**Form10-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 November 27,  2004** |
|                                                       |                                                                                               |
| **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 asspecified in its charter)

 
| **DELAWARE**                                                              | ** ** | **56-0942963**        |
|---------------------------------------------------------------------------|------------|-----------------------|
| (State or  other jurisdiction of                                          |       | (I.R.S. Employer      |
| incorporation  or organization)                                           |       | (Identification  No.) |
|                                                                      |       |                  |
| **P.O.  Box 1017, 10401 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 whetherthe registrant (1) has filed all reports required to be filed by Section 13or 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 suchreports), and (2) has been subject to such filing requirements for the past 90days.**

Yes ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).   Yes ý   No o

 

**Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.**

** **
| **Class**                     | ** ** | **Outstanding at December 31,  2004** |
|-------------------------------|------------|--------------------------------------------|
| Common  Stock, $.10 par value |       | 167,707,288  shares                        |

 

 

----

 

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

 

**INDEX**

 
| Part I – Financial Information                                                                                     |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                    |   |
| Item 1 –  Consolidated Condensed Financial Statements:                                                             |   |
|                                                                                                                    |   |
| Consolidated Condensed Balance Sheets – November 27,  2004 and August 28, 2004                           |   |
|                                                                                                                    |   |
| Consolidated Condensed Statements of Income  – Quarter Ended November 27, 2004 and November 29, 2003     |   |
|                                                                                                                    |   |
| Consolidated Condensed Statements of Cash  Flows – Quarter Ended November 27, 2004 and November 29, 2003 |   |
|                                                                                                                    |   |
| 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 2 – Unregistered Sales of Equity  Securities and Use of Proceeds                                              |   |
|                                                                                                                    |   |
| Item 5 – Other Information                                                                                         |   |
|                                                                                                                    |   |
| Item  6 – Exhibits                                                                                                 |   |
|                                                                                                                    |   |
| Signatures                                                                                                              |   |

 

----

 

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

 

**CONSOLIDATED CONDENSED BALANCE SHEETS**

**(Unaudited)**

 
| **(In thousands, except share amounts)**                                                                                                                                                                                                                                  | ** ** | **November 27,  2004** | ** ** | **August 28,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| **Assets**                                                                                                                                                                                                                                                                |       |                        |       |                      |       |
| Current assets:                                                                                                                                                                                                                                                           |       |                        |       |                      |       |
| Cash and  cash equivalents (Note 2)                                                                                                                                                                                                                                       |       | $                           | 129,690    |                      | $          | 149,602 |   |
| Merchandise  inventories                                                                                                                                                                                                                                                  |       | 1,032,754                   |       | 980,124                   |       |
| Deferred  income taxes                                                                                                                                                                                                                                                    |       | 80,681                      |       | 77,341                    |       |
| Income tax  refund receivable                                                                                                                                                                                                                                             |       | —                      |       | 1,304                     |       |
| Prepayments  and other current assets                                                                                                                                                                                                                                     |       | 25,164                      |       | 16,937                    |       |
| Total  current assets                                                                                                                                                                                                                                                     |       | 1,268,289                   |       | 1,225,308                 |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| Property and  equipment, net                                                                                                                                                                                                                                              |       | 944,585                     |       | 926,514                   |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| Other assets                                                                                                                                                                                                                                                              |       | 14,543                      |       | 15,600                    |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
|                                                                                                                                                                                                                                                                      |       | $                           | 2,227,417  |                      | $          | 2,167,422 |   |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| **Liabilities  and Shareholders’ Equity**                                                                                                                                                                                                                            |       |                        |       |                      |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| Current  liabilities:                                                                                                                                                                                                                                                     |       |                        |       |                      |       |
| Accounts  payable and accrued liabilities                                                                                                                                                                                                                                 |       | $                           | 695,316    |                      | $          | 713,551 |   |
| Income taxes  payable                                                                                                                                                                                                                                                     |       | 29,139                      |       | —                    |       |
| Total  current liabilities                                                                                                                                                                                                                                                |       | 724,455                     |       | 713,551                   |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| Deferred  income taxes                                                                                                                                                                                                                                                    |       | 95,055                      |       | 93,471                    |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| Commitments and  contingencies (Note 7)                                                                                                                                                                                                                                   |       |                        |       |                      |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
| 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 187,961,963 shares at November 27,  2004 and 187,671,318 shares at August 28, 2004, and outstanding  167,687,643 shares at November 27,2004 and 167,396,998 shares at August 28,  2004 |       | 18,796                      |       | 18,767                    |       |
| Capital in  excess of par                                                                                                                                                                                                                                                 |       | 113,232                     |       | 106,853                   |       |
| Retained  earnings                                                                                                                                                                                                                                                        |       | 1,563,307                   |       | 1,522,208                 |       |
|                                                                                                                                                                                                                                                                      |       | 1,695,335                   |       | 1,647,828                 |       |
| Less common  stock held in treasury, at cost (20,274,320 shares at November 27, 2004 and  August 28, 2004) (Note 6)                                                                                                                                             |       | 287,428                     |       | 287,428                   |       |
| Total  shareholders’ equity                                                                                                                                                                                                                                          |       | 1,407,907                   |       | 1,360,400                 |       |
|                                                                                                                                                                                                                                                                      |       |                        |       |                      |       |
|                                                                                                                                                                                                                                                                      |       | $                           | 2,227,417  |                      | $          | 2,167,422 |   |

 

See notes to consolidated condensed financial statements

 

2

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

 

**CONSOLIDATED CONDENSED STATEMENTS OF INCOME**

**(Unaudited)**

 
| ** **                                      | ** ** | **Quarter Ended**           | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|
| **(In thousands, except per share amounts)**    | ** ** | **November 27,  2004** | ** ** | **November 29,  2003** | ** ** |
|                                            |       |                        |       |   |   |
| Net sales                                       |       | $                           | 1,380,245  |   | $ | 1,244,683 |   |
|                                            |       |                        |       |   |   |
| Cost and  expenses:                             |       |                        |       |   |   |
| Cost of  sales                                  |       | 919,893                     |       | 813,358 |   |
| Selling,  general and administrative expenses   |       | 373,724                     |       | 329,826 |   |
| Cost of sales  and operating expenses           |       | 1,293,617                   |       | 1,143,184 |   |
|                                            |       |                        |       |   |   |
| Income  before provision for taxes on income    |       | 86,628                      |       | 101,499 |   |
| Provision  for taxes on income                  |       | 31,273                      |       | 37,047 |   |
|                                            |       |                        |       |   |   |
| Net income                                      |       | $                           | 55,355     |   | $ | 64,452 |   |
|                                            |       |                        |       |   |   |
| Net income  per common share - Basic (Note 6)   |       | $                           | 0.33       |   | $ | 0.37 |   |
|                                            |       |                        |       |   |   |
| Average  shares - Basic (Note 6)                |       | 167,619                     |       | 172,353 |   |
|                                            |       |                        |       |   |   |
| Net income  per common share - Diluted (Note 6) |       | $                           | 0.33       |   | $ | 0.37 |   |
|                                            |       |                        |       |   |   |
| Average  shares - Diluted (Note 6)              |       | 168,008                     |       | 173,641 |   |
|                                            |       |                        |       |   |   |
| Dividends  per common share                     |       | $                           | 0.085      |   | $ | 0.075 |   |

 

See notes to consolidated condensed financialstatements.

 

3

----

 

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

** **

**CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Quarter Ended**           | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| **(In thousands)**                                                                 | ** ** | **November 27,  2004** | ** ** | **November 29,  2003** | ** ** |
| Cash flows  from operating activities:                                             |       |                        |       |   |   |
| Net income                                                                         |       | $                           | 55,355     |   | $ | 64,452 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                        |       |   |   |
| Depreciation  and amortization                                                     |       | 25,216                      |       | 24,009 |   |
| Deferred  income taxes                                                             |       | (1,756                      | )          | 972 |   |
| Tax benefit  from stock option exercises                                           |       | 972                         |       | 1,901 |   |
| Loss on  disposition of property and equipment                                     |       | 497                         |       | 1,809 |   |
| Changes in  operating assets and liabilities:                                      |       |                        |       |   |   |
| Merchandise  inventories                                                           |       | (52,630                     | )          | 7,412 |   |
| Income tax  refund receivable                                                      |       | 1,304                       |       | — |   |
| Prepayments  and other current assets                                              |       | (8,227                      | )          | (9,416 | ) |
| Other assets                                                                       |       | 1,057                       |       | (2,028 | ) |
| Accounts  payable and accrued liabilities                                          |       | (18,243                     | )          | (43,198 | ) |
| Income taxes  payable                                                              |       | 29,139                      |       | 30,377 |   |
|                                                                               |       | 32,684                      |       | 76,290 |   |
| Cash flows  from investing activities:                                             |       |                        |       |   |   |
| Capital  expenditures                                                              |       | (43,937                     | )          | (27,215 | ) |
| Proceeds  from dispositions of property and equipment                              |       | 153                         |       | 121 |   |
|                                                                               |       | (43,784                     | )          | (27,094 | ) |
| Cash flows  from financing activities:                                             |       |                        |       |   |   |
| Proceeds  from exercise of employee stock options                                  |       | 5,436                       |       | 4,799 |   |
| Payment of  dividends                                                              |       | (14,248                     | )          | (12,917 | ) |
|                                                                               |       | (8,812                      | )          | (8,118 | ) |
|                                                                               |       |                        |       |   |   |
| Net change  in cash and cash equivalents                                           |       | (19,912                     | )          | 41,078 |   |
|                                                                               |       |                        |       |   |   |
| Cash and  cash equivalents at beginning of period                                  |       | 149,602                     |       | 206,731 |   |
|                                                                               |       |                        |       |   |   |
| Cash and  cash equivalents at end of period                                        |       | $                           | 129,690    |   | $ | 247,809 |   |
|                                                                               |       |                        |       |   |   |
| Supplemental  disclosure of cash flow information:                                 |       |                        |       |   |   |
| Cash paid  during the period for:                                                  |       |                        |       |   |   |
| Interest  paid                                                                     |       | —                      |       | — |   |
| Income taxes  paid                                                                 |       | 1,613                       |       | 3,798 |   |

 

See notes to consolidated condensed financialstatements.

 

4

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**FAMILYDOLLAR STORES, INC., AND SUBSIDIARIES**

 

**NOTES TOCONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

 

**1.**             In the opinion of FamilyDollar Stores, Inc. (the “Company”), the accompanying unaudited consolidatedcondensed financial statements contain all adjustments (consisting of onlynormal recurring accruals) necessary to present fairly the financial positionas of November 27, 2004, and the results of operations and the cash flowsfor the quarters ended November 27, 2004, and November 29, 2003. Forfurther information, refer to the consolidated financial statements andfootnotes included in the Company’s annual report on Form 10-K for the yearended August 28, 2004.

 

**Theresults of operations for the quarter ended November 27, 2004, are notnecessarily indicative of the results to be expected for the full year.**

 

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

 

**TheCompany manages its business on the basis of one reportable segment.**

 

**2.**             The Company considers allhighly liquid investments with an original maturity of three months or less tobe cash equivalents.  The carrying amountof the Company’s cash equivalents approximates fair value due to the shortmaturities of these investments and consists primarily of money market funds,U.S. government agency securities and tax-exempt notes and bonds.  The Company maintains cash deposits withmajor banks which from time to time may exceed federally insured limits.  The Company periodically assesses thefinancial condition of the institutions and believes that the risk of any lossis minimal.

 

**3.**             The preparation of the Company’sconsolidated financial statements, in conformity with accounting principlesgenerally accepted in the United States of America, requires management to makeestimates and assumptions.  Theseestimates and assumptions affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting period.  Actualresults 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 26, 2005, and the remaining $100 million expireson May 31, 2009.  The Company expects thatthe facilities expiring on May 26, 2005, will be extended.  Borrowings under these facilities are at avariable interest rate based on short-term market interest rates.

 

**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% afterthe second anniversary of the grant and an additional 30% at each of thefollowing two anniversary dates on a cumulative basis.

 

5

----

 

**TheCompany accounts for stock options granted to employees using the intrinsicvalue method, under which no compensation expense is recorded since theexercise 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, “Accountingfor Stock-Based Compensation,” net income and net income per share would havebeen reduced to the following pro forma amounts (in thousands, except per shareamounts):**

 
| ** **                               | ** ** | **Quarter Ended**          | ** ** |
|------------------------------------------|------------|----------------------------|------------|
| ** **                               | ** ** | **November 27, 2004** | ** ** | **November 29, 2003** | ** ** |
| Net  income-as reported                  |       | $                          | 55,355     |   | $ | 65,452 |   |
| ** **                               | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Pro forma  stock-based compensation cost |       | (2,180                     | )          | (1,987 | ) |
| Net  income-pro forma                    |       | $                          | 53,175     |   | $ | 62,465 |   |
| ** **                               | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Net income  per share as reported:       | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Basic                                    |       | $                          | .33        |   | $ | .37 |   |
| Diluted                                  |       | $                          | .33        |   | $ | .37 |   |
| ** **                               | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Net income  per share-pro forma:         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Basic                                    |       | $                          | .32        |   | $ | .36 |   |
| Diluted                                  |       | $                          | .32        |   | $ | .36 |   |

 

**Theassumptions used to calculate the fair value of options granted are evaluatedand revised, as necessary, to reflect market conditions and experience.**

** **

**Thefollowing is a summary of transactions under the plan during the quarters endedNovember 27, 2004 and November 29, 2003 (In thousands, except pershare amounts).**

 
| ** **            | ** ** | **Quarter Ended**                   | ** ** |
|-----------------------|------------|-------------------------------------|------------|
| ** **            | ** ** | **November 27, 2004**          | ** ** | **November 29, 2003** | ** ** |
| ** **            | ** ** | **Number of  shares  under option** | ** ** | **Option price  per share** | ** ** | **Number of  shares  under option** | ** ** | **Option price  per share** | ** ** |
| Outstanding-beginning |       | 5,956                               |       | $14.75-$44.00 |   | 5,001 |   | $14.75-$39.00 |   |
| Granted               |       | 1,775                               |       | $26.25-$32.25 |   | 1,780 |   | $38.50-$44.00 |   |
| Exercised             |       | (291                                | )          | $15.50-$28.25 |   | (238 | ) | $15.00-$30.50 |   |
| Cancelled             |       | (85                                 | )          |   |   | (66 | ) |   |   |
| Outstanding-ending    |       | 7,355                               |       | $14.75-$44.00 |   | 6,477 |   | $14.75-$44.00 |   |
|                  |       |                                |       |   |   |   |   |   |   |
| Exercisable  options  |       | 2,195                               |       | $14.75-$35.50 |   | 1,691 |   | $14.75-$30.25 |   |

 

**6.**             Basic net income per common share is computed by dividing net income bythe weighted average number of shares outstanding during each period.  Diluted net income per common share giveseffect to all securities representing potential common shares that weredilutive and outstanding during the period. The exercise prices for certain of the outstanding stock options thatthe Company has awarded exceed the average market price of the Company’s commonstock.  Such stock options areantidilutive and were not included in the computation of diluted net income percommon share.  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.

** **

**Duringthe years ended August 27, 2004 and August 30, 2003, the Companypurchased in the open market 5.6 million and 2.2 million shares, respectively,at a cost of $176.7 million and $65.9 million, respectively.  As of November 27, 2004, 2.2 million shareswere authorized to be purchased.  Noshares were purchased during the quarter ended November 27, 2004.**

 

6

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**The following table setsforth the computation of basic and diluted net income per common share (Inthousands, except per share amounts):**

** **
| ** **                                          | ** ** | **Quarter Ended**           | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **November 27,  2004** | ** ** | **November 29,  2003** | ** ** |
| Basic Net  Income Per Share:                        | ** ** | ** **                  | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Net Income                                          |       | $                           | 55,355     |   | $ | 64,452 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Weighted  Average Number of Shares Outstanding      |       | 167,619                     |       | 172,353 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Net Income  Per Common Share – Basic           |       | $                           | 0.33       |   | $ | 0.37 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Diluted Net  Income Per Share:                      | ** ** | ** **                  | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Net Income                                          |       | $                           | 55,355     |   | $ | 64,452 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Weighted  Average Number of Shares Outstanding      |       | 167,619                     |       | 172,353 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Effect of Dilutive  Securities – Stock Options |       | 389                         |       | 1,288 |   |
| Average  Shares – Diluted                      |       | 168,008                     |       | 173,641 |   |
| ** **                                          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Net Income  Per Common Share – Diluted         |       | $                           | 0.33       |   | $ | 0.37 |   |

** **

**7.**             On January 30, 2001,Janice Morgan and Barbara Richardson, two individuals who have held theposition of Store Manager for subsidiaries of the Company, filed a Complaintagainst the Company in the United States District Court for the NorthernDistrict of Alabama.  Thereafter,pursuant to the Court’s ruling, notice of the pendency of the lawsuit was sentto approximately 13,000 current and former Store Managers holding the positionon or after July 1, 1999. Based on currently available information,approximately 2,550 of those receiving such notice filed consent forms andjoined the lawsuit as plaintiffs, including approximately 2,300 former StoreManagers and approximately 250 current employees.

** **

**Pursuant to the Company’s motion, the Court dismissedapproximately 2,200 plaintiffs for failure to respond to discovery.  Plaintiffs asked the Court to reconsider andthe Court reinstated a number of those plaintiffs.  The Court also ruled that plaintiffs whofailed to produce certain records by a deadline would be dismissed.  The total number of plaintiffs allowed toremain as parties remains unsettled and in dispute.  Approximately 990 of the 2,550 originalplaintiffs have been dismissed and, subject to the Court’s rulings,approximately 445 additional plaintiffs could be dismissed.**

** **

**The case has proceeded as a collective action under theFair Labor Standards Act (“FLSA”).  TheComplaint alleges that the Company violated the FLSA by classifying theplaintiffs and other 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 deem proper.Discovery is complete, but no trial date is set. The Company’s motion todecertify the case from treatment as a collective action is under submissionfor the Court’s consideration, as is the plaintiff’s motion for summaryjudgment with respect to 34 of the plaintiffs based on arguments regarding thenumber of employees supervised during the relevant time period.**

 

7

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**In general, the Companybelieves that the Store Managers are “exempt” employees under the FLSA and havebeen properly compensated, that this action should not proceed as a collectiveaction and that the Company has meritorious defenses that should enable it toultimately prevail.  However, the outcomeof any litigation is inherently uncertain. The Company bears the burden of proof at trial of establishing its entitlementto the exemption from the overtime requirements of the FLSA, and no assurancescan be given that the Company will be successful in defending this action.  The nature of this action and its presentprocedural posture mean that future rulings by the Court on both substantiveand procedural motions and issues, including those now under submission, maysignificantly impact the course and outcome of these proceedings.  Thus, those rulings may greatly affect theCompany’s efforts to establish the exempt status of the plaintiff StoreManagers.  Resolution of this mattercould have a material adverse effect on the Company’s financial position,liquidity or results of operation.**

** **

**TheCompany is involved in numerous other legal proceedings and claims incidentalto its business, including litigation related to alleged failures to complywith various state and federal employment laws. While the ultimate outcome cannot be determined, the Company currentlybelieves that these proceedings and claims, both individually and in theaggregate, should not have a material adverse effect on the Company’s financialposition, liquidity or results of operations. However, the outcome of any litigation is inherently uncertain and, ifdecided adversely to the Company, the Company may be subject to liability thatcould have a material adverse effect on the Company’s financial position,liquidity or results of operations.**

** **

**8.**             In December 2004, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” which requiresall companies to measure compensation cost for all share-based payments(including employee stock options) at fair value, effective for publiccompanies for interim or annual periods beginning after June 15,2005.  The FASB concluded that companiescan adopt the new standard in one of two ways: the modified prospectivetransition method, in which a company would recognize share-based employeecompensation cost from the beginning of the fiscal period in which therecognition provisions are first applied as if the fair-value-based accountingmethod had been used to account for all employee awards granted, modified, orsettled after the effective date and to any awards that were not fully vestedas of the effective date; or the modified retrospective transition method, inwhich a company would recognize employee compensation cost for periodspresented prior to the adoption of SFAS No. 123R in accordance with theoriginal provisions of SFAS No. 123 “Accounting for Stock-Based Compensation,”pursuant to which a company would recognize employee compensation cost in theamounts reported in the pro forma disclosures provided in accordance with SFASNo. 123.  The Company expects to adoptSFAS No. 123R during the first quarter of fiscal 2006, and has not made adetermination as to the method it will adopt. See Note 5 for disclosure of the pro forma effects of stock optiongrants as determined using the methodology prescribed under SFAS 123.

 

8

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**MANAGEMENT’S DISCUSSION 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 November 27, 2004 and November 29, 2003.  This discussion should be read in conjunctionwith the Consolidated Condensed Financial Statements and Notes to ConsolidatedCondensed Financial Statements included in this quarterly report.  For further information, refer to theConsolidated Financial Statements and Notes to Consolidated FinancialStatements included in the Company’s annual report on Form 10-K for the yearended August 28, 2004 (“fiscal 2004”).**

** **

**Liquidity and CapitalResources**

** **

**TheCompany’s working capital increased $32.0 million from $511.8 million at August 28,2004, to $543.8 million at November 27, 2004.  Changes in working capital and cash and cashequivalents during the first quarters of each of the years ending August 27,2005 (“fiscal 2005”) and August 28, 2004 were primarily the result ofearnings, changes in merchandise inventories, and capital expenditures.  The Company’s inventories at November 27,2004, were approximately 10% higher on a per store basis than at November 29,2003, excluding merchandise in transit to the distribution centers.  The Company aggressively set the stores tomore effectively leverage increased holiday traffic.  Most of this increase was in basic consumablemerchandise but the Company also selectively invested in more toys and otherseasonal merchandise.  Both home decorand hanging apparel inventories at November 27, 2004 were at about thesame levels as at November 29, 2003, as the Company positioned these areasmore defensively to better control markdown exposure.**

** **

**Capitalexpenditures for the quarter ended November 27, 2004, were approximately$43.9 million, and are currently expected to be approximately $270 million forfiscal 2005.  The majority of plannedcapital expenditures for fiscal 2005 is related to the Company’s new storeexpansion; existing store expansions, relocations and renovations; thecompletion of construction of an eighth distribution center and start ofconstruction of a ninth full-service distribution center; expenditures relatedto store-focused technology infrastructure and the implementation of a coolerprogram for perishable goods in selected stores.  The new store expansion and eighthdistribution center require additional investment in merchandise inventories.**

** **

**TheCompany currently plans to open 500 to 560 stores and close 60 to 70 stores infiscal 2005, resulting in approximately 8% to 9% net new store growth and 9% to10% net square footage growth.  Urbanmarkets will continue to be the focus with approximately 60% to 65% of the newstores expected to open in urban areas.   The Company also currently plans to expand or relocate approximately 45stores and renovate approximately 110 stores in fiscal 2005. In fiscal 2004,the Company opened 500 stores and closed 61 stores, expanded or relocated 79stores and renovated 116 stores.  In thefirst quarter of fiscal 2005, the Company opened 98 stores, closed 9 stores,expanded or relocated 15 stores and renovated 57 stores.  The Company occupies most of its stores underoperating leases.  Store opening,closing, expansion, relocation, and renovation plans, as well as overallcapital expenditure plans, are continuously reviewed and are subject to change.**

 

9

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**TheCompany had unsecured revolving credit facilities with banks for short-termborrowings of up to $200 million.  Onehundred million dollars of the facilities expires on May 26, 2005, and theremaining $100 million expires on May 31, 2009. The Company had no borrowings against these facilities during thequarter ended November 27, 2004. Cash flow from current operations and available revolving creditfacilities as discussed above are expected to be sufficient to meet plannedliquidity and capital resource needs, including store expansion and othercapital spending programs and any repurchase of the Company’s Common Stock.**

** **

**Duringthe years ended August 27, 2004 and August 30, 2003, the Companypurchased in the open market 5.6 million and 2.2 million shares, respectively,at a cost of $176.7 million and $65.9 million, respectively.  As of November 27, 2004, 2.2 millionshares were authorized to be purchased. No shares were purchased during the quarter ended November 27,2004.**

** **

**Thefollowing table shows the Company’s obligations and commitments as of November 27,2004, to make future payments under contractual obligations (in thousands):**

** **
| ** **                          | ** ** | **Payments Due During One Year  Fiscal Period Ending** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|
| **Contractual Obligations**         | ** ** | **Total**                                              | ** ** | **November  2005** | ** ** | **November  2006** | ** ** | **November  2007** | ** ** | **November  2008** | ** ** | **November  2009** | ** ** | **Thereafter** | ** ** |
|                                |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Merchandise  letters of credit      |       | $                                                      | 76,579     |   | $ | 76,579 |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   |
| Operating  leases                   |       | 989,000                                                |       | 229,377 |   | 200,514 |   | 165,857 |   | 129,636 |   | 91,085 |   | 172,531 |   |
| Construction  obligations           |       | 23,498                                                 |       | 23,498 |   |   |   |   |   |   |   |   |   |   |   |
| Total  Contractual Cash Obligations |       | $                                                      | 1,089,077  |   | $ | 329,454 |   | $ | 200,514 |   | $ | 165,857 |   | $ | 129,636 |   | $ | 91,085 |   | $ | 172,531 |   |

 

Most of theCompany’s operating leases provide the Company with an option to extend the termof the lease at designated rates.

 

The followingtable shows the Company’s other commercial commitments as of November 27,2004 (in thousands):

 
| **Other Commercial Commitments** | ** ** | **Total  Amounts  Committed** | ** ** |
|----------------------------------|------------|-------------------------------|------------|
|                             |       |                          |       |
| Standby  letters of credit       |       | $                             | 70,000     |   |
| Surety bonds                     |       | 6,233                         |       |
| Total  Commercial Commitments    |       | $                             | 76,223     |   |
|                                  |            |                               |            |  |  |

** **

**At November 27, 2004,approximately $20.0 million of the merchandise letters of credit are includedin accounts payable and accrued liabilities on the Company’s balancesheet.  A substantial portion of theoutstanding amount of standby letters of credit and surety bonds (which areprimarily renewed on an annual basis) are used as surety for future premium anddeductible payments to the Company’s workers’ compensation and generalliability insurance carrier.  The Companyaccrues for these liabilities as described in the “Critical Accounting Policies”section of this discussion.**

 

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**Results of Operations**

** **

**Infiscal 2005, the Company is implementing four key initiatives designed toincrease sales and earnings – the urban initiative; the introduction ofadditional “Treasure Hunt” merchandise; the installation of coolers in selectedstores and the continuation of an aggressive store opening program.**

** **

**•**      Urban Initiative –Investments are being made in process changes, technology and people, includingorganizational changes to support a more mobile and flexible workforce, toimprove the operating performance of more than 1,000 high volume stores inthirty large metropolitan markets. During the first quarter ended November 27, 2004, the urbaninitiative was substantially implemented in approximately 300 stores.

** **

**•**      Treasure HuntMerchandise – The Company’s basic assortment of merchandise is beingsupplemented by additional opportunistically purchased goods which are designedto create more excitement in the stores throughout the year, with particularemphasis on the holiday season.

** **

**•**      Coolers – Theinstallation of coolers for the sale of perishable food will begin in thesecond quarter of fiscal 2005 and by the end of fiscal 2005 at least 500 storesare expected to have coolers.  Inaddition, the Company also plans to begin implementation by fiscal year-end ofnew point-of-sale software in selected stores to facilitate the acceptance offood stamps in stores with coolers, simplify cashier training, and speed upcheckout processes.

** **

**•**      New Stores – FamilyDollar’s aggressive store opening program is continuing.  The Company’s current plan is to open 500 to560 stores and close 60 to 70 stores, resulting in about 8% to 9% net storegrowth and 9% to 10% net square footage growth. In the first quarter of fiscal 2005, the Company opened 98 stores,closed 9 stores, expanded or relocated 15 stores and renovated 116 stores.

 

**Net sales**

** **

**Netsales increased 10.9% ($135.6 million) in the quarter ended November 27,2004, as compared with an increase of 12.3% ($136.0 million) in the quarterended November 29, 2003.  Theincrease was attributable to an increase in sales in existing stores (storesopened more than 13 months) of approximately 2.5% ($30.3 million) with thebalance of the increase primarily relating to sales from new stores opened aspart of the Company’s store expansion program. The existing stores sales increase of approximately 2.5% includedincreases of 1.5% in the September reporting period, 0.9% in the October reportingperiod and 5.2% in the November reporting period.  The Company estimates that approximately 1%of this existing stores sales increase is attributable to an advertisingcircular that was distributed in the first week of November.  The Company did not distribute a circular inthe first quarter of fiscal 2004.**

** **

**Salesof basic consumables, such as household chemicals, paper products and food, inthe first quarter ended November 27, 2004, were good.  However, sales of more discretionarymerchandise, including hanging apparel and home décor, were below the Company’splan.  The 2.5% increase in sales inexisting stores includes an increase of approximately 4.5% in sales ofhardlines and a decrease of approximately 4.6% in sales of softlines.  Hardlines merchandise includes primarilyhousehold chemical and paper products, health and beauty aids, food,electronics, housewares and giftware, toys, school supplies, hardware andautomotive supplies.  Softlinesmerchandise includes men’s, women’s, boy’s, girl’s and infant’s clothing andaccessories, shoes, and domestic items such as blankets, sheets and towels.**

 

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**Inthe first quarter of fiscal 2005, the customer count, as measured by the numberof register transactions in existing stores increased approximately 0.3% andthe average transaction increased approximately 2.2% to $8.91.  Hardlines as a percentage of total salesincreased to approximately 79.0% in the first quarter of fiscal 2005 comparedto approximately 77.0% in the first quarter of fiscal 2004.  Softlines as a percentage of sales decreasedto 21.0% in the first quarter of fiscal 2005 (with hanging apparel and shoesrepresenting 10.5%, basic apparel 4.0% and domestics 6.5%) compared to 23.0% inthe first quarter of fiscal 2004 (with hanging apparel and shoes representing12.0%, basic apparel 4.0% and domestics 7.0%).**

** **

**Salesin existing stores for the five week period ending January 1, 2005increased approximately 4.0% above existing store sales for the similar periodin the prior fiscal year.  The Company’splan is for sales in existing stores in the four weeks ending January 29,2005, to increase in the 2% to 3% range. As the fiscal 2005 initiatives are implemented, the Company continues toexpect that increases in sales in existing stores will be in the 3% to 5% rangein the fourth quarter ending August 27, 2005.**

** **

**Theaverage number of stores open during the first quarter of fiscal 2005 was 8.7%more than during the first quarter of fiscal 2004.  The Company had 5,555 stores in operation at November 27,2004, as compared with 5,102 stores in operation at November 29, 2003,representing an increase of approximately 8.9%.**

** **

**Cost of Sales**

** **

**Costof sales increased 13.1% in the quarter ended November 27, 2004, ascompared with the quarter ended November 29, 2003.  This increase primarily reflected theadditional sales volume between years. Cost of sales, as a percentage of net sales, was 66.6% in the quarterended November 27, 2004, compared with 65.3% in the quarter ended November 29,2003.  The increase in the cost of salespercentage was due primarily to the continuing shift in the merchandise mix ofsales to more lower margin basic consumables and less higher margindiscretionary goods, increased shrinkage and increased freight costs due tohigher fuel expense.  Sales of sharplypriced merchandise in the advertising circular in the first week of November alsocontributed to the increase in cost of sales percentage.  These increases in the cost of salespercentage were partially offset by lower markdowns during the quarter ended November 27,2004.  The Company is addressing theissue of shrinkage by implementing new loss prevention reports that providemore visibility to store level issues and by adding personnel to its LossPrevention Department.  In addition, aspart of its urban initiative, the Company is modifying its field managementstructure to increase management presence and the frequency of inspections inits urban markets.  The opening of theeighth distribution center in January 2005 will reduce the averagedistance between the stores and a distribution center and that reduction isexpected to offset, to some degree, the higher fuel costs.**

** **

**Forfiscal 2005, the Company’s plan is for the cost of sales percentage to increaseas compared to the percentage in fiscal 2004 due to the continuing effect ofthe factors discussed above.  Theseimpacts should be most pronounced during the first half of fiscal 2005 and theshrink initiatives and new distribution center are expected to mitigate theseimpacts during the second half of fiscal 2005.**

** **

**Selling, general and administrative**

 

**Selling,general and administrative expenses increased 13.3% in the quarter ended November 27,2004, as compared with the quarter ended November 29, 2003.**

 

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**Theincrease in these expenses was due primarily to additional costs arising fromthe continued growth in the number of stores in operation.  Selling, general and administrative expenses,as a percentage of net sales, were 27.1% in the quarter ended November 27,2004, compared with 26.5% in the quarter ended November 29, 2003.  The percentage was adversely impacted byplanned expenses incurred in connection with the urban initiative and otherpreviously announced initiatives which are expected to positively impact saleslater in the fiscal year (approximately 0.25%); and by insurance costs drivenprimarily by above normal hurricane damages (approximately 0.15%).  The incremental costs to distribute anadvertising circular in November 2004 also impacted this percentageslightly (approximately 0.1%).**

** **

**Forfiscal 2005, the Company’s plan is for the selling, general and administrativeexpense percentage to increase as compared to the percentage in fiscal2004.  The Company expects the funding ofits various growth initiatives as previously mentioned to negatively impact itsexpense leverage for the year by approximately 0.4% of sales.**

** **

**Provision for taxes on income**

** **

**Theeffective tax rate was 36.1% for the quarter ended November 27, 2004, and36.5% for the quarter ended November 29, 2003.  A retroactive reinstatement of certainfederal jobs tax credits for employees hired after December 31, 2003favorably impacted the effective tax rate in the first quarter of fiscal2005.  For the remainder of fiscal 2005,the Company’s plan is for the effective tax rate to increase slightly comparedto the rate in fiscal 2004 due to the effect of changes in state income taxes.**

----

**Basedon the operating results for the first quarter ended November 27, 2004,and the Company’s plan for sales, cost of sales, selling, general andadministrative expenses and tax rate, the Company’s current plan is for netincome per diluted share of Common Stock to be between $1.53 and $1.55 infiscal 2005.**

** **

**Critical AccountingPolicies**

** **

**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 taken against on-hand inventory.  In addition, management makes estimates andjudgments regarding, among other things, initial markups, markdowns, futuredemand for specific product categories and market conditions, all of which cansignificantly impact inventory valuation. If actual demand or market conditions are different than those projectedby management, additional markdowns may be necessary.  This risk is generally higher for seasonalmerchandise than for non-seasonal goods. The Company also provides for estimated inventory losses for damaged,lost or stolen inventory for the period from the physical inventory to thefinancial statement date.  Theseestimates are based on historical experience and other factors.**

 

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**Property and equipment:**

**Propertyand equipment 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, impairmentlosses on fixed assets have not been material to the Company’s financialposition, liquidity or results of operations.**

** **

**Insurance Liabilities:**

**TheCompany is primarily self-insured for health care, property loss, workers’compensation and general liability costs. These costs are significant primarily due to the large number of theCompany’s retail locations and employees. Because the nature of these claims is such that there can be asignificant lag from the incurrence of the claim (which is when the expense isaccrued) until payment is made, the percentage increase in the accrual can bemuch more pronounced than the percentage increase in the expense.  The Company’s self-insurance liabilities arebased on the total estimated costs of claims filed and estimates of claimsincurred but not reported, less amounts paid against such claims, and are notdiscounted.  Management reviews currentand historical claims data in developing its estimates.  The Company also uses information provided byoutside actuaries with respect to workers’ compensation and general liabilityclaims.  If the underlying facts andcircumstances of the claims change or the historical trend is not indicative offuture trends, then the Company may be required to record additional expense ora reduction to expense which could be material to the reported financialcondition, liquidity or results of operations.**

** **

**Forward-LookingStatements**

** **

**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, store openings,closings, renovations, expansions and relocations, additional distributionfacilities, sales, cost of sales, expenses, inventory levels, the outcome oflegal proceedings and other aspects of the Company’s business andoperations.  A number of importantfactors could cause actual results to differ materially from those expressed inany forward-looking statements, whether written or oral, made by or on behalfof the Company.  Such factors include,but are not limited to, competitive factors and pricing pressures, generaleconomic conditions, the impact of acts of war or terrorism, changes inconsumer demand and product mix, unusual weather that my temporarily impactsales, inflation, merchandise supply constraints, general transportation delaysor interruptions, dependence on imports, changes in currency exchange rates,trade restrictions, tariffs, quotas, and freight rates, availability of realestate, costs and delays associated with building, opening and operating newdistribution facilities and stores, costs, potential problems and achievementof results associated with the implementation of new programs, systems andtechnology, including supply chain systems, store technology, coolerinstallations and urban initiative programs, changes in food and energy pricesand the impact on consumer spending and the Company’s costs, legal proceedingsand claims, changes in**

 

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**shrinkage,changes in health care and other insurance costs, and the effects oflegislation on wage levels and entitlement programs.  Consequently, all of the forward-lookingstatements made are qualified by these and other factors, risks anduncertainties.  Readers are cautioned notto place undue reliance on these forward-looking statements, which speak onlyas of the date of this Form 10-Q.  TheCompany does not undertake to publicly update or revise its forward-lookingstatements even if experience or future changes make it clear that projectedresults expressed or implied in such statements will not be realized.**

** **

**Item 4.****    Controlsand Procedures**

 

**Basedon an evaluation by management of the Company (with the participation of theCompany’s Chief Executive Officer and Chief Financial Officer), as of the endof the period covered by this report, the Company’s Chief Executive Officer andChief Financial Officer have concluded that the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended, (the “Exchange Act”)) areeffective to provide reasonable assurance that information required to bedisclosed by the Company in reports that the Company files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms.  Consistent with the suggestion of theSecurities and Exchange Commission, the Company has formed a DisclosureCommittee consisting of key Company personnel designed to review the accuracyand completeness of all disclosures made by the Company.  There was no change in the Company’s internalcontrol over financial reporting during the fiscal quarter to which this reportrelates that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.**

 

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**PART II – OTHER INFORMATION**

** **

**Item1.**                    Legal Proceedings

** **

**Theinformation in Note 7 to the Consolidated Condensed Financial Statementscontained in Part 1, Item 1 of this Form 10-Q is incorporated herein by thisreference.**

** **

**Item2.**                    UnregisteredSales of Equity Securities and Use of Proceeds

** **

**Duringthe years ended August 27, 2004 and August 30, 2003, the Companypurchased in the open market 5.6 million and 2.2 million shares, respectively,at a cost of $176.7 million and $65.9 million, respectively.  As of November 27, 2004, 2.2 millionshares were authorized to be purchased. No shares were purchased during the quarter ended November 27,2004.  All shares have been purchased inopen market transactions.  Sharespurchased under the share repurchase authorization are held in treasury andcurrently a portion of such shares are reissued under the Family Dollar 2000Outside Directors Plan.  There is noexpiration date governing the period during which the Company can make share repurchases.  There are no other repurchase programs underwhich the Company is authorized to repurchase outstanding shares.**

** **

**Item5.**                    Other Information

** **

**On January 6, 2005, theCompany issued a news release with respect to the reporting of sales for thefive-week period ended January 1, 2005, and the current plan for sales inexisting stores in the four-week period ending January 29, 2005.  A copy of the news release is attached heretoas Exhibit 99 and is incorporated herein by reference.**

** **

**Item6.**                    Exhibits

** **
| **(a)**    | ** ** | **Exhibits  filed herewith:**                                                                                                                                                                                      |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                         |
| **31.1**   | ** ** | **Certification  of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)  under the Securities Exchange Act of 1934, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002** |
| ** ** | ** ** | ** **                                                                                                                                                                                                         |
| **31.2**   | ** ** | **Certification  of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)  under the Securities Exchange Act of 1934, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002** |
| ** ** | ** ** | ** **                                                                                                                                                                                                         |
| **32.1**   | ** ** | **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**                                               |
| ** ** | ** ** | ** **                                                                                                                                                                                                         |
| **32.2**   | ** ** | **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**                                               |
| ** ** | ** ** | ** **                                                                                                                                                                                                         |
| **99**     | ** ** | **News  Release dated January 6, 2005**                                                                                                                                                                       |

 

16

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**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 
|                       | FAMILY DOLLAR STORES, INC.            |                 |
|----------------------------|---------------------------------------|----------------------|
|                       | (Registrant)                          |
|                       |                                  |
|                       |                                  |
| Date: January 5, 2005 |                                  | /s/ R. James Kelly   |   |
|                       | R. James Kelly                        |
|                       | Vice Chairman-Chief Financial Officer |
|                       |                                  |
|                       |                                  |
| Date: January 5, 2005 |                                  | /s/ C. Martin Sowers |   |
|                       | C. Martin Sowers                      |
|                       | Senior Vice President-Finance         |

 

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