarters of fiscal 2003 was due primarily to the favorable impact ofsupply chain initiatives which yielded savings in shrinkage, freight andmarkdowns.  The Company’s plan is forthe cost of sales percentage to be at the same level or decrease slightly forthe fourth quarter of fiscal 2003, with moderating fuel prices, the opening ofthe seventh full service distribution center and the implementation of a newtransportation management system all expected to have a positive impact.

 

Selling, general and administrative expenses

 

Selling,general and administrative expenses increased 15.3% in the quarter ended May31, 2003, as compared with the quarter ended June 1, 2002, and increased 14.5%in the three quarters ended May 31, 2003, as compared with the three quartersended June 1, 2002.  The increases inthese expenses were due primarily to additional costs arising from thecontinued growth in the number of stores in operation.  Selling, general and administrativeexpenses, as a percentage of net sales, were 25.4% in the quarter ended May 31,2003 and in the quarter ended June 1, 2002, and were 25.2% in the threequarters ended May 31, 2003, as compared with 25.1% in the three quarters endedJune 1, 2002.  The percentage for thequarter ended May 31, 2003 remained flat compared to the third quarter offiscal 2002. Rising utility and insurance costs, primarily workers compensation,offset lower expenses as a percentage of sales in other major expensecategories.  In addition, the loss ofplanned sales due to the opening of a lesser number of new stores thanoriginally planned also adversely impacted expense leverage.  The increase in the percentage for the threequarters ended May 31, 2003, compared to the three quarters ended June 1, 2002,was also impacted by the factors previously mentioned, as well as theelimination of an advertising circular distributed last fiscal year at the endof November and the beginning of December. With the Company continuing toinvest heavily in its business, the increases in existing store sales were notsufficient to produce incremental leverage on expenses.  The Company’s plan is for selling, generaland administrative expenses as a percentage of sales for the fourth quarter offiscal 2003 to be at approximately the same level as for the fourth quarter offiscal year 2002.

 

Provision for taxes on income

 

The effectivetax rate was 36.5% for the quarters and first three quarters ended May 31, 2003and June 1, 2002.  For fiscal year 2003,the Company’s plan is for the effective tax rate to remain at approximately thesame level as the rate in fiscal 2002.

 

13

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Critical Accounting Policies

 

Managementbelieves the following accounting principles are critical because they involvesignificant judgments, assumptions, and estimates used in the preparation ofthe Company’s consolidated financial statements.

 

Merchandise Inventories:

 

Inventoriesare valued using the retail method, based on retail prices less markonpercentages, which approximates the lower of first-in, first-out (FIFO) cost ormarket.  The Company records adjustmentsto inventory through cost of goods sold when permanent retail price reductions,or markdowns, are reflected in its stores. In addition, management makes estimates and judgments regarding, amongother things, initial markups, markdowns, future demand for specific productcategories and market conditions, all of which can significantly impactinventory valuation.  If actual demandor market conditions are different than those projected by management,additional markdowns may be necessary. This risk is generally higher for seasonal merchandise than fornon-seasonal goods.  The Company alsoprovides for estimated inventory losses for damaged, lost or stolen inventoryfor the period from the physical inventory to the financial statement date.  These estimates are based on historical experienceand other factors.

 

Property and equipment:

 

Property andequipment is stated at cost. Depreciation for financial reporting purposes is being providedprincipally by the straight-line method over the estimated useful lives of therelated assets.  The valuation andclassification of these assets and the assignment of useful depreciable livesinvolves significant judgments and the use of estimates.  The Company generally assigns no salvagevalue to property and equipment. Property and equipment is reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable.  Historically,impairment losses on fixed assets have not been material to the Company’sfinancial position and results of operations. Because the Company leases substantially all of its stores underoperating leases, the risk of impairment of fixed assets relates principally tothe leasehold improvements and other store-level assets in the event ofclosure.

 

Insurance Liabilities:

 

The Company isprimarily self-insured for health care, property loss, workers’ compensationand general liability costs.  Thesecosts are significant primarily due to the large number of the Company’s retaillocations and employees.  The Company’sself-insurance liabilities are based on the total estimated costs of claimsfiled and estimates of claims incurred but not reported, less amounts paidagainst such claims, and are not discounted. Management reviews current and historical claims data in developing itsestimates.  The Company also usesinformation provided by outside actuaries with respect to workers’ compensationand general liability claims.  If theunderlying facts and circumstances of the claim change or the historical trendis not indicative of future trends, then the Company may be required to recordadditional expense or a reduction to expense which could be material to thereported financial condition and results of operation.

 

Forward-Looking Statements

 

Certainstatements contained herein and elsewhere in this Form 10-Q which are nothistorical facts are forward-looking statements made pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements address theCompany’s plans and activities or events which the Company expects will or mayoccur in the future such as future capital expenditures,

 

14

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store openings, closings, renovations, expansions and relocations, additionaldistribution facilities, sales, cost of sales, expenses, the outcome of legalproceedings and other aspects of the Company’s business and operations.  A number of important factors could causeactual results to differ materially from those expressed in any forward-lookingstatements, whether written or oral, made by or on behalf of the Company.  Such factors include, but are not limitedto, competitive factors and pricing pressures, general economic conditions, theimpact of acts of war or terrorism, changes in consumer demand and product mix,unusual weather that may temporarily impact sales, inflation, merchandisesupply constraints, general transportation delays or interruptions, dependenceon imports, changes in currency exchange rates, tariffs, quotas, and freightrates, availability of real estate, costs and delays associated with building,opening and operating new distribution facilities and stores, costs andpotential problems associated with the implementation of new systems andtechnology, including supply chain systems and electronic commerce, changes inenergy prices and the impact on consumer spending and the Company’s costs,legal proceedings and claims, changes in health care and other insurance costsand the effects of legislation on wage levels and entitlement programs.  Consequently, all of the forward-lookingstatements made are qualified by these and other factors, risks anduncertainties.  Readers are cautionednot to place undue reliance on these forward-looking statements, which speakonly as of the date of this Form 10-Q. The Company does not undertake to publicly update or revise itsforward-looking statements even if experience or future changes make it clearthat projected results expressed or implied in such statements will not berealized.

 

Item 4.  Controlsand Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer (itsprincipal executive officer and principal financial officer, respectively) haveconcluded, based on their evaluation as of a date within 90 days prior to thefiling date of this report, that the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports filed or submitted by it under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms, and include controls and procedures designed to ensure thatinformation required to be disclosed by the Company in such reports isaccumulated and communicated to the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls subsequent tothe date of such evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

15

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PART II –OTHER INFORMATION

 

Item 1.             LegalProceedings

 

On January 30, 2001, Janice Morgan and Barbara Richardson, twoindividuals who have held the position of Store Manager for subsidiaries of theCompany, filed a Complaint against the Company in the United States DistrictCourt for the Northern District of Alabama. The Complaint has been amended to add as plaintiffs five moreindividuals who had held the position of Store Manager for subsidiaries of theCompany.  Thereafter, notice of thependency of the lawsuit was sent to approximately 13,000 current and formerStore Managers holding the position on or after July 1, 1999.  Based on currently available information,approximately 2,500 of those have filed consent forms and joined the lawsuit asplaintiffs, including approximately 2,075 former Store Managers andapproximately 425 current Store Managers. Although the opt-in period ended by the terms of the notice on February25, 2003, the Court has allowed later-filed opt-in plaintiffs to remain asparties and the case is proceeding as a collective action under the Fair LaborStandards Act (“FLSA”).  The Complaintalleges that the Company violated the FLSA by classifying the plaintiffs andother similarly situated current and former Store Managers as “exempt”employees who are not entitled to overtime compensation.  Plaintiffs seek to recover unpaid overtimecompensation, prejudgment interest, liquidated damages, an award of attorneys’fees, costs and expenses, and such other relief as the Court may deemproper.  The lawsuit is in the discoveryphase and the Company is vigorously defending this action.  The trial is currently set to commence onNovember 10, 2003.  As a general matter,the Company believes that the Store Managers are “exempt” employees under theFLSA and have been properly compensated and that the Company has meritoriousdefenses that should enable it to ultimately prevail.  However, the outcome of any litigation is inherently uncertainand no assurances can be given that the Company will be successful in defendingthis action; moreover, as a collective action the determination with respect toeach individual plaintiff depends in part on the facts and circumstances whichrelate solely to that plaintiff.  Ifthere is an adverse verdict on the merits, particularly regarding the issuesgenerally applicable to the collective claims, the Company may be subject toliability for damages that could have a material adverse effect on the Company’sfinancial position or results of operation.

 

16

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| Item 6. | Exhibits and Reports on Form 8-K |
|---------|----------------------------------|
|    |                             |
| (a)     |                             | Exhibits filed herewith: |
|    |                             |   |
| 10      |   (i)                  | Amendment dated as of May 29, 2003, between Family Dollar Stores,  Inc. and Family Dollar, Inc., as Borrower, and Bank of America, N.A.,  amending the Amended and Restated Credit Agreement dated as of May 31, 2001. |
|    |                             |   |
| 10      |   (ii)                 | First Amendment dated as of May 29, 2003, between Family Dollar  Stores, Inc., and Family Dollar, Inc. as Borrower, and Wachovia Bank, N.A.,  amending the Credit Agreement dated as of August 7, 2001. |
|    |                             |   |
| 99.1    |                             | Certification of Principal Executive Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|    |                             |   |
| 99.2    |                             | Certification of Principal Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|    |                             |   |
| (b)     |                             | Reports on Form 8-K |
|    |                             |   |
|    |                             |   |
|    | 1.                     | Form 8-K dated June 25, 2003 with news release dated June 25, 2003,  reporting sales and earnings for the third quarter ended May 31, 2003, and  other matters relating to the Company’s operations and financial condition. |

 

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SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|               |   | FAMILY DOLLAR STORES, INC.            |   |
|--------------------|--------|---------------------------------------|--------|
|               |   | (Registrant)                          |   |
|               |   |                                  |   |
|               |   |                                  |   |
| Date: July 2, 2003 |   | /s/ R. James Kelly               |   |
|               |   | R. James Kelly                        |   |
|               |   | Vice Chairman-Chief Financial Officer |   |
|               |   |                                  |   |
|               |   |                                  |   |
| Date: July 2, 2003 |   | /s/ C. Martin Sowers             |   |
|               |   | C. Martin Sowers                      |   |
|               |   | Senior Vice President-Finance         |   |

 

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CERTIFICATION

 

I, Howard R.Levine, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Family Dollar Stores, Inc.(the “registrant”);

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date:  July 2, 2003

 

 
| /s/ Howard R. Levine                 |   |
|--------------------------------------|--------|
| Howard R. Levine                     |
| Chairman and Chief Executive Officer |

 

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CERTIFICATION

 

I, R. JamesKelly, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Family Dollar Stores, Inc.(the “registrant”);

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date:  July 2, 2003

 

 
| /s/ R. James Kelly                        |   |
|-------------------------------------------|--------|
| R. James Kelly                            |
| Vice Chairman and Chief Financial Officer |

 

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