Exhibit 13 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  This
discussion summarizes the significant factors affecting the consolidated
results of operations and financial condition of the Company for the periods
ended August 31, 2002 and September 1, 2001. 
This discussion should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included in
this Annual Report.  Net Sales  Net sales increased approximately 13.6%
($497.3 million) in fiscal 2002 compared with fiscal 2001, and approximately
17.0% ($532.7 million) in fiscal 2001 compared with fiscal 2000.  The calendar followed by the Company and
most retailers included a non-comparative fifth week in January 2001 resulting
in there being fourteen weeks in last years second quarter.  Sales for the fifth week in January 2001
were approximately $66.5 million.  In
addition to the extra week in the second quarter of fiscal 2001, the increases
in fiscal 2002 and fiscal 2001 were attributable to increased sales in existing
stores and sales from new stores opened as part of the Companys store
expansion program.  Excluding
the non-comparative fifth week in January 2001, sales in existing stores
increased approximately 5.8% in fiscal 2002 and 4.1% in fiscal 2001, as
compared with the respective prior years, as customers continued to respond
favorably to the Companys everyday low pricing strategy and shift in the
merchandise mix toward more basic consumable hardlines merchandise.  In fiscal 2002, the customer count, as
measured by the number of register transactions in existing stores, increased
approximately 3.8%, and the average transaction increased approximately 1.9% to
$8.75.  Increased sales of hardlines
merchandise have been the primary contributor to the overall sales increases,
with hardlines sales increases in existing stores of approximately 8.4% in
fiscal 2002.  Hardlines as a percentage
of total sales increased to 76.4% in fiscal 2002   SUMMARY OF SELECTED FINANCIAL
DATA  Years Ended (In thousands, except per share amounts and
  store data)
  
  August 31,
  2002
  
  September
  1, 2001
  
  August 26,
  2000
  
  August 28,
  1999
  
  August 29,
  1998Net sales
  
  $
  4,162,652
  
  $
  3,665,362
  
  $
  3,132,639
  
  $
  2,751,181
  
  $
  2,361,930Cost of sales and operating expenses
  
  3,821,031
  
  3,366,940
  
  2,861,728
  
  2,528,502
  
  2,195,942Income before income taxes and cumulative effect of accounting change
  
  341,621
  
  298,422
  
  270,911
  
  222,679
  
  165,988Income taxes
  
  124,692
  
  108,917
  
  98,894
  
  82,600
  
  62,700Income before cumulative effect of accounting change
  
  216,929
  
  189,505
  
  172,017
  
  140,079
  
  103,288Cumulative effect of change in method of accounting for income taxes
  
  
  
  
  
  
  
  
  
  Net income
  
  216,929
  
  189,505
  
  172,017
  
  140,079
  
  103,288Earnings per common share:Income before cumulative effect of accounting change
  
  $
  1.25
  
  $
  1.10
  
  $
  1.00
  
  $
  0.81
  
  $
  0.60Net income(1)
  
  $
  1.25
  
  $
  1.10
  
  $
  1.00
  
  $
  0.81
  
  $
  0.60Dividends declared
  
  $
  44,106
  
  $
  40,352
  
  $
  36,858
  
  $
  33,657
  
  $
  30,116Dividends declared per common share
  
  $
  .25
  1⁄2
  $
  .23
  1⁄2
  $
  .21
  1⁄2
  $
  .19
  1⁄2
  $
  .17
  1⁄2Total assets
  
  $
  1,754,619
  
  $
  1,399,745
  
  $
  1,243,714
  
  $
  1,095,252
  
  $
  942,180Working capital
  
  $
  525,079
  
  $
  416,971
  
  $
  338,655
  
  $
  341,408
  
  $
  303,354Shareholders equity
  
  $
  1,154,948
  
  $
  959,015
  
  $
  797,964
  
  $
  690,650
  
  $
  578,150Stores opened
  
  525
  
  502
  
  406
  
  366
  
  315Stores closed
  
  (50
  )
  (50
  )
  (41
  )
  (59
  )
  (65
  )Number of storesend of year
  
  4,616
  
  4,141
  
  3,689
  
  3,324
  
  3,017    Years Ended(In thousands, except per share amounts and store data)
  
  August 31,
  1997
  
  August 31,
  1996
  
  August 31,
  1995
  
  August 31,
  1994
  
  August 31,
  1993Net sales
  
  $
  1,994,973
  
  $
  1,714,627
  
  $
  1,546,895
  
  $
  1,428,440
  
  $
  1,297,431Cost of sales and
  operating expenses
  
  1,873,496
  
  1,615,861
  
  1,452,519
  
  1,328,323
  
  1,194,511Income before
  income taxes and cumulative effect of accounting change
  
  121,477
  
  98,766
  
  94,376
  
  100,117
  
  102,920Income taxes
  
  46,800
  
  38,178
  
  36,266
  
  38,157
  
  38,491Income before
  cumulative effect of accounting change
  
  74,677
  
  60,588
  
  58,110
  
  61,960
  
  64,429Cumulative effect
  of change in method of accounting for income taxes
  
  
  
  
  
  
  
  1,139
  
  Net income
  
  74,677
  
  60,588
  
  58,110
  
  63,099
  
  64,429Earnings per
  common share:Income before
  cumulative effect of accounting change
  
  $
  0.44
  
  $
  0.35
  
  $
  0.34
  
  $
  0.36
  
  $
  0.39Net income(1)
  
  $
  0.44
  
  $
  0.35
  
  $
  0.34
  
  $
  0.37
  
  $
  0.39Dividends
  declared
  
  $
  26,849
  
  $
  24,435
  
  $
  21,837
  
  $
  18,656
  
  $
  16,326Dividends
  declared per common share
  
  $
  .15
  2/3
  $
  .14
  1/3
  $
  .12
  2/3
  $
  0.11
  
  $
  .09
  2/3Total assets
  
  $
  780,294
  
  $
  696,808
  
  $
  636,234
  
  $
  592,822
  
  $
  537,446Working capital
  
  $
  283,476
  
  $
  273,694
  
  $
  264,672
  
  $
  230,235
  
  $
  205,863Shareholders
  equity
  
  $
  500,198
  
  $
  444,957
  
  $
  407,751
  
  $
  370,172
  
  $
  323,282Stores opened
  
  236
  
  223
  
  213
  
  202
  
  174Stores closed
  
  (50
  )
  (58
  )
  (12
  )
  (22
  )
  (24
  )Number of
  storesend of year
  
  2,767
  
  2,581
  
  2,416
  
  2,215
  
  2,035 
 (1)   Figures represent diluted
earnings per common share.   14 
   compared to 74.5% in fiscal 2001.  Softlines as a percentage of sales decreased
to 23.6% in fiscal 2002 (with hanging apparel and shoes representing 12.4%,
basic apparel 4.5% and domestics 6.7%) compared to 25.5% in fiscal 2001 (with
hanging apparel and shoes representing 13.4%, basic apparel 4.9% and domestics
7.2%).  The Company increased the space
devoted to hardlines by reducing space allocated to shoes in a program that was
completed in all stores in January 2002. 
With reduced softline inventory levels due to these changes, softlines
sales in existing stores decreased approximately 1.7% in fiscal 2002.  For fiscal 2003, the Companys plan is for
sales in existing stores to increase in the 3% to 5% range.  The
Company reduced the number of advertising circulars distributed in fiscal 2002
to two, which was one less than was distributed in fiscal 2001.  The adverse sales impact of discontinuing
one circular was offset by the increased customer traffic generated by the
everyday low pricing strategy and shift in the merchandise mix.  For fiscal 2003, the Company plans to
eliminate one of the two remaining circulars.  The existing store sales increase of
approximately 4.1% in fiscal 2001 was also primarily attributable to the
favorable customer response to everyday low pricing and increased sales of
hardlines.  In fiscal 2001, the average
transaction increased approximately 2.5% to $8.60 and the customer count
increased approximately 1.5%.  In fiscal
2001, existing store hardlines sales increased approximately 8.5% and softlines
sales decreased approximately 7.0%. 
Sales in fiscal 2001 were impacted by a space reallocation program
completed in all stores in October 2000 that dedicated more space to hardlines,
including name brand, basic consumable merchandise, and reduced space for
hanging apparel by approximately 15% to 20%. 
The Company distributed three advertising circulars in fiscal 2001 and
five advertising circulars in fiscal 2000.    15 
   Hardlines merchandise includes primarily
household chemical and paper products, health and beauty aids, candy, snack and
other food, electronics, housewares and giftware, 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, and domestic items such as blankets, sheets
and towels.  During fiscal 2002, the Company opened 525
stores and closed 50 stores for a net addition of 475 stores, compared with the
opening of 502 stores and closing of 50 stores for a net addition of 452 stores
during fiscal 2001.  The Company also
expanded or relocated 121 stores in fiscal 2002, compared with 210 stores that
were expanded or relocated in fiscal 2001. 
In addition, approximately 42 stores in fiscal 2002 and approximately
184 stores in fiscal 2001 were renovated. 
The Company currently plans to open approximately 575 stores and close
approximately 50 stores for a net addition of 525 stores during fiscal
2003.  The Company also currently
expects to renovate an additional 50 stores and expand or relocate
approximately 150 stores in fiscal 2003. 
Store opening, closing, expansion, relocation, and renovation plans are
continuously reviewed and are subject to change.  Cost of Sales
and Margin  Cost of sales increased approximately 13.4%
($327.5 million) in fiscal 2002 compared with fiscal 2001, and approximately
17.4% ($362.3 million) in fiscal 2001 compared with fiscal 2000.  These increases primarily reflected the
additional sales volume in each of the years. 
Cost of sales, as a percentage of net sales, was 66.5% in both fiscal
2002 and fiscal 2001, and 66.3% in fiscal 2000.  The cost of sales percentage for fiscal 2002 remained at the same
level as for fiscal 2001 as the adverse margin impact of increased sales of
basic consumables was offset by lower markdowns of seasonal merchandise in the
second and fourth quarters.  The cost of
sales percentages also are impacted by the effectiveness of merchandise
purchasing programs and by changes in merchandise shrinkage losses and freight
costs.  The increase in the cost of
sales percentage for fiscal 2001 compared with fiscal 2000 was due primarily to
the adverse margin impact of increased sales of basic consumable merchandise
and lower sales of apparel and seasonal merchandise, partially offset by fewer markdowns.  For
fiscal 2003, the Companys plan is for the cost of sales percentage to be at
approximately the same level as the percentage in fiscal 2002.  Selling,
General and Administrative Expenses  Selling,
general and administrative expenses increased approximately 13.6% ($126.6
million) in fiscal 2002 compared with fiscal 2001, and approximately 18.2%
($142.9 million) in fiscal 2001 compared with fiscal 2000.  The increases in these expenses primarily
were attributable to additional costs arising from the continued growth in the
number of stores in operation and the ramp-up of the sixth distribution center,
partially offset by having one less week in fiscal 2002 versus fiscal
2001.  As a percentage of net sales,
selling, general and administrative expenses were 25.3% in both fiscal 2002 and
fiscal 2001, and 25.1% in fiscal 2000. 
The selling, general and administrative expense percentage for fiscal
2002 remained at the same level as for fiscal 2001.  Increased labor productivity, lower utility costs and the
elimination of an advertising circular coupled with the expense leverage from a
5.8% increase in existing store sales were offset by rising insurance and store
lease costs and the prior year leverage effect of the extra week in fiscal
2001.  The
percentage increase in fiscal 2001 primarily was due to the significant
increase in the number of new store openings and to increases in occupancy
costs (utilities and rent) and health care costs in excess of sales increases.  These costs more than offset the savings
from the elimination of the two advertising circulars in fiscal 2001, and the
expense leverage from the 4.1% increase in existing store sales and the extra
week of sales in fiscal 2001.  For
fiscal 2003, the Companys plan is for the selling, general and administrative
expense percentage of sales to be at approximately the same level as the
percentage in fiscal 2002.  Income Taxes  The
effective tax rate was 36.5% in fiscal 2002, fiscal 2001, and fiscal 2000.  For fiscal 2003, the Companys plan is for
the effective tax rate to remain at approximately the same level as the rate in
fiscal 2002.  Liquidity and
Capital Resources  The
Company has consistently maintained a strong position of liquidity and
financial strength.  Cash provided by
operating activities during fiscal 2002 was $402.6 million as compared to
$165.9 million in fiscal 2001 and $183.6 million in fiscal 2000.  These amounts have enabled the Company to
fund its regular operating needs, capital expenditure program and cash dividend
payments.  In addition, the Company
maintains $200 million of unsecured revolving credit facilities with banks for
short-term financing of seasonal cash needs. 
One hundred million dollars of the facilities expires on May 29, 2003
and the remaining $100 million expires on May 31, 2004.  The Company had no borrowings against these
facilities at August 31, 2002.  There
were no long-term borrowings during fiscal 2002, 2001 or 2000.  Merchandise
inventories at August 31, 2002 increased 6.2% over the level at September 1,
2001.  This increase was due to
additional inventory for 475 net new stores offset by improved inventory
turnover of basic merchandise and lower levels of seasonal goods.  The improved inventory turnover and lower
seasonal merchandise levels also contributed to increased accounts payable
leverage during fiscal 2002.  The increase
in capital expenditures to $186.7 million in fiscal 2002 from $162.8 million in
fiscal 2001 primarily was due to expenditures incurred in fiscal 2002 to
complete construction of the sixth distribution center and costs to open an
additional 23 new stores compared to the prior fiscal year.  Capital expenditures for fiscal 2003 are
expected to be approximately $225 million, which primarily represent estimated   16 
    expenditures for new store expansion, including construction of an
increased number of stores, existing store expansion, relocation, and
renovation, and to the construction of the seventh distribution center.  The new store expansion and seventh
distribution center will also require additional investment in merchandise
inventories.  Capital
spending plans, including store expansion, are continuously reviewed and are
subject to change.  Cash flow from
current operations and short-term borrowings under the revolving credit
facilities are expected to be sufficient to meet liquidity and capital resource
needs, including store expansion and other capital spending programs and any
repurchase of the Companys Common Stock.  On
October 9, 2002, the Company announced that the Board of Directors authorized
the purchase of up to 5 million shares of its outstanding Common Stock from
time to time as market conditions warrant. 
As of November 1, 2002, the Company had purchased in the open market,
506,900 shares at a cost of $14.9 million. 
The Company purchased 2.1 million shares at a cost of $33.6 million in
fiscal 2000 under a prior authorization.  The following table shows the Companys obligations and commitments as
of August 31, 2002, to make future payments under contractual obligations (In
thousands):  Payments
  Due During One Year Fiscal Period EndingContractual
  Obligations
  
  Total
  
  August
  2003
  
  August
  2004
  
  August
  2005
  
  August
  2006
  
  August
  2007
  
  ThereafterMerchandise letters of credit
  
  $
  76,037
  
  $
  76,037
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Operating leases
  
  680,322
  
  169,240
  
  146,652
  
  118,929
  
  87,770
  
  54,982
  
  102,749Construction obligations
  
  7,572
  
  7,572
  
  
  
  
  
  
  
  
  
  Total Contractual Cash Obligations
  
  $
  763,931
  
  $
  252,849
  
  $
  146,652
  
  $
  118,929
  
  $
  87,770
  
  $
  54,982
  
  $
  102,749  The following table shows the Companys other
commercial commitments as of August 31, 2002 (In thousands):  Other Commercial Commitments
  
  Total
  AmountsCommittedStandby letters of credit
  
  $
  32,175Surety bonds
  
  5,757Total Commercial Commitments
  
  $
  37,932  At
August 31, 2002, approximately $46.1 million of the merchandise letters of
credit are included in accounts payable on the Companys balance sheet.  A substantial portion of the outstanding
amount of standby letters of credit and surety bonds (which are primarily
renewed on an annual basis) are used as surety for future premium and
deductible payments to the Companys workers compensation and general
liability insurance carrier.  The
Company accrues for these liabilities as described in the Critical Accounting
Policies section of this discussion.  Recent Accounting Pronouncements  In
August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144) effective for fiscal years beginning
after December 15, 2001.  SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business.  The Company adopted SFAS 144 as of August
31, 2002, with no material impact on its financial position or results of
operations.  In
June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146) effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged.  SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring).  The Company adopted SFAS 146 as of August
31, 2002, with no material impact on its financial position or results of
operations.  Critical
Accounting Policies  Management
believes the following accounting principles are critical because they involve
significant judgments, assumptions, and estimates used in the preparation of the
Companys consolidated financial statements.  Merchandise
Inventories:  Inventories
are valued using the retail method, based on retail prices less markon
percentages, which approximates the lower of first-in, first-out (FIFO) cost or
market.  The Company records adjustment
to 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, among
other things, initial markups, markdowns, future demand for specific product
categories and market conditions, all of which can significantly impact
inventory valuation.  If actual demand
or market conditions are different than those projected by management,
additional markdowns may be necessary. This risk is generally   17 
    higher
for seasonal merchandise 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
the financial statement date.  These
estimates are based on historical experience and other factors.  Property
and Equipment:  Property
and equipment is stated at cost. 
Depreciation for financial reporting purposes is being provided
principally by the straight-line method over the estimated useful lives of the
related assets.  The valuation and
classification of these assets and the assignment of useful depreciable lives
involves significant judgments and the use of estimates.  The Company generally assigns no salvage
value to property and equipment. 
Property and equipment is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.  Historically,
impairment losses on fixed assets have not been material to the Companys
financial position and results of operations. 
Because the Company leases substantially all of its stores under
operating leases, the risk of impairment of fixed assets relates principally to
the leasehold improvements and other store-level assets in the event of
closure.  Insurance
Liabilities:  The
Company 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 the
Companys retail locations and employees. 
The Companys self-insurance liabilities are based on the total
estimated costs of claims filed and estimates of claims incurred but not
reported, less amounts paid against such claims, and are not discounted.  Management reviews current and historical
claims data in developing its estimates. 
The Company also uses information provided by outside actuaries with
respect to workers compensation and general liability claims.  If the underlying facts and circumstances of
the claims change or the historical trend is not indicative of future trends,
then the Company may be required to record additional expense or a reduction to
expense which could be material to the reported financial condition and results
of operations.  Forward-Looking
Statements  Certain
statements contained herein and elsewhere in this Annual Report which are not
historical facts are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements address the
Companys plans and activities or events which the Company expects will or may
occur in the future, such as future capital expenditures, store openings,
closings, renovations, expansions and relocations, additional distribution
facilities, sales, cost of sales, expenses and other aspects of the Companys
business and operations.  A number of
important factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether written or oral, made by
or on behalf of the Company.  Such
factors include, but are not limited to, competitive factors and pricing
pressures, general economic conditions, the impact of acts of war or terrorism,
changes in consumer demand and product mix, unusual weather that may
temporarily impact sales, inflation, merchandise supply constraints, general
transportation delays or interruptions, dependence on imports, changes in currency
exchange rates, tariffs, quotas and freight rates, availability and costs of
real estate, costs and delays associated with building, opening and operating
new distribution facilities and stores, costs and potential problems associated
with the implementation of new systems and technology, including supply chain
systems and electronic commerce, changes in energy prices and the impact on
consumer spending and the Companys costs, 
legal proceedings and claims, changes in health care and other insurance
costs, and  the effects of legislation
on wage levels and entitlement programs. 
Consequently, all of the forward-looking statements made are qualified
by these and other factors, risks and uncertainties.  Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report.  The Company does not undertake
to publicly update or revise its forward-looking statements even if experience
or future changes make it clear that projected results expressed or implied in
such statements will not be realized.  Market Price
and Dividend Information  Family
Dollars Common Stock is traded on the New York Stock Exchange under the ticker
symbol FDO.  At November 1, 2002, there
were approximately 1,875 holders of record of the Common Stock.  The accompanying tables give the high and
low sales prices of the Common Stock and the dividends declared per share for
each quarter of fiscal 2002 and 2001.  Market Prices and Dividends  2002
  
  High
  
  Low
  
  DividendFirst Quarter
  
  $
  31.35
  
  $
  23.30
  
  $
  .06Second Quarter
  
  33.95
  
  27.00
  
  .06
  1⁄2Third Quarter
  
  37.25
  
  30.06
  
  .06
  1⁄2Fourth Quarter
  
  36.88
  
  25.00
  
  .06
  1⁄2  2001
  
  High
  
  Low
  
  DividendFirst Quarter
  
  $
  20.31
  
  $
  16.75
  
  .05
  1⁄2Second Quarter
  
  27.37
  
  18.38
  
  .06Third Quarter
  
  29.30
  
  22.20
  
  .06Fourth Quarter
  
  30.70
  
  24.71
  
  .06    18 
    Family Dollar Stores, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF
INCOME  Years
  Ended(In
  thousands, except per share amounts)
  
  August 31,
  2002
  
  September
  1,
  2001
  
  August 26,2000Net sales
  
  $
  4,162,652
  
  $
  3,665,362
  
  $
  3,132,639Costs and expenses:Cost of sales
  
  2,766,733
  
  2,439,261
  
  2,076,916Selling, general and administrative
  
  1,054,298
  
  927,679
  
  784,8123,821,031
  
  3,366,940
  
  2,861,728Income before income taxes
  
  341,621
  
  298,422
  
  270,911Income taxes (Note 5)
  
  124,692
  
  108,917
  
  98,894Net income
  
  $
  216,929
  
  $
  189,505
  
  $
  172,017Net income per common sharebasic (Note 9):
  
  $
  1.26
  
  $
  1.10
  
  $
  1.00Average sharesbasic (Note 9)
  
  172,800
  
  171,568
  
  171,698Net income per common sharediluted (Note 9):
  
  $
  1.25
  
  $
  1.10
  
  $
  1.00Average sharesdiluted (Note 9)
  
  174,049
  
  172,774
  
  172,649  The accompanying notes are an integral part of the consolidated
financial statements.    REPORT OF
INDEPENDENT ACCOUNTANTS  To the Board of Directors and Shareholders of Family Dollar Stores, Inc.   In
our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders equity and of cash flows
present fairly, in all material respects, the financial position of Family
Dollar Stores, Inc. and its subsidiaries at August 31, 2002 and September 1,
2001, and the results of their operations and their cash flows for each of the
three years in the period ended August 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.   September 30, 2002 Charlotte, North Carolina   19 
   Family Dollar Stores, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS  (In
  thousands, except share amounts)
  
  August 31,2002
  
  September
  1,2001ASSETSCurrent assets:Cash and cash equivalents
  
  $
  220,265
  
  $
  21,753Merchandise inventories
  
  766,631
  
  721,560Deferred income taxes (Note 5)
  
  49,941
  
  43,985Income tax refund receivable (Note 5)
  
  6,469
  
  4,936Prepayments and other current assets
  
  12,553
  
  15,031Total current assets
  
  $
  1,055,859
  
  $
  807,265Property and equipment, net (Note 2)
  
  685,617
  
  580,879Other assets
  
  13,143
  
  11,601$
  1,754,619
  
  $
  1,399,745LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
  
  $
  381,164
  
  $
  264,965Accrued liabilities (Note 4)
  
  149,616
  
  125,329Total current liabilities
  
  530,780
  
  390,294Deferred income taxes (Note 5)
  
  $
  68,891
  
  $
  50,436Commitments and contingencies (Note 7)Shareholders equity (Notes 8 and 9):Preferred stock, $1 par; authorized and unissued 500,000 sharesCommon stock, $.10 par; authorized 600,000,000
  shares at August 31, 2002,and 300,000,000 shares at September 1, 2001
  
  18,583
  
  18,454Capital in excess of par
  
  63,294
  
  40,318Retained earnings
  
  1,118,015
  
  945,1921,199,892
  
  1,003,964Less common stock held in treasury, at cost
  
  44,944
  
  44,9491,154,948
  
  959,015$
  1,754,619
  
  $
  1,399,745  The accompanying notes are an integral part of the consolidated
financial statements.    20 
    Family Dollar Stores, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY  Years Ended August 31, 2002, September 1, 2001
  and August 26, 2000(In
  thousands, except  per share and share
  amounts)
  
  Common
  stock
  
  Capital in
  excess
  of par
  
  Retained
  earnings
  
  Treasury
  stockBalance, August 29, 1999(183,109,328 shares common stock; 10,358,466 shares treasury stock)
  
  $
  18,311
  
  $
  22,808
  
  $
  660,880
  
  $
  11,349Net income for the year
  
  
  
  
  
  172,017Issuance of 527,370 common sharesunder employee stock option plan, including tax
  benefits (Note 8)
  
  53
  
  5,684Purchase of 2,148,000 common shares for treasury
  
  
  
  
  
  
  
  33,611Issuance of 1,680 shares of treasury stock under the Family Dollar
  2000 outside directors plan
  
  
  
  25
  
  
  
  (4
  )Less dividends on common stock, $.211⁄2 per share
  
  
  
  
  
  (36,858
  )Balance, August 26, 2000(183,636,698 shares common stock;12,504,786 shares treasury stock)
  
  18,364
  
  28,517
  
  796,039
  
  44,956Net income for the year
  
  
  
  
  
  189,505Issuance of 901,895 common sharesunder employee stock option plan, including tax
  benefits (Note 8)
  
  90
  
  11,768Issuance of 1,832 shares of treasury stock underthe Family Dollar 2000 outside directors plan
  
  
  
  33
  
  
  
  (7
  )Less dividends on common stock, $.231⁄2 per share
  
  
  
  
  
  (40,352
  )Balance, September 1, 2001(184,538,593 shares common stock;12,502,954 shares treasury stock)
  
  18,454
  
  40,318
  
  945,192
  
  44,949Net income for the year
  
  
  
  
  
  216,929Issuance of 1,292,308 common sharesunder employee stock option plan, including tax
  benefits (Note 8)
  
  129
  
  22,941Issuance of 1,288 shares of treasury stock underthe Family Dollar 2000 outside directors plan
  
  
  
  35
  
  
  
  (5
  )Less dividends on common stock, $.251⁄2 per share
  
  
  
  
  
  (44,106
  )Balance, August 31, 2002(185,830,901 shares common stock;12,501,666 shares treasury stock)
  
  $
  18,583
  
  $
  63,294
  
  $
  1,118,015
  
  $
  44,944  The accompanying notes are an integral part of the consolidated
financial statemnets.   21 
    Family Dollar Stores, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF
CASH FLOWS  Years
  Ended(In
  thousands)
  
  August 31,
  2002
  
  September
  1,
  2001
  
  August 26,
  2000Cash flows from operating activities:Net income
  
  $
  216,929
  
  $
  189,505
  
  $
  172,017Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization
  
  77,015
  
  67,685
  
  54,510Deferred income taxes
  
  12,499
  
  24,281
  
  3,182(Gain) Loss on disposition of property and equipment
  
  2,287
  
  (809
  )
  417Changes in operating assets and liabilities:Merchandise inventories
  
  (45,071
  )
  (76,946
  )
  (75,833
  )Income tax refund receivable
  
  (1,533
  )
  (4,936
  )
  Prepayments and other current assets
  
  2,478
  
  (4,094
  )
  (2,131
  )Other assets
  
  (1,542
  )
  (6,144
  )
  (1,301
  )Accounts payable and accrued liabilities
  
  139,541
  
  (15,455
  )
  34,976Income taxes payable
  
  
  
  (7,177
  )
  (2,281
  )402,603
  
  165,910
  
  183,556Cash flows from investing activities:Capital expenditures
  
  (186,687
  )
  (162,848
  )
  (172,056
  )Proceeds from dispositions of property and equipment
  
  2,647
  
  2,678
  
  685(184,040
  )
  (160,170
  )
  (171,371
  )Cash flows from financing activities:Net (purchases) / reissuance of stock for treasury
  
  5
  
  7
  
  (33,607
  )Exercise of employee stock options,including tax benefits
  
  23,105
  
  11,891
  
  5,762Payment of dividends
  
  (43,161
  )
  (39,443
  )
  (36,083
  )(20,051
  )
  (27,545
  )
  (63,928
  )Net increase (decrease) in cash and cash equivalents
  
  198,512
  
  (21,805
  )
  (51,743
  )Cash and cash equivalents at beginning of year
  
  21,753
  
  43,558
  
  95,301Cash and cash equivalents at end of year
  
  $
  220,265
  
  $
  21,753
  
  $
  43,558Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
  
  $
  158
  
  $
  554
  
  $
  Income taxes
  
  103,601
  
  91,113
  
  95,317  The accompanying notes are an integral part of the consolidated
financial statements.   22 
   NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years Ended
August 31, 2002, September 1, 2001 and August 26, 2000  1.  Description of Business and Summary of Significant
Accounting Policies:  Description of business: The Company operates a chain of neighborhood retail discount stores in
41 contiguous states in the Northeast, Southeast, Midwest and Southwest.  The Company manages its business on the
basis of one reportable segment.  The
Companys products include hardlines merchandise such as household products,
health and beauty aids and snack and other food, and softlines merchandise such
as clothing, shoes and domestic items.  Principles of consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned.  All significant intercompany balances and
transactions have been eliminated.  Cash equivalents: The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. 
The carrying amount of the Companys cash equivalents approximates fair
value due to the short maturities of these investments.  The Company maintains cash deposits with
major banks which from time to time may exceed federally insured limits.  The Company periodically assesses the
financial condition of the institutions and believes that the risk of any loss
is minimal.  Merchandise inventories: Inventories
are valued using retail prices less markon percentages, and approximate the
lower of first-in, first-out (FIFO) cost or market.  Property and equipment: Property
and equipment is stated at cost. 
Depreciation for financial reporting purposes is being provided principally
by the straight-line method over the estimated useful lives of the related
assets, and by straight-line and accelerated methods for income tax reporting
purposes.  Estimated useful lives are as follows:Buildings
  
  33-40
  yearsFurniture, fixtures and equipment
  
  3-10
  yearsTransportation equipment
  
  3-10
  yearsLeasehold improvements
  
  5-10
  years
  The Company capitalizes certain costs incurred in connection with
developing, obtaining and implementing software for internal use.  Capitalized costs are amortized over the
expected economic life of the assets, generally ranging from five to eight
years.  Insurance liabilities: The
Company is primarily self-insured for health care, property loss, workers
compensation and general liability costs. 
These liabilities are based on the total estimated costs of claims filed
and estimates of claims incurred but not reported, less amounts paid against
such claims, and are not discounted.  Advertising costs: Advertising
costs, net of co-op recoveries from vendors, are expensed the first time the
advertising is run and amounted to $0.5 million, $2.7 million and $8.7 million
in fiscal 2002, 2001 and 2000, respectively.  Store opening and closing costs: The
Company charges pre-opening costs against operating results when incurred.  When a store is closed, the remaining
investment in fixed assets, net of expected recovery value, is expensed.  For properties under operating lease agreements,
the present value of any remaining liability under the lease, net of expected
sublease and lease termination recoveries, is expensed when the closing has
occurred.  Selling, general and administrative expenses: Buying,
warehousing and occupancy costs, including depreciation, are included in
selling, general and administrative expenses.  Income taxes: The
Company records deferred income tax assets and liabilities for the expected
future tax consequences of temporary differences between the financial
reporting bases and the income tax bases of its assets and liabilities.  Stock options: The
Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations.  The exercise price of options awarded under the Companys
non-qualified stock option plan has been equal to the fair market value of the
underlying common stock on the date of grant. 
Accordingly, no compensation expense has been recognized for options
granted under the plan.  Income tax
benefits attributable to stock options exercised are credited to capital in
excess of par.  Fiscal year: The Companys fiscal year generally ends on the Saturday closest to
August 31.  Fiscal years 2002 and 2000
included 52 weeks, and fiscal year 2001 included 53 weeks.  Use of estimates: The
preparation of the Companys consolidated financial statements, in conformity
with generally accepted accounting principles in the United States of America,
requires management to make estimates and assumptions.  These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.  Actual results could differ from these
estimates.   23 
    2. Property and
Equipment:  (In
  thousands)
  
  August 31,2002
  
  September
  1,2001Buildings
  
  $256,400
  
  $196,909Furniture, fixtures and equipment
  
  552,284
  
  475,389Transportation equipment
  
  44,785
  
  43,293Leasehold improvements
  
  152,320
  
  126,938Construction in progress
  
  24,367
  
  22,5791,030,156
  
  865,108Less accumulated depreciationand amortization
  
  376,289
  
  307,143653,867
  
  557,965Land
  
  31,750
  
  22,914$685,617
  
  $580,879   3.Revolving Credit
Facilities and Short-Term Borrowings:  The Company
has unsecured revolving credit facilities with banks for short-term borrowings
of up to $200 million.  One hundred
million dollars of the facilities expires on May 29, 2003, and the remaining
$100 million expires on May 31, 2004. 
The Company expects that the facilities expiring on May 29, 2003, will
be extended.  Borrowings under these
facilities are at a variable interest rate based on short-term market interest
rates.  The Company may convert up to
$100 million of the facilities expiring on May 31, 2004, into either a five or
seven-year term loan, at the banks variable prime rate.  Interest
expense, average and maximum borrowings outstanding and interest rates for each
of the three years in the period ended August 31, 2002 were as follows (In
thousands):  2002
  
  2001
  
  2000Interest expense
  
  $
  158
  
  $
  554
  
  Average borrowings outstanding
  
  $
  5,800
  
  $
  7,700
  
  Maximum month-end outstanding
  
  $
  42,500
  
  $
  54,700
  
  Interest rates at year-end
  
  N/A
  
  N/A
  
  N/ADaily weighted average interest rates
  
  2.7
  %
  6.9
  %
  N/A  4.  Accrued Liabilities:  (In
  thousands)
  
  August 31,2002
  
  September
  1,
  2001Compensation
  
  $35,624
  
  $27,921Insurance
  
  63,733
  
  43,292Taxes other than income taxes
  
  32,611
  
  32,416Other
  
  17,648
  
  21,700$149,616
  
  $125,329   5. Income Taxes:  The tax effects of
temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities as of August 31, 2002 and September 1,
2001 were as follows (In thousands):  August 31,2002
  
  September
  1,2001Deferred income tax liabilities:Excess of book over tax basis of property and equipment
  
  $
  68,891
  
  $
  50,436Deferred income tax assets:Excess of tax over book basis of inventories
  
  $
  18,947
  
  $
  17,572Currently nondeductible accruals for:Insurance
  
  24,792
  
  17,122Vacation and bonus pay
  
  3,959
  
  4,126Other
  
  2,243
  
  5,165Total deferred income tax assets
  
  $
  49,941
  
  $
  43,985   24 
    The provisions for
income taxes in each of the three years in the period ended August 31,2002,
were as follows (In thousands):  2002
  
  2001
  
  2000Current:Federal
  
  $
  103,210
  
  $
  77,866
  
  $
  85,859State
  
  8,983
  
  6,770
  
  9,853112,193
  
  84,636
  
  95,712Deferred:Federal
  
  11,839
  
  22,761
  
  1,567State
  
  660
  
  1,520
  
  1,61512,499
  
  24,281
  
  3,182Total
  
  $
  124,692
  
  $
  108,917
  
  $
  98,894  The following
table summarizes the components of income tax expense in each of the three
years in the period ended August 31, 2002 (In thousands):  2002
  
  2001
  
  2000Income taxexpense
  
  %of pre-tax
  income
  
  Income taxexpense
  
  %of pre-taxincome
  
  Income taxexpense
  
  %of pre-taxincomeComputed expected federal income tax
  
  $
  119,567
  
  35.0
  
  $
  104,448
  
  35.0
  
  $
  94,819
  
  35.0State income taxes, net of federalincome tax benefit
  
  6,363
  
  1.9
  
  5,518
  
  1.8
  
  5,302
  
  2.0Other
  
  (1,238
  )
  (0.4
  )
  (1,049
  )
  (0.3
  )
  (1,227
  )
  (0.5
  )Actual income tax expense
  
  $
  124,692
  
  36.5
  
  $
  108,917
  
  36.5
  
  $
  98,894
  
  36.5   6.     Employee Benefit Plans:  Incentive compensation plan: The Company has an incentive profit-sharing plan whereby, at the
discretion of the Board of Directors, the Company may pay certain employees and
officers an aggregate amount not to exceed 5% of the Companys consolidated
income before income taxes.  Expenses
under the profit-sharing plan were $6.3 million in fiscal 2002, $2.7 million in
fiscal 2001 and $4.0 million in fiscal 2000.  Compensation deferral plan: The Company has a voluntary compensation deferral plan, under Section 401(k)
of the Internal Revenue Code, available to eligible employees.  At the discretion of the Board of Directors,
the Company makes contributions to the plan which are allocated to
participants, and in which they become vested, in accordance with formulas and
schedules defined by the plan.  Company
expenses for contributions to the plan were $2.0 million in fiscal 2002, $1.7
million in fiscal 2001 and $1.4 million in fiscal 2000.  In addition in fiscal 2002, the Company
accrued approximately $1.3 million related to the retirement of its Chairman of
the Board.  7.     Commitments and Contingencies:  Operating leases: Except for its executive offices and primary distribution centers, the
Company generally conducts its operations from leased facilities.  Normally, store real estate leases are for
initial terms of from five to ten years with multiple renewal options for
additional five-year periods.  Certain
leases provide for contingent rental payments based upon a percentage of store
sales.  The Company also has long-term
leases for equipment generally with lease terms of five years or less.  Rental expenses on all operating leases, both cancellable and
non-cancellable, for each of the three years in the period ended August 31,
2002 were as follows (In thousands):  2002
  
  2001
  
  2000Minimum rentals, net of minor 
  sublease rentals
  
  $
  180,318
  
  $
  154,654
  
  $
  126,490Contingent rentals
  
  5,054
  
  4,295
  
  3,819$
  185,372
  
  $
  158,949
  
  $
  130,309   25 
    The following table shows the Companys obligations and commitments to
make future payments under contractual obligations, including future minimum
rental payments required under operating leases that have initial or remaining
non-cancellable lease terms in excess of one year (In thousands):  Payments
  Due During One Year Fiscal Period EndingContractual Obligations
  
  Total
  
  August2003
  
  August
  2004
  
  August
  2005
  
  August
  2006
  
  August
  2007
  
  ThereafterMerchandise letters of credit
  
  $
  76,037
  
  $
  76,037
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Operating leases
  
  680,322
  
  169,240
  
  146,652
  
  118,929
  
  87,770
  
  54,982
  
  102,749Construction obligations
  
  7,572
  
  7,572
  
  
  
  
  
  
  
  
  
  Total Contractual Cash Obligations
  
  $
  763,931
  
  $
  252,849
  
  $
  146,652
  
  $
  118,929
  
  $
  87,770
  
  $
  54,982
  
  $
  102,749  The following table shows the Companys other commercial commitments as
of August 31, 2002 (In thousands):  Other Commercial Commitments
  
  Total
  Amounts
  CommittedStandby letters of credit
  
  $
  32,175Surety bonds
  
  5,757Total Commercial Commitments
  
  $
  37,932  At August 31, 2002, approximately $46.1 million of the merchandise
letters of credit are included in accounts payable on the Companys balance
sheet.  A substantial portion of the
outstanding amount of standby letters of credit and surety bonds (which are
primarily renewed on an annual basis) are used as surety for future premium and
deductible payments to the Companys workers compensation and general
liability insurance carrier.  The
Company accrues for these future payment liabilities based on the total
estimated costs of claims filed and claims incurred but not reported, and are
not discounted.  Litigation: On January 30, 2001, Janice Morgan and Barbara Richardson, two
individuals who have held the position of Store Manager for subsidiaries of the
Company, filed a Complaint against the Company in the United States District
Court for the Northern District of Alabama. 
The Complaint has been amended to add as plaintiffs five more
individuals who have held the position of Store Manager for subsidiaries of the
Company.  Thereafter, notice of the
pendency of the lawsuit was sent to 797 current and former Store Managers
holding the position on or after July 1, 1999. 
Approximately 180 of those have filed consent forms and joined the
lawsuit as plaintiffs.  The Court has
granted the plaintiffs motion for permission to send notice of the pendency of
the lawsuit to all other current and former Store Managers holding the position
on or after July 1, 1999.  The Complaint
alleges that the Company violated the Fair Labor Standards Act by classifying
the plaintiffs and other similarly situated current and former Store Managers
as exempt employees who are not entitled to overtime compensation.  Plaintiffs seek to recover for themselves,
and also for other similarly situated current and former Store Managers who may
wish to join this collective action, unpaid overtime compensation, prejudgment
interest, liquidated damages, an award of attorneys fees, costs and expenses,
and such other relief as the Court may deem proper.  The lawsuit is currently in the early discovery phase and the
amount of any potential loss cannot be determined at this time.  The Company is vigorously defending this
action.  While the outcome of any
litigation is inherently uncertain, the Company believes that the Store
Managers are exempt employees under the Fair Labor Standards Act and have
been properly compensated, and that the Company has meritorious defenses that
should enable it to ultimately prevail.  The Company is subject to legal proceedings and claims which arise in
the ordinary course of business.  The
Company believes that the final disposition of these matters will not have a
material adverse effect on its financial position, results of operations or
liquidity.  8.     Employee Stock Option Plan:  The Companys non-qualified stock option plan
provides for the granting of options to key employees to purchase shares of
common stock at prices not less than fair market value on the date of the
grant.  Options are exercisable to the
extent of 40% after the second anniversary of the grant, an additional 30%
annually on a cumulative basis, and expire five years from the date of the
grant.  The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123 Accounting
for Stock-Based Compensation.  If
compensation cost for the Companys stock-based compensation plan had been
determined based on fair value at the grant date for awards under this plan
consistent with the methodology prescribed under this statement, net income and
net income   26 
    per share
would have been reduced to the pro forma amounts indicated in the table below
(In thousands, except per share amounts).  August 31,
  2002
  
  September
  1,2001
  
  August 26,2000Net incomeas reported
  
  $
  216,929
  
  $
  189,505
  
  $
  172,017Net incomepro forma
  
  $
  212,649
  
  $
  186,047
  
  $
  169,700Net income per share
  as reportedbasic
  
  $
  1.26
  
  $
  1.10
  
  $
  1.00diluted
  
  $
  1.25
  
  $
  1.10
  
  $
  1.00Net income per share
  pro formabasic
  
  $
  1.23
  
  $
  1.08
  
  $
  .99diluted
  
  $
  1.22
  
  $
  1.08
  
  $
  .98  The average fair value of options granted
during fiscal 2002, 2001 and 2000 is $8.61, $6.37 and $5.82 per share,
respectively.  The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:  August 31,
  2002
  
  September
  1,2001
  
  August 26,2000Expected dividend yield
  
  1.03
  %
  1.26
  %
  1.00
  %Expected stock price volatility
  
  44.31
  %
  41.43
  %
  35.32
  %Weighted average risk-free interest rate
  
  3.99
  %
  5.96
  %
  6.01
  %Expected life of options (years)
  
  3.5
  
  3.5
  
  3.5  The summary of the status of the Companys
stock based compensation plan as of August 31, 2002, September 1, 2001 and
August 26, 2000, and changes during the years then ended were as follows (In
thousands, except per share amounts):  Options Outstanding
  
  Range of
  OptionPrices Per Share
  
  Weighted
  AverageExercise PriceBalance, August 29,
  1999
  
  3,911
  
  $  3.83
  to
  $24.75
  
  $
  10.50Granted
  
  918
  
  14.75
  to
  21.75
  
  18.46Exercised
  
  (527
  )
  3.83
  to
  17.38
  
  5.40Cancelled
  
  (133
  )
  5.00
  to
  23.50
  
  14.62Balance, August 26, 2000
  
  4,169
  
  $  3.83
  to
  $24.75
  
  $
  12.76Granted
  
  1,344
  
  17.50
  to
  30.25
  
  18.41Exercised
  
  (902
  )
  3.83
  to
  24.25
  
  7.13Cancelled
  
  (225
  )
  4.08
  to
  24.50
  
  16.90Balance, September 1, 2001
  
  4,386
  
  $  5.58
  to
  $30.25
  
  $
  15.44Granted
  
  1,475
  
  24.25
  to
  35.50
  
  25.02Exercised
  
  (1,292
  )
  5.58
  to
  24.75
  
  10.02Cancelled
  
  (158
  )
  11.38
  to
  34.75
  
  20.42Balance, August 31, 2002
  
  4,411
  
  $11.38
  to
  $35.50
  
  $
  20.05  At August 31, 2002, September 1, 2001 and
August 26, 2000, options for 1.5 million, 1.5 million and 1.4 million shares
were exercisable, respectively.  The
following table summarizes information about stock options outstanding at
August 31, 2002 (In thousands, except per share amounts):  Options
  Outstanding
  
  
  
  Options
  ExercisableRange of Exercise Prices
  
  Number 
  Outstanding
  at 8/31/02
  
  Weighted
  Average
  Remaining
  Contractual
  Life
  
  Weighted
  Average
  Exercise Price
  
  Number 
  Exercisable
  at 8/31/02
  
  Weighted
  Average
  Exercise
  Price$11.38
  to
  $17.76
  
  
  1,839
  
  1.99
  years
  
  $
  16.57
  
  1,061
  
  $
  16.1417.77
  to
  24.24
  
  
  1,056
  
  2.19
  
  
  18.94
  
  403
  
  18.9924.25
  to
  35.50
  
  
  1,516
  
  4.09
  
  
  25.06
  
  15
  
  24.57$11.38
  to
  $35.50
  
  
  4,411
  
  2.76
  years
  
  $
  20.05
  
  1,479
  
  $
  17.00  At August 31, 2002, September 1, 2001 and
August 26, 2000, shares available for granting of stock options under the
Companys stock option plan were 2.9 million, 4.2 million and 5.3 million
shares, respectively.   27 
    9.     Common Stock:  Basic net income per common share is computed
by dividing net income by the weighted average number of shares outstanding
during each period.  Diluted net income
per common share gives effect to all securities representing potential common
shares that were dilutive and outstanding during the period.  In the calculation of diluted net income per
common share, the denominator includes the number of additional common shares
that would have been outstanding if the Companys outstanding stock options had
been exercised.  The following table sets forth the
computation of basic and diluted net income per common share (In thousands,
except per share amounts):  August 31,2002
  
  September
  1,2001
  
  August 26,2000Basic net income per share:
  Net income
  
  $
  216,929
  
  $
  189,505
  
  $
  172,017Weighted average number of shares outstanding
  
  172,800
  
  171,568
  
  171,698Net income per common sharebasic
  
  $
  1.26
  
  $
  1.10
  
  $
  1.00Diluted net income per share:
  Net income
  
  $
  216,929
  
  $
  189,505
  
  $
  172,017Weighted average number of shares outstanding
  
  172,800
  
  171,568
  
  171,698Effect of dilutive securitiesstock options
  
  1,249
  
  1,206
  
  951Average sharesdiluted
  
  174,049
  
  172,774
  
  172,649Net income per common sharediluted
  
  $
  1.25
  
  $
  1.10
  
  $
  1.00   10.  Unaudited Summaries of Quarterly Results:  First
  
  Second
  
  Third
  
  Fourth(In
  thousands, except per share amounts)
  
  Quarter
  
  Quarter
  
  Quarter
  
  Quarter2002Net sales
  
  $
  977,133
  
  $
  1,105,165
  
  $
  1,022,082
  
  $
  1,058,272Gross margin
  
  334,413
  
  364,745
  
  355,347
  
  341,414Net income
  
  50,207
  
  63,768
  
  61,060
  
  41,894Net income per common share*
  
  $
  .29
  
  $
  .37
  
  $
  .35
  
  $
  .242001Net sales
  
  $
  820,148
  
  $
  1,037,368
  
  $
  887,037
  
  $
  920,809Gross margin
  
  284,414
  
  338,459
  
  312,432
  
  290,796Net income
  
  41,461
  
  60,455
  
  53,489
  
  34,100Net income per common share*
  
  $
  .24
  
  $
  .35
  
  $
  .31
  
  $
  .202000Net sales
  
  $
  713,521
  
  $
  858,500
  
  $
  770,776
  
  $
  789,842Gross margin
  
  247,341
  
  284,135
  
  272,434
  
  251,813Net income
  
  36,583
  
  54,981
  
  50,131
  
  30,322Net income per common share*
  
  $
  .21
  
  $
  .32
  
  $
  .29
  
  $
  .18 
 *  Figures represent diluted earnings per
share.   11.Related Party Transactions:  The Company purchased a variety of
merchandise in the ordinary course of business from entities owned or
represented by non-employee family members of the Companys Chairman of the
Board and the President and Chief Executive Officer.  These transactions totaled approximately $11.3 million, $8.9
million and $7.1 million in fiscal 2002, 2001 and 2000, respectively.  The Company also leased space in a building
for storing merchandise from an entity in which the Chairman of the Board and
his brother each owns a 50% interest.  A
total of $171,470, $257,208 and $254,671 in rent was paid in fiscal 2002, 2001
and 2000, respectively.  The term of
this lease expired on April 30, 2002, and was not renewed.  12.Subsequent Event
(Unaudited):  On October 9, 2002, the Company announced
that the Board of Directors authorized the purchase of up to 5 million shares
of its outstanding common stock from time to time as market conditions
warrant.  As of November 1, 2002, the
Company had purchased in the open market, 506,900 shares at a cost of $14.9
million.  The Company purchased 2.1
million shares at a cost of $33.6 million in fiscal 2000 under a prior
authorization.   28