**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K/A**

(Amendment No. 1)

 

| **ý** | **Annual  Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |
|------------|-------------------------------------------------------------------------------------------------|

 

**For thefiscal year ended August 28, 2004**

 

| **o** | **Transition  Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

**CommissionFile No. 1-6807**

 

**FAMILYDOLLAR STORES, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                      | **56-0942963**                        |
|-------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of                                  | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                                   |                                  |
|                                                              |                                  |
| **10401  Monroe Road, Matthews, North Carolina**                  | **28105**                             |
| (Address of  principal executive offices)                         | (Zip Code)                            |
|                                                              |                                  |
| **P. O.  Box 1017, Charlotte, North Carolina 28201-1017**         |
| (Mailing  address)                                                |
|                                                              |                                  |
| Registrant’s telephone  number, including area code          | **(704) 847-6961**                    |
|                                                              | ** **                            |
| Securities registered  pursuant to Section 12(b) of the Act: |                                  |

 

| **Title  of each class**      | ** ** | **Name of each exchange  on which registered_** |
|-------------------------------|------------|-------------------------------------------------|
| Common Stock, $.10 Par  Value |       | New York Stock  Exchange                        |

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

 

Indicate by check markwhether the 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 ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.                                  ý

 

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

 

The aggregate marketvalue of voting stock held by non-affiliates of the registrant on February 28,2004, based on the closing price on February 27, 2004, was approximately$6.1 billion.

 

The number of shares ofthe registrant’s Common Stock outstanding as of November 1, 2004, was167,645,433.

 

DOCUMENTSINCORPORATED BY REFERENCE

 

The information requiredin Part III of this Form 10-K is incorporated by reference to the registrant’sdefinitive proxy statement to be filed for the Annual Meeting of Stockholdersto be held on January 20, 2005.

 

 

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Explanatory Note

 

This Amendment No. 1 tothe Family Dollar Stores, Inc. (the "Company") Annual Report on Form10-K/A for the fiscal year ended August 28, 2004 ("fiscal 2004"), isbeing filed in order to correct its previously issued consolidated financialstatements for fiscal 2004 and for the fiscal years ended August 30, 2003("fiscal 2003") and August 31, 2002 ("fiscal 2002"). Thecorrections are to properly account for tenant improvement allowances, rentholidays and leasehold improvement amortization in accordance with generallyaccepted accounting principles in the United States of America. See Note 13 tothe consolidated financial statements for additional discussion.

 

Except as expressly notedherein, this Amendment No. 1 to the Annual Report on Form 10-K/A does notreflect events occurring after the November 5, 2004 filing of our Annual Reporton Form 10-K for fiscal 2004 or modify or update the disclosures set forth inthat Annual Report on Form 10-K in any way, except as required to reflect theeffects of the restatement of our financial statements for the 2002, 2003 and2004 fiscal years or as deemed necessary in connection with the completion ofrestated financial statements. All information in this Amendment No. 1 toAnnual Report on Form 10-K/A is subject to updating and supplementing asprovided in our reports filed with the Securities and Exchange Commissionsubsequent to the date of the original filing of the Annual Report on Form10-K, including but not limited to our Reports on Form 10-Q for the firstquarter ended November 27, 2004, and for the first half ended February 26, 2005.

 

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PART I

 

ITEM 1.  BUSINESS

 

The original predecessorof Family Dollar Stores, Inc., was organized in 1959to operate a self-service retail store in Charlotte, North Carolina.  In subsequent years, additional stores wereopened, and separate corporations generally were organized to operate thesestores.  Family Dollar Stores, Inc.(together with its direct and indirect subsidiaries and related entitiesreferred to herein as the “Company”), was incorporated in Delaware in 1969, andall existing corporate entities became wholly-owned subsidiaries.  Additional stores continued to be opened andoperated in direct and indirect subsidiaries and related entities.  Indirect subsidiaries and related entities providedistribution, trucking, operations, merchandising, marketing and other servicesto the Company.

 

The Company operates achain of self-service retail discount stores. As of October 1, 2004, therewere 5,481 stores in 44 states and the District of Columbia as follows:

 
| Texas          |   | 684 |   | Massachusetts        |   | 81     |   |
|----------------|--------|-----|--------|----------------------|--------|--------|--------|
| Ohio           |   | 338 |   | New Mexico           |   | 80     |   |
| Florida        |   | 295 |   | Maryland             |   | 74     |   |
| North Carolina |   | 290 |   | Colorado             |   | 70     |   |
| Michigan       |   | 279 |   | New Jersey           |   | 58     |   |
| Georgia        |   | 278 |   | Minnesota            |   | 56     |   |
| New York       |   | 233 |   | Utah                 |   | 47     |   |
| Pennsylvania   |   | 208 |   | Connecticut          |   | 44     |   |
| Louisiana      |   | 201 |   | Iowa                 |   | 35     |   |
| Virginia       |   | 199 |   | Maine                |   | 33     |   |
| Tennessee      |   | 185 |   | Kansas               |   | 25     |   |
| Kentucky       |   | 178 |   | Nebraska             |   | 25     |   |
| Illinois       |   | 170 |   | Delaware             |   | 22     |   |
| Indiana        |   | 167 |   | New Hampshire        |   | 19     |   |
| South Carolina |   | 163 |   | Rhode Island         |   | 18     |   |
| Alabama        |   | 144 |   | Nevada               |   | 10     |   |
| Wisconsin      |   | 121 |   | Vermont              |   | 8      |   |
| West Virginia  |   | 108 |   | South Dakota         |   | 8      |   |
| Mississippi    |   | 107 |   | Wyoming              |   | 7      |   |
| Oklahoma       |   | 107 |   | North Dakota         |   | 5      |   |
| Arizona        |   | 106 |   | District of Columbia |   | 3      |   |
| Arkansas       |   | 99  |   | Idaho                |   | 3      |   |
| Missouri       |   | 90  |   |                 |   |   |   |

 

The number of storesoperated by the Company at the end of each of its last five fiscal years is asfollows:  3,689 stores on August 26,2000; 4,141 stores on September 1, 2001; 4,616 stores on August 31,2002; 5,027 stores on August 30, 2003; and 5,466 stores on August 28,2004.

 

During the fiscalyear ended August 28, 2004 (“fiscal 2004”), 500 stores were opened, 61stores were closed, 28 stores were relocated within the same shopping center ormarket area, 51 stores were expanded in size and 116 stores wererenovated.  All of the stores areoccupied under leases, except 450 stores owned by the Company.  (See “Properties” herein.)  The Company has announced plans to open 500to 560 stores, close approximately 60 to 70 stores, relocate or expandapproximately 45 stores and renovate approximately 110 stores during the fiscalyear ending August 27, 2005 (“fiscal 2005”).  Such plans are continually reviewed andsubject to change.  From August 29,2004, through October 1, 2004, the Company opened 18 new stores, closed 3stores, relocated 2 stores, expanded 7 stores and renovated 11 stores.

 

As of October 1,2004, the Company had in the aggregate approximately 46,100,000 square feet oftotal store space (including receiving rooms and other non-selling areas).  The typical store has approximately 7,500 to9,500 square feet of total area.  Thestores are in both rural and urban areas, and they are typically freestandingor located in shopping centers with adequate parking available.  There also are storefront locations in urbanmarkets.  Historically, about 35% of thestores have been located in urban areas (including adjacent suburbs) withpopulations above 75,000.  In fiscal2004, about 65% of new stores opened in urban markets (including adjacentsuburbs), with particular emphasis on the large urban markets (populationsabove 200,000).  In fiscal 2005, the Companyplans to continue to open large numbers of new stores in small 

 

2

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townsand rural areas, but increased emphasis is planned to continue to be given topotential locations in large urban markets. All stores are similar in appearance and display red and white “FamilyDollar Stores” or “Family Dollar” signs.

 

The real estate emphasison large urban markets is part of the Company’s urban strategy initiative.Substantial investments are planned for fiscal 2005 in process changes,technology and people to improve the operating performance of more than 1,000high-volume stores in thirty large metropolitan markets.  The investments include an automated hiringprocess and organizational

changesto support a more mobile and flexible workforce.

 

The Company’s stores areoperated on a self-service basis, and low overhead permits the sale ofmerchandise at a relatively moderate markup. The Company maintains consistent low prices on its products and engagesin only limited advertising and/or promotional activity.  The Company traditionally advertised throughcirculars which are inserted in newspapers or mailed directly to consumers’residences.  As part of the Company’splan to reduce expenses to support the program of price reductions onmerchandise in its stores, in the fiscal year ended August 31, 1995, thenumber of advertising circulars distributed to consumers’ homes or inserted innewspapers was cut from 22 to 15. In subsequent fiscal years, the number of advertisingcirculars distributed was reduced from 15 to 1. During fiscal 2004, the Company distributed one circular in December 2003to boost holiday sales.  In fiscal 2005,the Company plans to distribute one circular in November 2004 and onecircular in December 2004. Circulars that are passed out in the stores monthly also continue to beutilized, and limited advertising is done in connection with the opening of newstores.  Most items in the monthlyin-store circulars are advertised at the regular everyday low price.

 

No single store accountedfor more than one-tenth of one percent of sales during fiscal 2004.  The stores are open at least six days a week,with most open on Sundays.

 

The stores offer avariety of hardlines and softlines merchandise. Hardlines merchandise includes primarily household chemical and paperproducts, candy, snack and other food, health and beauty aids, electronics,housewares and giftware, pet food and supplies, toys, stationery and schoolsupplies, seasonal goods, hardware and automotive supplies.  Softlines merchandise includes men’s, women’s,boys’, girls’ and infants’ clothing, shoes, and domestic items such asblankets, sheets and towels.   Duringfiscal 2004, hardlines accounted for approximately 77.7% of the Company’s sales.  Softlines accounted for approximately 22.3%of sales (with hanging apparel and shoes representing 11.8%,  basic apparel 4.1% and domestics6.4%).

 

During fiscal 2004,nationally advertised brand merchandise accounted for approximately 36% ofsales, Family Dollar label merchandise accounted for approximately 4% of salesand merchandise sold under other labels, or which was unlabeled, accounted forthe balance of sales.  Irregularmerchandise accounted for less than one-quarter of 1% of sales during suchperiod.  In the first quarter ended November 29,2003, the Company began accepting PIN-based debit cards and electronic benefitsin approximately 95% of its stores.  TheCompany does not accept credit cards. Also as part of the Company’s “store ofthe future” multi-year initiative, during fiscal 2004, a new hiring systemdesigned to provide consistent pre-employment assessments and interviews forprospective employees was tested in a major urban market, and the system isexpected to be utilized in other markets in fiscal 2005.  The Company also has begun implementing plansto convert the stores’ communications infrastructure to facilitatecommunications and provide more interactive training for store employees.

 

For a number of years,more hardline consumables, including brand names, have been added to themerchandise assortments.  To make roomfor the additional hardlines, beginning in May 2000, space allocated to hangingapparel was reduced by about 15% to 20%. New fixtures were installed in departments such as giftware, artificialflowers and 2 for $1 greeting cards. This space reallocation program was completed in October 2000.  In the fourth quarter of the fiscal yearended September 1, 2001, the Company began reducing space allocated toshoes.  Approximately one-half of theshoe inventories were eliminated in a program that was completed in January 2002,with more hardlines, including consumables, taking the space previouslyallocated to shoes.

 

During fiscal 2004, theCompany continued to adjust the merchandise selection in the stores, includingthe introduction of an expanded assortment of hardline consumables, such aspaper products, household chemicals and food. However, approximately the same amount of space was allocated tohardlines and softlines as at the end of the prior fiscal year, except in alimited number of existing stores in which all or most hanging apparel andshoes were removed from the merchandise assortment.

 

During fiscal 2004, theCompany also opened a limited number of stores with reduced assortments ofsoftlines.  This test will continueduring the current fiscal year with reduced softlines in the merchandiseassortment in a limited number of existing and new stores.

 

3

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During fiscal 2005, theCompany plans to implement adjustments in merchandise to increase levels ofopportunistically purchased goods supplementing the basic assortment ofmerchandise.  These goods are designed tocreate more excitement in the stores and attract customers throughout the year,with particular emphasis on the holiday season.

 

Another initiative theCompany is pursuing during the current fiscal year is the installation inselected stores of coolers for the sale of perishable food. The current plan isto begin the installation in January 2005, to have coolers inapproximately 500 stores by August 2005, and to continue the roll-out ofcoolers thereafter to a majority of the Company’s stores.  The Company also plans to beginimplementation in the current fiscal year of new point-of-sale software tofacilitate the acceptance of food stamps and other electronic benefits instores with coolers, simplify cashier training and increase the speed of thecheckout processes.

 

The Company generallyprices merchandise uniformly throughout its stores.  A limited amount of merchandise in stores inthe least competitive markets with higher operating costs carries higherprices.  Most items of merchandise arepriced under $10.00.

 

The Company purchases itsmerchandise from approximately 1,500 suppliers and generally has notexperienced difficulty in obtaining adequate quantities of merchandise.  Approximately 60% of the merchandise ismanufactured in the United States and substantially all such merchandise ispurchased directly from the manufacturer. Purchases of imported merchandise are made directly from themanufacturer or from importers.  Nosingle supplier accounted for more than 7% of the merchandise sold by theCompany in fiscal 2004.

 

During fiscal 2004,approximately 4.5% of the merchandise purchased by the Company was shippeddirectly to its stores by the manufacturer or importer.  The balance of the merchandise was receivedat the Company’s distribution centers in Matthews, North Carolina; WestMemphis, Arkansas; Front Royal, Virginia; Duncan, Oklahoma; Morehead, Kentucky;Maquoketa, Iowa; and Odessa, Texas. Merchandise is delivered to the stores from the Company’s distributioncenters by Company-owned trucks and by common and contract carriers.  During fiscal 2004, approximately 83% of themerchandise delivered was by common or contract carriers.  As of August 28, 2004, the approximateaverage distance between the distribution centers and the stores served by eachfacility was as follows:

 
| **Distribution Center** | ** ** | **Number of  Stores Served** | ** ** | **Average  Distance (Miles)** | ** ** |
|-------------------------|------------|------------------------------|------------|-------------------------------|------------|
| Matthews,  NC           |       | 758                          |       | 287                           |       |
| West  Memphis, AR       |       | 793                          |       | 319                           |       |
| Front  Royal, VA        |       | 833                          |       | 305                           |       |
| Duncan,  OK             |       | 798                          |       | 368                           |       |
| Morehead,  KY           |       | 818                          |       | 238                           |       |
| Maquoketa,  IA          |       | 770                          |       | 318                           |       |
| Odessa,  TX             |       | 696                          |       | 522                           |       |
| Totals                  |       | 5,466                        |       | 333                           |       |

 

The business in which theCompany is engaged is highly competitive. The principal competitive factors include location of stores, price and qualityof merchandise, in-stock consistency, merchandise assortment and presentation,and customer service.  The Companycompetes for sales and store locations in varying degrees with international,national, regional and local retailing establishments, including discountstores, department stores, variety stores, dollar stores, discount clothingstores, drug stores, grocery stores, convenience stores, outlet stores,warehouse stores and other stores.  Manyof the largest retail merchandising companies in the nation have stores inareas in which the Company operates.  Therelatively small size of the Company’s stores permits the Company to open newunits in rural areas and small towns, as well as in large urban centers, inlocations convenient to the Company’s low and middle income customer base.  As the Company’s sales are focused on lowpriced, basic merchandise, the stores offer customers a reasonable selection ofcompetitively priced merchandise within a relatively narrow range of pricepoints.

 

Generally, the highestmonthly volume of sales occurs in December, and the lowest monthly volume ofsales occurs in January and February.

 

The Company maintains asubstantial variety and depth of basic and seasonal merchandise inventory instock in its stores (and in distribution centers for weekly storereplenishment) to attract customers and meet their shopping needs.  Vendors’ trade payment terms are negotiatedto help finance the cost of carrying this inventory.  The Company must balance the value of maintaininghigh inventory levels to meet customers’ demands with the potential cost ofhaving inventories at levels that exceed such demands and that may need to bemarked down in price in order to sell.

 

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The Company hasimplemented a fully integrated system to improve inventory management from theearliest planning stages to the time the purchase order is placed with thesupplier through the time the customer purchases the goods at the cashregister.  In the initial phases of thisproject the Company formed a merchandise planning department; formed aninventory control department; shifted to by-item inventory counts at allstores; and implemented a new inventory management system and a new demandforecasting system for replenishment of distribution centers.  In the spring of 2002, the Company beganutilizing new software for automatic store replenishment of basic merchandiseand for forecast based allocation of non-basic merchandise.  These two systems give the Company improvedtools which over time will help keep the stores in an optimum merchandisein-stock position, reduce markdowns and improve inventory turnover.

 

During the fiscal yearended August 30, 2003, the Company began implementation of a newtransportation management system designed to improve the visibility and costcontrol for both import and domestic freight movement.  The import and domestic inbound portions ofthis project are now complete.  Thedomestic outbound portion of the project is expected to be implemented at somefuture time.

 

The Company hasregistered with the U. S. Patent and Trademark Office the name “Family DollarStores” as a service mark, and also has registered a number of other names astrademarks for certain merchandise sold in the stores.

 

On August 28, 2004,the Company had approximately 22,000 full-time employees and approximately 17,000part-time employees.  None of the Company’semployees are covered by collective bargaining agreements.  The Company considers its employee relationsgenerally to be good.

 

The mailing address ofthe Company’s Executive Offices is P.O. Box 1017, Charlotte, North Carolina  28201-1017,and the telephone number at that location is 704-847-6961.  The Company’s Internet Website iswww.familydollar.com.  Through a link onthe Investors section of the Website, the Company makes available thefollowing filings as soon as reasonably practicable after they areelectronically filed with or furnished to the Securities and ExchangeCommission:  Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendmentsto these reports filed or furnished pursuant to Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934. These reports and amendments also are available at the Website of theSecurities and Exchange Commission at www.sec.gov.  All such filings are available free of charge.

 

ITEM2.                             PROPERTIES

 

As of October 1, 2004, the Company operated 5,481stores in 44 states and the District of Columbia.  See “Business” herein.  With the exception of 450 stores owned by theCompany, all of the Company’s stores were occupied under lease.  Most of the leases are for initial terms offive years and for fixed rentals. A large majority of the leases containprovisions which may require additional payments based upon a percentage ofsales or property taxes, insurance premiums or common area maintenance charges.

 

Of the Company’s 5,031leased stores at October 1, 2004, all but 380 leases contain options torenew for additional terms; in most cases for a number of successive five-yearperiods.  The following table sets forthcertain data, as of October 1, 2004, concerning the expiration dates ofall leases with renewal options:

 
| **Fiscal Years**     | ** ** | **Approximate Number of  Leases Expiring  Assuming No Exercise  of Renewal Options** | ** ** | **Approximate Number of  Leases Expiring  Assuming Full Exercise  of Renewal Options** | ** ** |
|----------------------|------------|--------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| 2005                 |       | 133                                                                                  |       | 0                                                                                      |       |
| 2006-2008            |       | 2,280                                                                                |       | 13                                                                                     |       |
| 2009-2011            |       | 1,602                                                                                |       | 98                                                                                     |       |
| 2012-2014            |       | 569                                                                                  |       | 397                                                                                    |       |
| 2015  and thereafter |       | 67                                                                                   |       | 4,143                                                                                  |       |

 

Of the 450 Company-ownedstores, 122 are located in Texas, 24 in Michigan, 23 in Ohio, 21 in Arizona, 20in North Carolina, 18 each in Georgia and Indiana, 17 each in Florida andTennessee, 16 each in Illinois and Virginia, 15 in Louisiana, 14 in New Mexico,11 each in Arkansas, Iowa and Missouri, 10 in Oklahoma, 8 in Kentucky, 6 eachin Alabama and Kansas, 5 each in Colorado, Mississippi, New York, SouthCarolina, West Virginia and Wisconsin, 4 in Nebraska, 3 in Minnesota, 2 each inNevada, South Dakota and Wyoming, and 1 each in Massachusetts, New Jersey andUtah.  In these owned stores, there areapproximately 3,650,000 total square feet of space.

 

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The Company also owns itsExecutive Offices and distribution center located on a 64.5 acre tract of landin Matthews, North Carolina, just outside of Charlotte, in a building containingapproximately 810,000 square feet. Approximately 740,000 square feet are used for the distribution centerwhich includes receiving, warehousing and shipping facilities, andapproximately 70,000 square feet are used for Executive Offices.

 

In November 1999,the Company purchased a 43.5 acre tract of land and the improvements thereon inMatthews, North Carolina, adjacent to the Company’s existing Executive Officesand distribution center.  Theimprovements include a building with approximately 95,000 square feet of officespace and approximately 190,000 square feet of distribution space, which isbeing used for storage.

 

The Company also owns sixadditional full-service distribution centers described in the table below:

 
| ** **               | ** ** | **Facility Size** | ** **  | ** **   | ** **                |
|--------------------------|------------|-------------------|-------------|--------------|---------------------------|
| **Distribution  Center** | ** ** | **Land**          | ** **  | **Building** | ** **                | **Date Operational** | ** ** |
| West  Memphis, AR        |       | 75                | acres       |         | 550,000 sq. ft.      |   | April 1994 |   |
|                     |       |              |        |         | 300,000 sq. ft.  addition |   | August 1996 |   |
| Front  Royal, VA         |       | 75                |  acres |         | 907,000 sq. ft.           |   | January 1998 |   |
| Duncan,  OK              |       | 85                |  acres |         | 907,000 sq. ft.           |   | July 1999 |   |
| Morehead,  KY            |       | 93.5              | acres       |         | 907,000 sq. ft.           |   | June 2000 |   |
| Maquoketa,  IA           |       | 74                |  acres |         | 907,000 sq. ft.           |   | March 2002 |   |
| Odessa,  TX              |       | 89                |  acres |         | 907,000 sq. ft.           |   | July 2003 |   |

 

The Company beganconstruction of an eighth full-service distribution center in the spring of2004 on a 76-acre tract of land owned by the Company in Marianna, Florida.  The building will contain approximately907,000 square feet and is expected to be operational in January 2005.

 

The Company currentlyplans to begin construction of a ninth full-service distribution center in thespring of 2005 at a site to be determined in the northeastern UnitedStates.  The building is expected tocontain approximately 907,000 square feet and be operational by the summer of2006.

 

The Company owns andoperates a fleet of tractor-trailers and trucks to distribute merchandise tosome of its stores.

 

ITEM3.                             LEGALPROCEEDINGS

 

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’smotion, the Court dismissed approximately 2,200 plaintiffs for failure torespond to discovery.  Plaintiffs askedthe Court to reconsider and the Court reinstated a number of thoseplaintiffs.  The Court also ruled thatplaintiffs who failed to produce certain records by a deadline would bedismissed. The total number of plaintiffs allowed to remainas parties remains unsettled and in dispute. Subject to the Court’s future rulings, approximately 990 of theapproximately 2,550 original plaintiffs have been dismissed and the Company currentlybelieves that an additional approximately 450 plaintiffs should ultimately bedismissed given the present rulings from the Court.

 

The case has proceeded asa collective action under the Fair Labor Standards Act (“FLSA”).  The Complaint alleges that the Companyviolated the FLSA by classifying the plaintiffs and other similarly situatedcurrent and former Store Managers as “exempt” employees who are not entitled toovertime compensation.  Plaintiffs seekto recover unpaid overtime compensation, prejudgment interest, liquidateddamages, an award of attorneys’ fees, costs and expenses, and such other reliefas the Court may deem proper. Discovery is complete, but no trial date is set.The Company’s motion to decertify the case from treatment as a collectiveaction is under submission for the Court’s consideration, as is the plaintiff’smotion for summary judgment with respect to 34 of the plaintiffs based onarguments regarding the number of employees supervised during the relevant timeperiod.

 

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

 

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defensesthat should enable it to ultimately prevail. However, the outcome of any litigation is inherently uncertain.  The Company bears the burden of proof attrial of establishing its entitlement to the exemption from the overtimerequirements of the FLSA, and no assurances can be given that the Company willbe successful in defending this action. The nature of this action and its present procedural posture mean thatfuture rulings by the Court on both substantive and procedural motions andissues, including those now under submission, may significantly impact thecourse and outcome of these proceedings. Thus, those rulings may greatly affect the Company’s efforts toestablish the exempt status of the plaintiff Store Managers.  Resolution of this matter could have amaterial adverse effect on the Company’s financial position, liquidity orresults of operations.

 

The Company is involvedin numerous other legal proceedings and claims incidental to its business,including litigation related to alleged failures to comply with various stateand federal employment laws.  While theultimate outcome cannot be determined, the Company currently believes that theseproceedings and claims, both individually and in the aggregate, should not havea material adverse effect on the Company’s financial position, liquidity orresults of operations.  However, theoutcome of any litigation is inherently uncertain and, if decided adversely tothe Company, the Company may be subject to liability that could have a materialadverse effect on the Company’s financial position, liquidity or results ofoperations.

 

ITEM4.                             SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

 

There were no matterssubmitted to a vote of security holders through the solicitation of proxies orotherwise during the fourth quarter of fiscal 2004.

 

ITEM 4A.                                           EXECUTIVEOFFICERS OF THE REGISTRANT

 

The following informationis furnished with respect to each of the executive officers of the Company asof November 1, 2004:

 
| **Name**                     | ** ** | **Position and Office**            | ** ** | **Age**    |
|------------------------------|------------|------------------------------------|------------|------------|
| Howard R. Levine (1)         |       | Chairman of the Board  and         |       | 45         |
|                         |       | Chief  Executive Officer           |       |       |
|                         |       |                               |       |       |
| R. James Kelly (2)           |       | Vice Chairman and                  |       | 57         |
|                         |       | Chief  Financial and               |       |       |
|                         |       | Administrative  Officer            |       |       |
|                         |       |                               |       |       |
| R. David Alexander, Jr.  (3) |       | President and                      |       | 47         |
|                         |       | Chief  Operating Officer           |       |       |
|                         |       |                               |       |       |
| George R. Mahoney, Jr.  (4)  |       | Executive Vice  President-         |       | 62         |
|                         |       | General  Counsel and Secretary     |       |       |
|                         |       |                               |       |       |
| Bruce E. Barkus (5)          |       | Executive Vice  President-         |       | 51         |
|                         |       | Store  Operations                  |       |       |
|                         |       |                               |       |       |
| Charles S. Gibson, Jr.  (6)  |       | Executive Vice  President-         |       | 43         |
|                         |       | Supply  Chain                      |       |       |
|                         |       |                               |       |       |
| Dorlisa K. Flur (7)          |       | Senior Vice President-             |       | 39         |
|                         |       | Strategy  and Business Development |       |       |
|                         |       |                               |       |       |
| Keith M. Gehl (8)            |       | Senior Vice President-             |       | 46         |
| ** **                   | ** ** | **Real  Estate and**               | ** ** | ** ** |
| ** **                   | ** ** | **Store  Construction**            | ** ** | ** ** |
| ** **                   | ** ** | ** **                         | ** ** | ** ** |
| Joshua R. Jewett (9)         |       | Senior Vice President-             |       | 35         |
|                         |       | Chief  Information Officer         |       |       |
|                         |       |                               |       |       |
| Janet G. Kelley (10)         |       | Senior Vice President-             |       | 51         |
|                         |       | Senior  Counsel                    |       |       |

 

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|                      |   |                         |   |   |
|---------------------------|--------|------------------------------|--------|--------|
| Samuel N. McPherson  (11) |   | Senior Vice President-       |   | 59     |
|                      |   | Human  Resources             |   |   |
|                      |   |                         |   |   |
| Irving Neger (12)         |   | Senior Vice President-       |   | 53     |
|                      |   | Softlines                    |   |   |
|                      |   |                         |   |   |
| John J. Scanlon (13)      |   | Senior Vice President-       |   | 55     |
|                      |   | Merchandising  and Marketing |   |   |
|                      |   |                         |   |   |
| C. Martin Sowers (14)     |   | Senior Vice President-       |   | 46     |
|                      |   | Finance                      |   |   |

 

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(1)                                  Mr.Howard R. Levine was employed by the Company in various capacities in theMerchandising Department from 1981 to 1987, including employment as Senior VicePresident-Merchandising and Advertising. From 1988 to 1992, Mr. Levine was President of Best Price ClothingStores, Inc., a chain of ladies’ apparel stores.  From 1992 to April 1996, he wasself-employed as an investment manager. He rejoined the Company in April 1996, and was elected VicePresident-General Merchandise Manager: Softlines in April 1996, SeniorVice President-Merchandising and Advertising in September 1996, Presidentand Chief Operating Officer in April 1997, and Chief Executive Officer in August 1998.  He is the son of Leon Levine, the founder andChairman Emeritus of the Company.

 

(2)                                  Mr.R. James Kelly was employed by the Company as Vice Chairman-Chief Financial andAdministrative Officer in January 1997.

 

(3)                                  Mr.R. David Alexander, Jr. was employed by the Company as Senior Vice President-Distributionand Transportation in August 1995, and was promoted to Senior VicePresident-Distribution and Logistics in September 1997, to Executive VicePresident-Supply Chain and Real Estate in October 1999, to Executive VicePresident and Chief Operating Officer in August 2000, and to President andChief Operating Officer in January 2003.

 

(4)                                  Mr.George R. Mahoney, Jr. was employed by the Company as General Counsel in October 1976.  He was elected Vice President-General Counseland Secretary in April 1977, Senior Vice President-General Counsel andSecretary in January 1984 and Executive Vice President-General Counsel andSecretary in October 1991.

 

(5)                                  Mr.Bruce E. Barkus was employed by the Company as Vice President-Store Operationsin August 1999, and was promoted to Senior Vice President-Store Operationsin June 2000, and to Executive VicePresident-Store Operations in September 2003.  Prior to his employment by the Company, hewas employed by Eckerd Corporation, a chain of drug stores, from 1978 to August 1999,where his last position was Regional Vice President.

 

**(6)**                                  Mr. Charles S. Gibson, Jr. was employed by the Company as VicePresident-Logistics in September 1997, and was promoted to Senior VicePresident-Distribution and Logistics in October 1999,and to Executive Vice President-Supply Chain in September 2003.

** **

**(7)**                                  Mrs. Dorlisa K. Flur was employed by the Company as Senior VicePresident-Strategy and Business Development in June 2004.  Prior to her employment by the Company, shewas employed by McKinsey & Company, a global management consulting firm,from 1988 to May 2004, where her last position was as leader of McKinsey’sRetail Practice in the Southeast.

 

8

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**(8)**                                  Mr. Keith M. Gehl was employed by the Company as Senior VicePresident-Real Estate and Store Construction in June 2003.  Prior to his employment by the Company, hewas employed by Food Lion LLC, a chain of supermarkets, from 1989 to May 2003,where his last position was Executive Vice President of Business Strategy andStore Development.

** **

**(9)**                                  Mr. Joshua R. Jewett was employed by the Company as Senior VicePresident-Chief Information Officer in August 2002.  Prior to his employment by the Company, hewas employed by Answerthink, Inc., a management consulting firm offeringbusiness process and information systems consulting services, from July 1999to August 2002, where he was Senior Director.  From October 1993 to July 1999, hewas a Principal in CFT Consulting, Inc., a consulting firm providing businessprocess and technology consulting services to retailers.

** **

**(10)**                            Ms. Janet G. Kelley was employed by the Company as Senior VicePresident-Senior Counsel in January 2004. Prior to her employment by the Company, she was employed by KmartCorporation, a chain of discount stores, from April 2001 to January 2003,where her last position was Executive Vice President and General Counsel.  Kmart Corporation filed a petition forreorganization under Chapter 11 of the Federal bankruptcy laws in January 2002,and emerged from bankruptcy in May 2003. From June 1999 to April 2001, she was employed by LimitedBrands, Inc., a chain of specialty apparel and personal beauty stores, as VicePresident and Senior Counsel.

** **

(11)                            Mr.Samuel N. McPherson was employed by the Company as Senior Vice President-HumanResources in August 1999.  Prior tohis employment by the Company, he was employed by Raley’s, a supermarket andpharmacy retailer, from 1990 to August 1999, where his last position wasExecutive Vice President and Chief Human Resources Officer.

 

(12)                            Mr.Irving Neger was employed by the Company as Senior Vice President-Softlines in September 2000.  Prior to his employment by the Company, hewas employed by Pennsylvania Fashions, a chain of retail apparel stores, from1995 to August 2000, where his last position was Senior VicePresident-Merchandising.

 

(13)                            Mr.John J. Scanlon was employed by the Company as Divisional Vice President in March 1992.  Mr. Scanlon was elected VicePresident-General Merchandise Manager: Hardlines in April 1996, and waselected Senior Vice President-Merchandising and Advertising in June 1998.

 

(14)                            Mr. C.Martin Sowers was employed by the Company as an accountant in October 1984and was promoted to Assistant Controller in January 1985.  He was elected Controller in January 1986,Vice President-Controller in July 1989 and Senior Vice President-Financein December 1991.

 

All executive officers ofthe Company are elected annually by and serve at the pleasure of the Board ofDirectors until their successors are duly elected.

 

9

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PART II

 

ITEM 5.                             MARKET FOR REGISTRANT’SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES

 

TheCompany’s Common Stock is traded on the New York Stock Exchange under theticker symbol FDO.  At November 1,2004, there were approximately 2,305 holders of record of the CommonStock.  The accompanying tables give thehigh and low sales prices of the Common Stock and the dividends declared pershare for each quarter of fiscal 2004 and 2003.

 

# **Market Prices andDividends**

# ** **

| **2004**        | ** ** | **High** | ** ** | **Low** | ** ** | **Dividend** | ** ** |
|-----------------|------------|----------|------------|---------|------------|--------------|------------|
| First  Quarter  |       | $        | 44.13      |    | $          | 38.10        |       | $ | .07 1⁄2 |   |
| Second  Quarter |       | 39.66    |       | 32.00   |       | .08 1⁄2   |       |
| Third  Quarter  |       | 38.73    |       | 26.51   |       | .08 1⁄2   |       |
| Fourth  Quarter |       | 34.00    |       | 25.09   |       | .08 1⁄2   |       |
|            |       |     |       |    |       |         |       |
| **2003**        | ** ** | **High** | ** ** | **Low** | ** ** | **Dividend** | ** ** |
| First Quarter   |       | $        | 32.45      |    | $          | 23.75        |       | $ | .06 1⁄2 |   |
| Second Quarter  |       | 32.30    |       | 27.43   |       | .07 1⁄2   |       |
| Third Quarter   |       | 36.59    |       | 25.46   |       | .07 1⁄2   |       |
| Fourth Quarter  |       | 40.46    |       | 35.55   |       | .07 1⁄2   |       |

 

The following table setsforth information with respect to purchases of shares of the Company’s CommonStock made during the quarter ended August 28, 2004 by or on behalf of theCompany or any “affiliated purchaser” as defined by Rule 10b-18(a)(3) of theSecurities Exchange Act of 1934.

 
| **Period**       | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **Maximum  Number  of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| June             |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| (5/30/04-7/3/04) |       | 939,300                                 |       | $                                   | 31.99      |                                                                                        | 939,300    |                                                                                     | 2,826,700  |   |
|             |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| July             |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| (7/4/04-7/31/04) |       | 605,000                                 |       | $                                   | 28.67      |                                                                                        | 605,000    |                                                                                     | 2,221,700  |   |
|             |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| August           |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| (8/1/04-8/28/04) |       | —                                  |       | $                                   | —     |                                                                                        | —     |                                                                                     | 2,221,700  |   |
|             |       |                                    |       |                                |       |                                                                                        |       |                                                                                     |       |
| Total            |       | 1,544,300                               |       | $                                   | 30.69      |                                                                                        | 1,544,300  |                                                                                     | 2,221,700  |   |

 

On October 9, 2002,the Company announced that the Board of Directors authorized the purchase of upto 5 million shares of its outstanding Common Stock from time to time as marketconditions warrant.  During the yearended August 30, 2003, the Company purchased 2.2 million shares.  On April 22, 2004, the Company announcedthat the Board of Directors authorized the purchase of up to an additional 5million shares of its outstanding Common Stock from time to time as marketconditions warrant.  During the yearended August 28, 2004, the Company purchased 5.6 million shares.  All shares have been purchased in open markettransactions.  Shares purchased under theshare repurchase authorization are held in treasury and currently a portion ofsuch shares are reissued under the Family Dollar 2000 Outside DirectorsPlan.  There is no expiration dategoverning 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.

 

10

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ITEM 6.                             SELECTED FINANCIAL DATA

** **

**SUMMARY OF SELECTED FINANCIAL DATA**

** **

The five year selectedfinancial data presented below has been revised to reflect a restatement.  See Note 13 in the accompanying consolidatedfinancial statements for information on the restatement.

** **
| **Years Ended (In thousands,  except per share amounts and store data)** | ** ** | **August 28,  2004** | ** **    | **August 30,  2003** | ** ** | **August 31,  2002** | ** ** | **September 1,  2001 (2)** | ** ** | **August 26,  2000 (2)** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------|---------------|----------------------|------------|----------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                                                               | ** ** | **(as restated)**    | ** **    | **(as restated)**    | ** ** | **(as restated)**    | ** ** | **(as restated)**          | ** ** | **(as restated)**        | ** ** |
| Net sales                                                                | ** ** | **$**                | **5,281,888** |                 | $          | 4,750,171            |       | $                          | 4,162,652  |                     | $          | 3,665,362 |   | $ | 3,132,639 |   |
| Cost of sales and operating expenses                                     | ** ** | **4,875,226**        |          | 4,367,027            |       | 3,827,582            |       | 3,372,094                  |       | 2,865,435                |       |
| Income before income taxes                                               | ** ** | **406,662**          |          | 383,144              |       | 335,070              |       | 293,268                    |       | 267,204                  |       |
| Income taxes                                                             | ** ** | **148,758**          |          | 139,835              |       | 122,288              |       | 107,025                    |       | 97,533                   |       |
| Net income                                                               | ** ** | **257,904**          |          | 243,309              |       | 212,782              |       | 186,243                    |       | 169,671                  |       |
| Earnings per common share:                                               |       |                 |          |                 |       |                 |       |                       |       |                     |       |
| Net income (1)                                                           | ** ** | **$**                | **1.50**      |                 | $          | 1.40                 |       | $                          | 1.22       |                     | $          | 1.08 |   | $ | .98 |   |
| Dividends declared                                                       | ** ** | **$**                | **56,077**    |                 | $          | 49,890               |       | $                          | 44,106     |                     | $          | 40,352 |   | $ | 36,858 |   |
| Dividends declared per common share                                      | ** ** | **$**                | **0.33**      |                 | $          | 0.29                 |       | $                          | .25 1/2    |                     | $          | .23 1/2 |   | $ | .21 1/2 |   |
| Total assets                                                             | ** ** | **$**                | **2,224,361** |                 | $          | 2,065,392            |       | $                          | 1,818,541  |                     | $          | 1,467,866 |   | $ | 1,327,364 |   |
| Working capital                                                          | ** ** | **$**                | **489,727**   |                 | $          | 541,913              |       | $                          | 507,945    |                     | $          | 404,087 |   | $ | 331,271 |   |
| Shareholders’ equity                                                | ** ** | **$**                | **1,337,082** |                 | $          | 1,292,432            |       | $                          | 1,140,577  |                     | $          | 948,791 |   | $ | 791,001 |   |
| Stores opened                                                            | ** ** | **500**              |          | 475                  |       | 525                  |       | 502                        |       | 406                      |       |
| Stores closed                                                            | ** ** | **(61**              | **)**         | (64                  | )          | (50                  | )          | (50                        | )          | (41                      | )          |
| Number of stores - end of year                                           | ** ** | **5,466**            |          | 5,027                |       | 4,616                |       | 4,141                      |       | 3,689                    |       |

** **

----

(1) Figures represent diluted earnings per commonshare.
| (2)                                   |   | ** ** | **As Previously  Presented  September 1,  2001** | ** ** | **As  Restated  September 1,  2001** | ** ** | **As Previously  Presented  August 26,  2000** | ** ** | **As  Restated  August 26,  2000** | ** ** |
|---------------------------------------|--------|------------|--------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------|------------|------------------------------------|------------|
| Cost of sales  and operating expenses |   | 3,366,940  |                                             | 3,372,094  |                                 | 2,861,728  |                                           | 2,865,435  |                               |
| Income before  income taxes           |   | 298,422    |                                             | 293,268    |                                 | 270,911    |                                           | 267,204    |                               |
| Income taxes                          |   | 108,917    |                                             | 107,025    |                                 | 98,894     |                                           | 97,533     |                               |
| Net income                            |   | 189,505    |                                             | 186,243    |                                 | 172,017    |                                           | 169,671    |                               |
| Earnings per  common share:           |   |       |                                             |       |                                 |       |                                           |       |                               |
| Net income                            |   | 1.10       |                                             | 1.08       |                                 | 1.00       |                                           | 0.98       |                               |
| Total assets                          |   | 1,399,745  |                                             | 1,467,866  |                                 | 1,243,714  |                                           | 1,327,364  |                               |
| Working capital                       |   | 416,971    |                                             | 404,087    |                                 | 338,655    |                                           | 331,271    |                               |
| Shareholders'  equity                 |   |       |                                             |       |                                 |       |                                           |       |                               |
| Beginning of  year                    |   | 797,964    |                                             | 791,001    |                                 | 690,650    |                                           | 686,035    |                               |
| End of year                           |   | 959,015    |                                             | 948,791    |                                 | 797,964    |                                           | 791,001    |                               |

** **

The Company did not haveany long-term debt at the end of each of its last five fiscal years.

** **

ITEM 7.                             MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

The Company has restated the Consolidated Balance Sheets at August 28,2004 and August 30, 2003, and the Consolidated Statements of Income,Consolidated Statements of Shareholders’ Equity and Consolidated Statements ofCash Flows for the years ended August 28, 2004, August 30, 2003 and August 31,2002 in this Annual Report on Form 10-K. See Note 13 to the accompanying consolidated financial statements.

** **

This discussionsummarizes the significant factors affecting the consolidated results ofoperations and financial condition of the Company for the fiscal years ended August 28,2004 and August 30, 2003.  Thisdiscussion should be read in conjunction with the Consolidated FinancialStatements and Notes to Consolidated Financial Statements included in thisAnnual Report on Form 10-K.

** **

**Net Sales**

** **

**Net sales increased approximately 11.2% ($531.7 million) infiscal 2004 compared with fiscal 2003, and approximately 14.1% ($587.5 million)in fiscal 2003 compared with fiscal 2002. The increases in fiscal 2004 and fiscal 2003 were attributable to increasedsales in existing stores (stores open more than 13 months) and sales from newstores opened as part of the Company’s store expansion program.**

** **

**Sales in existing stores increased approximately 1.9% ascompared with fiscal 2003.  Sales ofhousehold chemicals, paper products, food, and health and beauty aids, theprimary components of hardlines consumable merchandise, increased in themid-single digits.  In a difficulteconomic environment for the Company’s low and low-middle income customer base,sales in existing stores of hanging apparel and shoes, domestics, giftware andseasonal goods, which are more discretionary purchase categories, were lessthan in fiscal 2003.  In fiscal 2004, thecustomer count, as measured by the number of register transactions in existingstores, increased approximately 0.7%, and the average transaction increasedapproximately 0.9% to $8.95.  Increasedsales of hardlines merchandise have been the primary contributor to the overallsales increases, with hardlines sales increases in existing stores ofapproximately 3.2% in fiscal 2004. Hardlines as a percentage of total sales increased to approximately77.7% in fiscal 2004 compared to approximately 76.7% in fiscal 2003.  Softlines as a percentage of sales decreasedto approximately 22.3% in fiscal 2004 (with hanging apparel and shoesrepresenting about 11.8%, basic apparel 4.1% and domestics 6.4%) compared toapproximately 23.3% in fiscal 2003 (with hanging apparel and shoes representingabout 12.4%, basic apparel 4.4% and domestics 6.5%).  Softline sales which are primarily discretionary, decreased approximately 2.5% in existingstores in fiscal 2004.  The Companydistributed one advertising circular in both fiscal 2004 and 2003.**

** **

**11**

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** **

Sales in existing stores increased approximately3.8% in fiscal 2003 as compared with fiscal 2002.  Sales of hardlines consumable merchandiseagain were stronger than sales of more discretionary merchandise.  In fiscal 2003 the customer count increasedapproximately 1.9% and the average transaction increased approximately 1.6% to$8.87.  Existing store hardlines salesincreased approximately 4.3% and softlines sales increased approximately 2.1%.  The Company distributed one advertisingcircular in fiscal 2003 and two advertising circulars in fiscal 2002.

 

**Hardlines merchandise includes primarily household chemicaland paper products, health and beauty aids, candy, snack and other food,electronics, housewares and giftware, toys, school supplies, hardware andautomotive supplies.  Softlinesmerchandise includes men’s, women’s, boy’s, girl’s andinfant’s clothing and accessories, shoes, and domestic items such as blankets,sheets and towels.**

 

During fiscal 2004 the Company completed thestrategic assessment, concept testing and development of implementation plansfor additional investments in its urban initiative and a cooler program forperishable food.  The urban initiative infiscal 2005 includes investments in process changes, technology and people toimprove the operating performance, including sales, of more than 1,000 storesin thirty large metropolitan markets. Approximately 250 stores are expected to be impacted in the firstquarter.  Under the cooler program,beginning in January 2005 coolers are expected to be installed in selectedstores.  By the end of the fiscal year onAugust 27, 2005, the Company plans to have coolers installed inapproximately 500 stores.  The Companyalso plans to begin implementation by fiscal year-end of new point of sale softwareto facilitate the acceptance of food stamps in stores with coolers, simplifycashier training and speed up checkout processes.  These programs, together with theintroduction of additional opportunistically purchased goods availablethroughout the year, with particular emphasis on the holiday season, and theaddition of one advertising circular in November 2004, should contributeto an increase in sales in existing stores in fiscal 2005.  The Company currently expects that sales inexisting stores will accelerate from the 0.7% increase in the fourth quarter offiscal 2004 to increases in the 3% to 5% range by the end of fiscal 2005.

 

During fiscal 2004, the Company opened 500stores and closed 61 stores for a net addition of 439 stores, compared with theopening of 475 stores and closing of 64 stores for a net addition of 411 storesduring fiscal 2003.  Of these new storeopenings 79 of the properties are owned by the Company,and the balance of the properties are leased. The Company’s focus on urban markets has contributed to the strong salesperformance of new stores, but the lead times continue to be less predictableand longer for opening urban stores verses non-urban stores, including longertime for the permitting process and the completion of leasehold improvementsand new construction.  The salesperformance of new stores (stores open 13 months or less) was equal toapproximately 96% of the chain average sales per store in both fiscal 2004 andfiscal 2003.  The Company also expandedor relocated 79 stores in fiscal 2004, compared with 103 stores that wereexpanded or relocated in fiscal 2003.  Inaddition, approximately 116 stores in fiscal 2004 and 42 stores in fiscal 2003were renovated.  The Company currentlyplans to open approximately 500 to 560 stores and close approximately 60 to 70stores in fiscal 2005 resulting in approximately 8% to 9% net new store growthand 9% to 10% net square footage growth. To achieve this target, the Company has retained real estate brokers incertain major metropolitan areas and also has added personnel to its RealEstate Department.  Urban markets willcontinue to be the focus with approximately 60% to 65% of the new storesexpected to open in urban areas.  TheCompany also currently expects to renovate an additional 110 stores and expandor relocate approximately 45 stores in fiscal 2005.  Store opening, closing, expansion, relocationand renovation plans are continuously reviewed and are subject to change.

 

**Cost of Sales and Margin**

 

Cost of sales increased approximately11.1% ($350.5 million) in fiscal 2004 compared with fiscal 2003, andapproximately 13.7% ($379.1 million) in fiscal 2003 compared with fiscal2002.  These increases primarilyreflected the additional sales volume in each of the years.  Cost of sales, as a percentage of net sales,was 66.2% in both fiscal 2004 and fiscal 2003 and 66.5% in fiscal 2002.  The percentage was favorably impacted infiscal 2004 by approximately 0.1% of sales due to a change in the treatment ofcertain vendor allowances in conformity with a recent accountingpronouncement.  This change will notimpact the comparability of future years. Lower merchandise markdowns also favorably impacted the percentage infiscal 2004.  A slight increase inmarkdowns in the first quarter of fiscal 2004 was more than offset by lowermarkdowns in the remaining quarters.  Thedecrease in the cost of sales percentage in fiscal 2004 due to this accountingchange and lower markdowns was offset by a shift in the merchandise mix to morelower margin basic consumables and relatively less sales of higher margindiscretionary merchandise.  The cost ofsales percentage in fiscal 2004 was also negatively impacted by increasedshrinkage and increased freight costs due to higher fuel expense.  The Company is addressing the issue ofshrinkage by implementing new loss prevention reports that provide morevisibility to store level issues and by adding personnel to its Loss PreventionDepartment.  In addition, as part of itsurban initiative, the Company is modifying its field management structure toincrease management presence and the frequency of inspections in its urbanmarkets.  The opening of the eighthdistribution center in January 2005 will reduce the average distancebetween the stores and a distribution center and that reduction is expected tooffset, to some degree, the higher fuel costs.

 

12

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The decrease in the costof sales percentage for fiscal 2003 was due primarily to improved initialmargins, the favorable impact of supply chain initiatives, including theopening of the seventh full-service distribution center, and the implementationof a transportation management system.

 

For fiscal 2005, theCompany’s plan is for the cost of sales percentage to increase as compared tothe percentage in fiscal 2004 due to the continuing effect of the shift in themerchandise mix to more lower margin basic consumables, rising fuel costs andincreased shrinkage.  These impactsshould be most pronounced during the first half of the fiscal year and theshrink initiatives and new distribution center are expected to mitigate theseimpacts during the second half of the fiscal year.

 

**Selling, General andAdministrative Expenses**

 

Selling, general andadministrative expenses increased approximately 12.9% ($157.7 million) infiscal 2004 compared with fiscal 2003, and approximately 15.1% ($160.4 million)in fiscal 2003 compared with fiscal 2002. The increases in these expenses primarily were attributable toadditional costs arising from the continued growth in the number of stores inoperation and the continued ramp-up of the seventh distribution center.  As a percentage of net sales, selling,general and administrative expenses were 26.1% in fiscal 2004, 25.7% in fiscal2003 and 25.5% in fiscal 2002.  Theincrease in selling, general and administrative expenses as a percentage of netsales for fiscal 2004 was due primarily to below plan sales which negativelyimpacted the Company’s ability to leverage its cost structure.  In addition, the effect of the change intreatment of certain vendor allowances mentioned previously (approximately 0.1%of sales) negatively impacted expense leverage. This change will not impact the comparability of future years.  Continued increases in insurance costs,primarily workers’ compensation (approximately 0.1% of sales), and increasedrent (approximately 0.1% of sales) also adversely impacted expenseleverage.  The workers’ compensation costincrease is due in large part to the continued growth in the number ofassociates and to an increase in the average claim amount primarily due tomedical cost increases.  While theCompany is aggressively working to reduce the frequency and severity of claimsthrough corporate preventative initiatives, those costs are expected tocontinue to increase faster than sales in the near term.  The rent increase related in part to theCompany’s opening of more build-to-suit and other new store construction.  The increase in the selling, general andadministrative expense percentage of sales for fiscal 2004 was offset slightlyby a reduction in bonus costs (approximately 0.1% of sales) as the Company didnot reach the earnings target necessary for payment of full bonuses.

 

The increase in theselling, general and administrative expense percentage of sales for fiscal 2003was due primarily to increased insurance costs (primarily workers’compensation) and legal related costs. In addition, the loss of planned sales due to openingof a lesser number of new stores than originally planned also adverselyimpacted expense leverage.  Thiswas offset slightly by the elimination of an advertising circular distributedin fiscal 2002.

 

For fiscal 2005, the Company’s plan is for the selling,general and administrative expense percentage to sales to increase as comparedto the percentage in fiscal 2004.  TheCompany expects the funding of its various growth initiatives as previouslymentioned to negatively impact its expense leverage for the year by approximately0.4% of sales.  In addition, increases ininsurance and rent may also negatively impact expense leverage depending, inpart, on the sales benefit of new programs.

 

# **Income Taxes**

# ** **

The effective tax ratewas 36.6% in fiscal 2004, and 36.5% in both fiscal 2003 and fiscal 2002.  For fiscal 2005, the Company’s plan is forthe effective tax rate to increase slightly compared to the rate in fiscal 2004due to the effect of changes in state income taxes.

 

Based on the above plansfor sales, cost of sales, selling, general and administrative expenses and taxrate, the Company’s current plan is for net income per diluted share of CommonStock in fiscal 2005 to increase in the 4% to 6% range.

 

**Liquidity and Capital Resources**

 

The Company hasconsistently maintained a strong liquidity position.  Cash provided by operating activities duringfiscal 2004 was $376.5 million as compared to $339.1 million in fiscal 2003 and$415.1 million in fiscal 2002.  Theseamounts have enabled the Company to fund its regular operating needs, capitalexpenditure program, cash dividend payments and any repurchase of the Company’sCommon Stock.  In addition, the Companymaintains $200 million of unsecured 

 

13

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revolvingcredit facilities with banks for short-term financing of seasonal cashneeds.  One hundred million dollars ofthe facilities expires on May 26, 2005 and the remaining $100 million expireson May 31, 2009.  The Company had no borrowingsagainst these facilities during fiscal 2004. There were no long-term borrowings during fiscal 2004, 2003 or 2002.

 

Merchandise inventoriesat August 28, 2004 increased 14.7% over the level at August 30,2003.  This increase was due toadditional inventory for 439 net new stores and the accelerated flow ofseasonal merchandise as part of the program to improve store levelpresentations and sales during the holiday period by smoothing the workflow inthe stores and distribution network.  Asa result of conservative planning and the curtailment of some plannedpurchases, out-of-season apparel inventories were approximately 8% lower on aper store basis than at the end of fiscal 2003. With a more aggressive holiday seasonal sales plan this year, theCompany expects inventories per store to continue at higher year over yearlevels through the end of the first quarter of fiscal 2005, but the plan is forinventories to return to more normal levels by the end of the second quarter offiscal 2005.

 

The slight decrease incapital expenditures to $218.7 million in fiscal 2004 from $220.3 million infiscal 2003 primarily was due to the fact that substantially more expenditureswere incurred in fiscal 2003 to complete construction of the seventhdistribution center than were incurred in fiscal 2004 to begin construction ofthe eighth distribution center.  Capitalexpenditures for fiscal 2005 are expected to be approximately $270 million,which primarily represent estimated expenditures for new store expansion,including construction of an increased number of stores, existing storeexpansion, relocation, and renovation, the completion of construction of theeighth distribution center and start of construction of the ninth distributioncenter, expenditures related to store-focused technology infrastructure and theimplementation of a cooler program for perishable goods in selectedstores.  The new store expansion andeighth distribution center will also require additional investment inmerchandise inventories.

** **

Capital spending plans,including store expansion, are continuously reviewed and are subject tochange.  Cash flow from currentoperations is expected to be sufficient to meet planned liquidity and capitalresource needs, including store expansion and other capital spending programsand any repurchase of the Company’s Common Stock.  In addition, the Company has availablerevolving credit facilities as discussed above.

 

On October 9, 2002, the Company announcedthat the Board of Directors authorized the purchase of up to 5 million sharesof its outstanding common stock from time to time as market conditionswarrant.  During the year ended August 30,2003, the Company purchased in the open market, 2.2 million shares at a cost of$65.9 million.  On April 22, 2004,the Company announced that the Board of Directors authorized the purchase of upto an additional 5 million shares of its outstanding common stock from time totime as market conditions warrant. During the year ended August 28, 2004, the Company purchased 5.6million shares at a cost of $176.7 million, leaving 2.2 million shares authorizedto be purchased.

 

The following table shows the Company’sobligations and commitments as of August 28, 2004, to make future paymentsunder contractual obligations (In thousands):

 
| ** **                          | ** ** | **Payments Due During One Year Fiscal Period Ending** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|
| **Contractual  Obligations**        | ** ** | **Total**                                             | ** ** | **August   2005** | ** ** | **August   2006** | ** ** | **August   2007** | ** ** | **August   2008** | ** ** | **August   2009** | ** ** | **Thereafter** | ** ** |
| Merchandise  letters of credit      |       | $                                                     | 91,360     |   | $ | 91,360 |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   | $ | ** ** |   |
| Operating  leases                   |       | 949,162                                               |       | 220,975 |   | 194,339 |   | 160,860 |   | 123,777 |   | 86,389 |   | 162,822 |   |
| Construction  obligations           |       | 41,326                                                |       | 41,326 |   |   |   |   |   |   |   |   |   |   |   |
| Total  Contractual Cash Obligations |       | $                                                     | 1,081,848  |   | $ | 353,661 |   | $ | 194,339 |   | $ | 160,860 |   | $ | 123,777 |   | $ | 86,389 |   | $ | 162,822 |   |

 

Most of the Company’soperating leases provide the Company with an option to extend the term of thelease at designated rates.

 

Thefollowing table shows the Company’s other commercial commitments as of August 28,2004 (In thousands):

 
| **Other  Commercial Commitments** | ** ** | **Total  Amounts  Committed** | ** ** |
|-----------------------------------|------------|-------------------------------|------------|
| Standby  letters of credit        |       | $                             | 70,000     |   |
| Surety  bonds                     |       | 6,167                         |       |
| Total  Commercial Commitments     |       | $                             | 76,167     |   |

 

14

----

 

At August 28, 2004,approximately $55.6 million of the merchandise letters of credit are includedin accounts payable on the Company’s balance sheet.  A substantial portion of the outstandingamount of standby letters of credit and surety bonds (which are primarilyrenewed 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.

 

**Recent Accounting Pronouncements**

 

No new accountingpronouncements issued or effective during the fiscal year have had or areexpected to have a material impact on the financial statements.

 

# **Critical AccountingPolicies**

** **

Management believes the following accountingprinciples are critical because they involve significant judgments, assumptions,and estimates used in the preparation of the Company’s consolidated financialstatements. 

 

Merchandise Inventories:

 

Inventories are valuedusing the retail method, based on retail prices less markon percentages, whichapproximates the lower of first-in, first-out (FIFO) cost or market.  The Company records adjustment to inventorythrough cost of goods sold when retail price reductions, or markdowns, aretaken against on-hand inventory.  Inaddition, management makes estimates and judgments regarding, among otherthings, initial markups, markdowns, future demand for specific productcategories and market conditions, all of which can significantly impactinventory valuation.  If actual demand ormarket conditions are different than those projected by management, additionalmarkdowns may be necessary.  This risk isgenerally higher for seasonal merchandise than for non-seasonal goods.  The Company also provides for estimatedinventory losses for damaged, lost or stolen inventory for the period from thephysical inventory to the financial statement date.  These estimates are based on historicalexperience and other factors.

 

Property and Equipment:

 

Property and equipment isstated at cost.  Depreciation forfinancial reporting purposes is being provided by the straight-line method overthe estimated useful lives of the related assets.  For leasehold improvements, this depreciationis over the shorter of the term of the related lease (generally five years) orthe asset's useful economic life.  Thevaluation and classification of these assets and the assignment of usefuldepreciable lives involves 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 and results of operations.

 

Insurance Liabilities:

 

The Company is primarilyself-insured for health care, property loss, workers’ compensation and generalliability costs.  These costs aresignificant primarily due to the large number of the Company’s retail locationsand employees.  The Company’sself-insurance liabilities are based on the total estimatedcosts 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 historicalclaims data in developing its estimates. The Company also uses information provided by outside actuaries withrespect to workers’ compensation and general liability claims.  If the underlying facts and circumstances ofthe claims change or the historical trend is notindicative of future trends, then the Company may be required to recordadditional expense or a reduction to expense which could be material to thereported financial condition and results of operations.

 

# **Forward-LookingStatements**

** **

Certain statementscontained herein and elsewhere in this Annual Report on Form 10-K 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 may temporarily impactsales, inflation, merchandise supply constraints, general transportation ordistribution delays or interruptions, dependence on imports, changes incurrency exchange rates, trade restriction, tariffs, quotas and freight rates,availability of real estate, costs and delays associated with building, openingand operating new distribution facilities and stores, costs, potential problemsand achievement of results associated with the implementation of new programs,systems 

 

15

----

 

and technology, includingsupply chain systems, store technology, cooler installations and urbaninitiative programs, changes in food and energy prices and the impact onconsumer spending and the Company’s costs, legal proceedings and claims,changes in shrinkage, changes in health care and other insurance costs, and theeffects of legislation on wage levels and entitlement programs.  Consequently, all of the forward-lookingstatements made are qualified by these and other factors, risks anduncertainties.  Readers are cautioned notto place undue reliance on these forward-looking statements, which speak onlyas of the date of this Annual Report on Form 10-K.  The Company does not undertake to publiclyupdate or revise its forward-looking statements even if experience or futurechanges make it clear that projected results expressed or implied in suchstatements will not be realized.

 

ITEM 7A.                   QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

## ** **

**TheCompany is subject to market risk from exposure to changes in interest ratesbased on its financing, investing and cash management activities.  The Company maintains unsecured revolvingcredit facilities at variable interest rates to meet the short-term needs ofits expansion program and seasonal inventory increases.**

** **

ITEM 8.                             FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA

 

**Report ofIndependent Registered Public Accounting Firm**

 

To the Board of Directorsand Shareholders

 of Family DollarStores, Inc.:

 

In our opinion, theaccompanying consolidated balance sheets and the related consolidatedstatements 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 28, 2004 and August 30, 2003, and theresults of their operations and their cash flows for each of the three years inthe period ended August 28, 2004 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.  Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

As discussed in Note 13,the Company’s consolidated financial statements have been restated.

 

PricewaterhouseCoopersLLP

November 2, 2004,except for Note 13 for which the date is April 14, 2005

Charlotte, North Carolina

 

16

----

 

FamilyDollar Stores, Inc. and Subsidiaries

**CONSOLIDATEDSTATEMENTS OF INCOME**

 
| **Years Ended (In thousands, except per share amounts)** | ** ** | **August 28,  2004** | ** **    | **August 30,  2003** | ** ** | **August 31,  2002** | ** ** |
|----------------------------------------------------------|------------|----------------------|---------------|----------------------|------------|----------------------|------------|
| ** **                                               | ** ** | **(as restated)**    | ** **    | **(as restated)**    | ** ** | **(as restated)**    | ** ** |
| Net sales                                                |       | **$**                | **5,281,888** |                 | $          | 4,750,171            |       | $ | 4,162,652 |   |
| Costs and expenses:                                      |       | ** **           |          |                 |       |                 |       |
| Cost of sales                                            |       | **3,496,278**        |          | 3,145,788            |       | 2,766,733            |       |
| Selling, general and administrative                      |       | **1,378,948**        |          | 1,221,239            |       | 1,060,849            |       |
| Cost of sales and operating expenses                     |       | **4,875,226**        |          | 4,367,027            |       | 3,827,582            |       |
|                                                     |       | ** **           |          |                 |       |                 |       |
| Income before income taxes                               |       | **406,662**          |          | 383,144              |       | 335,070              |       |
| Income taxes (Note 5)                                    |       | **148,758**          |          | 139,835              |       | 122,288              |       |
|                                                     |       | ** **           |          |                 |       |                 |       |
| Net income                                               |       | **$**                | **257,904**   |                 | $          | 243,309              |       | $ | 212,782 |   |
| Net income per common share - basic (Note 10)            |       | **$**                | **1.51**      |                 | $          | 1.41                 |       | $ | 1.23 |   |
| Average shares - basic (Note 10)                         |       | **170,770**          |          | 172,346              |       | 172,800              |       |
| Net income per common share - diluted (Note 10)          |       | **$**                | **1.50**      |                 | $          | 1.40                 |       | $ | 1.22 |   |
| Average shares - diluted (Note 10)                       |       | **171,624**          |          | 173,354              |       | 174,049              |       |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

17

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Family Dollar Stores, Inc. and Subsidiaries

**CONSOLIDATED BALANCE SHEETS**

 
| **(In thousands, except share amounts)**                                                                                                                                                                                                          | ** ** | **August 28,  2004** | ** **    | **August 30,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|---------------|----------------------|------------|
| ** **                                                                                                                                                                                                                                        | ** ** | **(as restated)**    | ** **    | **(as restated)**    | ** ** |
| **ASSETS**                                                                                                                                                                                                                                        |       |                 |          |                 |       |
| Current assets:                                                                                                                                                                                                                                   |       |                 |          |                 |       |
| Cash and cash equivalents                                                                                                                                                                                                                         | ** ** | **$**                | **87,023**    |                 | $          | 80,994 |   |
| Investment securities                                                                                                                                                                                                                             | ** ** | ** **           | **120,840**   |                 |       | 204,499 |   |
| Merchandise inventories                                                                                                                                                                                                                           | ** ** | **980,124**          |          | 854,370              |       |
| Deferred income taxes (Note 6)                                                                                                                                                                                                                    | ** ** | **84,084**           |          | 67,255               |       |
| Income tax refund receivable (Note 6)                                                                                                                                                                                                             | ** ** | **1,304**            |          | —               |       |
| Prepayments and other current assets                                                                                                                                                                                                              | ** ** | **16,937**           |          | 33,622               |       |
| Total current assets                                                                                                                                                                                                                              | ** ** | **$**                | **1,290,312** |                 | $          | 1,240,740 |   |
|                                                                                                                                                                                                                                              |       |                 |          |                 |       |
| Property and equipment, net (Note 3)                                                                                                                                                                                                              | ** ** | **918,449**          |          | 807,572              |       |
| Other assets                                                                                                                                                                                                                                      | ** ** | **15,600**           |          | 17,080               |       |
| ** **                                                                                                                                                                                                                                        |       | **$**                | **2,224,361** |                 | $          | 2,065,392 |   |
|                                                                                                                                                                                                                                              |       |                 |          |                 |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                     |       |                 |          |                 |       |
| Current liabilities:                                                                                                                                                                                                                              |       |                 |          |                 |       |
| Accounts payable                                                                                                                                                                                                                                  | ** ** | **$**                | **534,405**   |                 | $          | 480,561 |   |
| Accrued liabilities (Note 5)                                                                                                                                                                                                                      | ** ** | **266,180**          |          | 217,595              |       |
| Income taxes payable (Note 6)                                                                                                                                                                                                                     | ** ** | **—**           |          | 671                  |       |
| Total current liabilities                                                                                                                                                                                                                         | ** ** | **800,585**          |          | 698,827              |       |
|                                                                                                                                                                                                                                              |       |                 |          |                 |       |
| Deferred income taxes (Note 6)                                                                                                                                                                                                                    | ** ** | **$**                | **86,694**    |                 | $          | 74,133 |   |
|                                                                                                                                                                                                                                              |       |                 |          |                 |       |
| Commitments and contingencies (Note 8)                                                                                                                                                                                                            |       |                 |          |                 |       |
|                                                                                                                                                                                                                                              |       |                 |          |                 |       |
| Shareholders’ equity (Notes 9 and 10):                                                                                                                                                                                                       |       |                 |          |                 |       |
| Preferred stock, $1 par; authorized and unissued 500,000 shares                                                                                                                                                                                   |       |                 |          |                 |       |
| Common stock, $.10 par; authorized 600,000,000 shares; issued  187,671,318 shares at August 28, 2004 and 186,909,993 shares at August 30,  2003, and outstanding 167,396,998 shares at August 28, 2004 and 172,208,710  shares at August 30, 2003 |       | **18,767**           |          | 18,691               |       |
| Capital in excess of par                                                                                                                                                                                                                          | ** ** | **106,853**          |          | 87,457               |       |
| Retained earnings                                                                                                                                                                                                                                 | ** ** | **1,498,890**        |          | 1,297,063            |       |
| ** **                                                                                                                                                                                                                                        |       | **1,624,510**        |          | 1,403,211            |       |
| Less common stock held in treasury, at cost (20,274,320 shares at  August 28, 2004 and 14,701,283 at August 30, 2003)                                                                                                                             | ** ** | **287,428**          |          | 110,779              |       |
| ** **                                                                                                                                                                                                                                        |       | **1,337,082**        |          | 1,292,432            |       |
| ** **                                                                                                                                                                                                                                        |       | **$**                | **2,224,361** |                 | $          | 2,065,392 |   |
|                                                                                                                                                                                                                                                   |            |                      |               |                      |            |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

18

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Family Dollar Stores, Inc. and Subsidiaries

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

 
| **Years Ended August 28, 2004,  August 30, 2003  and August 31, 2002 (In thousands, except per share and share amounts)** | ** ** | **Common  stock** | ** ** | **Capital in  excess  of par** | ** ** | **Retained  earnings** | ** ** | **Treasury  stock** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|--------------------------------|------------|------------------------|------------|---------------------|------------|
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| **Balance, August 31, 2001, previously reported**                                                                         |       | $                 | 18,454     |                           | $          | 40,318                 |       | $                   | 945,192    |   | $ | 44,949 |   |
| ** **                                                                                                                |       |              |       |                           |       |                   |       |                |       |
| Prior year adjustment (see Note 13)                                                                                       |       | —            |       | —                         |       | (10,224                | )          | —              |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| **Balance,  August 31, 2001,**** as restated**                                                                       |       |              |       |                           |       |                   |       |                |       |
| (184,538,593  shares common stock; 12,502,954  shares treasury stock)                                                |       |              | 18,454     |                           |       | 40,318                 |       |                | 934,968    |   |   | 44,949 |   |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Net income for the year                                                                                                   |       |              |       |                           |       | 212,782                |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 1,292,308 common shares under employee stock option plan, including  tax benefits (Note 9)                    |       | 129               |       | 22,941                         |       |                   |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 1,288 shares of treasury stock under the Family Dollar 2000  outside directors plan                           |       |              |       | 35                             |       |                   |       | (5                  | )          |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Less dividends on common stock, $.25 1/2 per share                                                                        |       |              |       |                           |       | (44,106                | )          |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| **Balance, August 31, 2002,**** as restated**                                                                        |       |              |       |                           |       |                   |       |                |       |
| (185,830,901 shares common stock; 12,501,666 shares treasury stock)                                                       |       | 18,583            |       | 63,294                         |       | 1,103,644              |       | 44,944              |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Net income for the year                                                                                                   |       |              |       |                           |       | 243,309                |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 1,079,092 common shares under employee stock option plan, including  tax benefits (Note 9)                    |       | 108               |       | 24,098                         |       |                   |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Purchase of 2,202,200 common shares for treasury                                                                          |       |              |       |                           |       |                   |       | 65,851              |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 2,583 shares of treasury stock under the Family Dollar 2000  outside directors plan                           |       |              |       | 65                             |       |                   |       | (16                 | )          |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Less dividends on common stock, $.29 per share                                                                            |       |              |       |                           |       | (49,890                | )          |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| **Balance, August 30, 2003,**** as restated**                                                                        |       |              |       |                           |       |                   |       |                |       |
| (186,909,993 shares common stock; 14,701,283 shares treasury stock)                                                       |       | 18,691            |       | 87,457                         |       | 1,297,063              |       | 110,779             |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Net income for the year                                                                                                   |       |              |       |                           |       | 257,904                |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 761,325 common shares under employee stock option plan, including  tax benefits (Note 9)                      |       | 76                |       | 19,318                         |       |                   |       |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Purchase of 5,576,100 common shares for treasury                                                                          |       |              |       |                           |       |                   |       | 176,674             |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Issuance of 3,063 shares of treasury stock under the Family Dollar 2000  outside directors plan                           |       |              |       | 78                             |       |                   |       | (25                 | )          |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| Less dividends on common stock, $.33 per share                                                                            |       |              |       |                           |       | (56,077                | )          |                |       |
|                                                                                                                      |       |              |       |                           |       |                   |       |                |       |
| **Balance, August 28, 2004,**** as restated**                                                                        |       |              |       |                           |       |                   |       |                |       |
| (187,671,318 shares common stock; 20,274,320 shares treasury stock)                                                       |       | $                 | 18,767     |                           | $          | 106,853                |       | $                   | 1,498,890  |   | $ | 287,428 |   |

 

The accompanying notes are an integral part of the consolidated financialstatements.

 

19

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Family Dollar Stores, Inc. and Subsidiaries

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| **Years Ended (In thousands)**                                                                     | ** ** | **August 28,  2004** | ** **  | **August 30,  2003** | ** ** | **August 31,  2002** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------|-------------|----------------------|------------|----------------------|------------|
| ** **                                                                                         | ** ** | **(as restated)**    | ** **  | **(as restated)**    | ** ** | **(as restated)**    | ** ** |
| Cash flows from operating activities:                                                              |       |                 | ** **  |                 |       |                 |       |
| Net income                                                                                         | ** ** | **$**                | **257,904** | ** **           | $          | 243,309              |       | $ | 212,782 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                 |       |                 | ** **  |                 |       |                 |       |
| Depreciation and amortization                                                                      | ** ** | **102,010**          | ** **  | 92,360               |       | 80,652               |       |
| Deferred income taxes                                                                              | ** ** | **(4,268**           | **)**       | (3,740               | )          | 10,095               |       |
| Tax benefit from stock option  exercises                                                           | ** ** | **4,476**            | ** **  | 6,815                |       | 10,123               |       |
| Loss on disposition of property and equipment                                                      | ** ** | **4,311**            | ** **  | 3,905                |       | 2,287                |       |
| Changes in operating assets and liabilities:                                                       |       |                 | ** **  |                 |       |                 |       |
| Merchandise inventories                                                                            | ** ** | **(125,754**         | **)**       | (87,739              | )          | (45,071              | )          |
| Income tax refund receivable                                                                       | ** ** | **(1,304**           | **)**       | 6,469                |       | (1,533               | )          |
| Prepayments and other current assets                                                               | ** ** | **16,685**           | ** **  | (21,069              | )          | 2,478                |       |
| Other assets                                                                                       | ** ** | **1,480**            | ** **  | (3,937               | )          | (1,542               | )          |
| Accounts payable and accrued liabilities                                                           | ** ** | **121,608**          | ** **  | 65,277               |       | 144,860              |       |
| Income taxes payable                                                                               | ** ** | **(671**             | **)**       | 671                  |       | —               |       |
| ** **                                                                                         |       | **376,477**          | ** **  | 302,321              |       | 415,131              |       |
| Cash flows from investing activities:                                                              |       |                 | ** **  |                 |       |                 |       |
| Purchases of investment securities                                                                 |       | (282,265             | )           | (281,859             | )          | (294,375             | )          |
| Sales of investment securities                                                                     |       | 365,924              | ** **  | 249,110              |       | 122,625              |       |
| Capital expenditures                                                                               | ** ** | **(218,748**         | **)**       | (220,285             | )          | (189,093             | )          |
| Proceeds from dispositions of property and equipment                                               | ** ** | **1,550**            | ** **  | 1,051                |       | 2,647                |       |
| ** **                                                                                         |       | **(133,539**         | **)**       | (251,983             | )          | (358,196             | )          |
| Cash flows from financing activities:                                                              |       |                 | ** **  |                 |       |                 |       |
| Net (purchases) / reissuance of stock for treasury                                                 | ** ** | **(176,649**         | **)**       | (65,835              | )          | 5                    |       |
| Change in cash overdrafts                                                                          | ** ** | **(20,501**          | **)**       | 18,381               |       | (4,036               | )          |
| Proceeds from exercise of stock options                                                            | ** ** | **14,996**           | ** **  | 17,456               |       | 12,982               |       |
| Payment of dividends                                                                               | ** ** | **(54,755**          | **)**       | (48,242              | )          | (43,161              | )          |
| ** **                                                                                         |       | **(236,909**         | **)**       | (78,240              | )          | (34,210              | )          |
|                                                                                               |       |                 | ** **  |                 |       |                 |       |
| Net increase (decrease) in cash and cash equivalents                                               | ** ** | **6,029**            | ** **  | (27,902              | )          | 22,725               |       |
| Cash and cash equivalents at beginning of year                                                     | ** ** | **80,994**           | ** **  | 108,896              |       | 86,171               |       |
| Cash and cash equivalents at end of year                                                           | ** ** | **$**                | **87,023**  | ** **           | $          | 80,994               |       | $ | 108,896 |   |
|                                                                                               |       |                 | ** **  |                 |       |                 |       |
| Supplemental disclosures of cash flow information:                                                 |       |                 | ** **  |                 |       |                 |       |
| Purchases of property and equipment awaiting processing for payment,  included in accounts payable | ** ** | **$**                | **14,272**  | ** **           | $          | 15,077               |       | $ | 12,930 |   |
| Interest paid                                                                                      | ** ** | **—**           | ** **  | —               |       | 158                  |       |
| Income taxes paid                                                                                  | ** ** | **150,525**          | ** **  | 129,619              |       | 103,601              |       |
|                                                                                                    |            |                      |             |                      |            |                      |            |  |  |  |  |  |  |

 

The accompanying notes are an integral part of the consolidated financialstatements.

 

20

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Years Ended August 28, 2004 August 30, 2003 andAugust 31, 2002**

 

**1.  Description of Business and Summary ofSignificant Accounting Policies:**

 

**Description of business:**

The Company operates a chain of neighborhood retaildiscount stores in 44 contiguous states in the Northeast, Southeast, Midwestand Southwest.  The Company manages itsbusiness on the basis of one reportable segment.  The Company’s products include hardlinesmerchandise such as household products, health and beauty aids and snack andother food, and softlines merchandise such as clothing, shoes and domesticitems.

 

**Principles of consolidation:**

The consolidated financial statements include theaccounts of the Company and its subsidiaries, all of which are whollyowned.  All significant intercompanybalances and transactions have been eliminated.

 

**Cash equivalents:**

The Company considers all highly liquid investmentswith an original maturity of three months or less to be cash equivalents.  The carrying amount of the Company’s cashequivalents approximates fair value due to the short maturities of theseinvestments and consists primarily of money market funds, and other overnightinvestments.  The Company maintains cashdeposits with major banks which from time to time may exceed federally insuredlimits.  The Company periodicallyassesses the financial condition of the institutions and believes that the riskof any loss is minimal.

 

**Investment securities:**

**Investment securities comprise principallyauction rate securities and variable rate demand notes.  The Company classifies all investment securitiesas available-for-sale.  Securitiesaccounted for as available-for-sale are required to be reported at fair valuewith unrealized gains and losses, net of taxes, excluded from net income andshown separately as a component of accumulated other comprehensive incomewithin stockholders' equity.  Thesecurities that the Company has classified as available-for sale generallytrade at par and as a result typically do not have any unrealized gains orlosses.**

 

**Merchandise inventories:**

Inventories are valued using retail prices less markonpercentages, and approximate the lower of first-in, first-out (FIFO) cost ormarket.

 

**Property and equipment:**

Property and equipment is stated at cost.  Depreciation for financial reporting purposesis being provided by the straight-line method over the estimated useful livesof the related assets.  For leaseheldimprovements, this depreciation is over the shorter of the term of the relatedlease (generally five years) or the asset's useful economic life.

 
| Estimated useful lives  are as follows: |   |        |   |
|-----------------------------------------|--------|-------------|--------|
| Buildings and building  improvements    |   | 10-40 years |   |
| Furniture, fixtures and  equipment      |   | 3-10 years  |   |
| Transportation  equipment               |   | 3-10 years  |   |
| Leasehold improvements                  |   | 5-10 years  |   |

 

The Company capitalizes certain costs incurred inconnection with developing, obtaining and implementing software for internaluse.  Capitalized costs are amortizedover the expected economic life of the assets, generally ranging from five toeight years.

 

Property and equipment is reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable.

 

**Revenues:**

The Company recognizes revenue, net of returns, at thetime the customer tenders payment for and takes possession of the merchandise.

 

**Insurance liabilities:**

The Company is primarily self-insured for health care,property loss, workers’ compensation and general liability costs.  These liabilities are based on the totalestimated costs of claims filed and estimates of claims incurred but notreported, less amounts paid against such claims, and are not discounted.

 

**Advertising costs:**

Advertising costs, net of co-op recoveries fromvendors, are expensed the first time the advertising is run.  Net advertising expense amounts were notmaterial in fiscal 2004, 2003 and 2002.

 

**Vendor allowances:**

In January 2003, the Emerging Issues Task Force (“EITF”)issued EITF 02-16, “Accounting by a Customer (Including a Reseller) for CertainConsideration Received from a Vendor.” Under this EITF, cash consideration received from a vendor is presumedto be a reduction of the purchase cost of merchandise and should be reflectedas a reduction of cost of sales or revenue unless it can be demonstrated thisoffsets an incremental expense, in which case it can be netted against thatexpense.  The provisions of thisconsensus have been applied prospectively. The adoption of EITF 02-16 in the third quarter of fiscal 2003 did nothave a material impact on the Company’s financial position or results ofoperations.

 

21

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**Store opening and closing costs:**

The Company charges pre-opening costs againstoperating results when incurred.  Forproperties under operating lease agreements, the present value of any remainingliability under the lease, net of expected sublease and lease terminationrecoveries, is expensed when the closing has occurred.

 

**Selling, general andadministrative expenses:**

Buying, warehousing and occupancy costs, includingdepreciation, are included in selling, general and administrative expenses.

 

**Operating leases: **

Except for its executive offices and primarydistribution centers, the Company generally conducts its operations from leasedfacilities.  Normally, store real estateleases are for initial terms of from five to ten years with multiple renewaloptions for additional five-year periods. Certain leases provide for contingent rental payments based upon a percentageof store sales.

 

For purposes of recognizing incentives, premiums andminimal rental expenses on a straight-line basis over terms of the leases, theCompany uses the date of initial possession to begin amortization, which isgenerally when the Company enters the space and begins to make improvements inpreparation of intended use.  For tenantimprovement allowances and rent holidays, the Company records a deferred rentliability generally at the inception of the lease term and amortizes thedeferred rent over the terms of the leases as reductions to rent expense on theConsolidated Statements of Income.

 

**Income taxes:**

The Company records deferred income tax assets andliabilities for the expected future tax consequences of temporary differencesbetween the financial reporting bases and the income tax bases of its assetsand liabilities.

 

**Stock options:**

The Company accounts for stock-based compensationusing the intrinsic value method prescribed in Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees,” and relatedInterpretations.  The exercise price ofoptions awarded under the Company’s non-qualified stock option plan has beenequal to the fair market value of the underlying common stock on the date ofgrant.  Accordingly, no compensationexpense has been recognized for options granted under the plan.  Income tax benefits attributable to stockoptions exercised are credited to capital in excess of par.

 

The Company utilizes the disclosure-only provisions ofStatement of Financial Accounting Standards No. 148, “Accounting forStock-Based Compensation-Transition and Disclosure.”  If compensation cost for the Company’sstock-based compensation plan had been determined based on fair value at thegrant date for awards under this plan consistent with the methodologyprescribed under this statement, net income and net income per share would havebeen reduced to the pro forma amounts indicated in the table below (Inthousands, except per share amounts):

 
| ** **                               | ** ** | **August 28,  2004** | ** ** | **August 30,  2003** | ** ** | **August 31,  2002** | ** ** |
|------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                               | ** ** | **(as restated)**    | ** ** | **(as restated)**    | ** ** | **(as restated)**    | ** ** |
| Net income — as  reported           |       | $                    | 257,904    |                 | $          | 243,309              |       | $ | 212,782 |   |
| Pro forma  stock-based compensation cost |       | (8,062               | )          | (5,988               | )          | (4,280               | )          |
| Net income — pro  forma             |       | $                    | 249,842    |                 | $          | 237,321              |       | $ | 208,502 |   |
| Net income per  share — as reported |       |                 |       |                 |       |                 |       |
| basic                                    |       | $                    | 1.51       |                 | $          | 1.41                 |       | $ | 1.23 |   |
| diluted                                  |       | $                    | 1.50       |                 | $          | 1.40                 |       | $ | 1.22 |   |
| Net income per  share — pro forma   |       |                 |       |                 |       |                 |       |
| basic                                    |       | $                    | 1.46       |                 | $          | 1.38                 |       | $ | 1.21 |   |
| diluted                                  |       | $                    | 1.46       |                 | $          | 1.37                 |       | $ | 1.20 |   |
|                                          |            |                      |            |                      |            |                      |            |  |  |  |  |  |

 

**Fiscal year:**

The Company’s fiscal year generally ends on theSaturday closest to August 31.

 

**Use of estimates:**

The preparation of the Company’s consolidatedfinancial statements, in conformity with accounting principles generallyaccepted in the United States of America, requires management to make estimatesand assumptions.  These estimates andassumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from these estimates.

 

**Reclassifications:**

Certain reclassifications of the fiscal 2002 and fiscal 2003 amountshave been made to conform to the fiscal 2004 presentation.

 

22

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**2.             Investment Securities**

** **

The Company's short-term investments consist of the following (inthousands): 

 

Short-term investments-available-for-sale securities: 

 
| ** **                                              | ** ** | **Amortized Cost** | ** ** | **Gross Unrealized Holding Gains** | ** ** | **Gross Unrealized Holding Losses** | ** ** | **Fair Value** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|------------------------------------|------------|-------------------------------------|------------|----------------|------------|
| August 28, 2004                                         |       |               |       |                               |       |                                |       |           |       |
| Auction rate  securities and variable rate demand notes |       | $                  | 120,840    |                               | —     |                                | —     |           | $          | 120,840 |   |
|                                                    |       |               |       |                               |       |                                |       |           |       |
| August 30, 2003                                         |       |               |       |                               |       |                                |       |           |       |
| Auction rate  securities and variable rate demand notes |       | $                  | 204,499    |                               | —     |                                | —     |           | $          | 204,499 |   |

 

Proceeds from sales of short-term investment securities available-for-saleduring fiscal 2004, 2003 and 2002 were $365,924, $249,110, and $122,625,respectively.  No gains or losses wererealized on those sales for fical 2004, 2003 and 2002.

 

**3.             Propertyand Equipment:**

 
| **(In  thousands)**                             | ** ** | **August 28,  2004** | ** **  | **August 30,  2003** | ** ** |
|-------------------------------------------------|------------|----------------------|-------------|----------------------|------------|
| Buildings and  building improvements            | ** ** | **$**                | **390,363** |                 | $          | 335,882 |   |
| Furniture,  fixtures and equipment              | ** ** | **669,011**          |        | 616,159              |       |
| Transportation  equipment                       | ** ** | **60,289**           |        | 57,203               |       |
| Leasehold  improvements                         | ** ** | **212,968**          |        | 183,280              |       |
| Construction in  progress                       | ** ** | **59,453**           |        | 20,074               |       |
| ** **                                      |       | **1,392,084**        |        | 1,212,598            |       |
|                                            |       |                 |        |                 |       |
| Less accumulated  depreciation and amortization | ** ** | **535,765**          |        | 449,519              |       |
| ** **                                      |       | **856,319**          |        | 763,079              |       |
| Land                                            | ** ** | **62,130**           |        | 44,493               |       |
| ** **                                      |       | **$**                | **918,449** |                 | $          | 807,572 |   |
|                                                 |            |                      |             |                      |            |  |  |  |

 

**4.             Revolving Credit Facilities and Short-Term Borrowings:**

 

The Company has unsecured revolving credit facilitieswith banks for short-term borrowings of up to $200 million.  One hundred million dollars of the facilitiesexpires on May 26, 2005, and the remaining $100 million expires on May 31,2009.  The Company expects that thefacilities expiring on May 26, 2005, will be extended.  Borrowings under these facilities are at avariable interest rate based on short-term market interest rates.

 

Interest expense, average and maximum borrowings outstanding andinterest rates for each of the three years in the period ended August 28, 2004were as follows (In thousands):

 
| ** **                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Interest expense                       |       | —   |       | —   |       | $        | 158        |   |
| Average  borrowings outstanding        |       | —   |       | —   |       | $        | 5,800      |   |
| Maximum  month-end outstanding         |       | —   |       | —   |       | $        | 42,500     |   |
| Interest rates  at year-end            |       | N/A      |       | N/A      |       | N/A      |       |
| Daily weighted  average interest rates |       | N/A      |       | N/A      |       | 2.7      | %          |

 

**5.             AccruedLiabilities:**

 
| **(In  thousands)**            | ** ** | **August 28,  2004** | ** **  | **August 30,  2003** | ** ** |
|--------------------------------|------------|----------------------|-------------|----------------------|------------|
| Compensation                   | ** ** | **$**                | **46,066**  |                 | $          | 43,880 |   |
| Self-insurance  reserves       | ** ** | **124,343**          |        | 89,773               |       |
| Taxes other than  income taxes | ** ** | **36,436**           |        | 35,077               |       |
| Deferred rent                  | ** ** | **28,773**           |        | 24,734               |       |
| Other                          | ** ** | **30,562**           |        | 24,131               |       |
| ** **                     |       | **$**                | **266,180** |                 | $          | 217,595 |   |
|                                |            |                      |             |                      |            |  |  |  |  |

 

**6.             IncomeTaxes:**

 

The tax effects of temporary differences that giverise to significant portions of the deferred tax assets and deferred taxliabilities as of August 28, 2004 and August 30, 2003 were as follows (Inthousands):

 
| ** **                                               | ** ** | **August 28,  2004** | ** ** | **August 30,  2003** | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| Deferred income  tax liabilities:                        |       |                 |       |                 |       |
| Excess of book  over tax basis of property and equipment | ** ** | **$**                | **86,694** |                 | $          | 74,133 |   |
|                                                     |       |                 |       |                 |       |
| Deferred income  tax assets:                             |       |                 |       |                 |       |
| Excess of tax  over book basis of inventories            | ** ** | **$**                | **17,019** |                 | $          | 18,280 |   |
| Currently  nondeductible accruals for:                   |       |                 |       |                 |       |
| Self-insurance                                           | ** ** | **47,723**           |       | 34,571               |       |
| Compensation                                             | ** ** | **7,137**            |       | 5,018                |       |
| Rent Liability                                           | ** ** | **6,743**            |       | 5,486                |       |
| Other                                                    | ** ** | **5,462**            |       | 3,900                |       |
| Total deferred  income tax assets                        | ** ** | **$**                | **84,084** |                 | $          | 67,255 |   |

 

23

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The provisions for income taxes in each of the threeyears in the period ended August 28, 2004 were as follows (In thousands):

 
| ** ** | ** ** | **2004**    | ** **  | **2003**   | ** ** | **2002** | ** ** |
|------------|------------|-------------|-------------|------------|------------|----------|------------|
| Current:   |       |        | ** **  |       |       |     |       |
| Federal    | ** ** | **$**       | **138,508** | ** ** | $          | 130,923  |       | $ | 103,210 |   |
| State      | ** ** | **14,518**  | ** **  | 12,652     |       | 8,983    |       |
| ** ** |       | **153,026** | ** **  | 143,575    |       | 112,193  |       |
|       |       |        | ** **  |       |       |     |       |
| Deferred:  |       |        | ** **  |       |       |     |       |
| Federal    | ** ** | **(3,782**  | **)**       | (3,773     | )          | 9,547    |       |
| State      | ** ** | **(486**    | **)**       | 33         |       | 548      |       |
| ** ** |       | **(4,268**  | **)**       | (3,740     | )          | 10,095   |       |
| Total      | ** ** | **$**       | **148,758** | ** ** | $          | 139,835  |       | $ | 122,288 |   |
|            |            |             |             |            |            |          |            |  |  |  |  |  |

 

The followingtable summarizes the components of income tax expense in each of the threeyears in the period ended August 28, 2004 (In thousands):

 
| ** **                                             | ** ** | **2004**                | ** **  | **2003**                  | ** ** | **2002**                | ** ** |
|--------------------------------------------------------|------------|-------------------------|-------------|---------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Income tax  expense** | ** **  | **%  of pre-tax  income** | ** ** | **Income tax  expense** | ** ** | **%  of pre-tax  income** | ** ** | **Income tax  expense** | ** ** | **%  of pre-tax  income** | ** ** |
| Computed  “expected” federal income tax      | ** ** | **$**                   | **142,331** | ** **                | **35.0**   | ** **              | $          | 134,100 |   | 35.0 |   | $ | 117,275 |   | 35.0 |   |
| State income  taxes, net of federal income tax benefit | ** ** | **9,391**               | ** **  | **2.3**                   | ** ** | 8,179                   |       | 2.1 |   | 6,251 |   | 1.9 |   |
| Other                                                  | ** ** | **(2,964**              | **)**       | **(0.7**                  | **)**      | (2,444                  | )          | (0.6 | ) | (1,238 | ) | (0.4 | ) |
| Actual income  tax expense                             | ** ** | **$**                   | **148,758** | ** **                | **36.6**   | ** **              | $          | 139,835 |   | 36.5 |   | $ | 122,288 |   | 36.5 |   |
|                                                        |            |                         |             |                           |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |

 

**7.             Employee Benefit Plans: **

 

**Incentive compensation plan:**

The Company has an incentive profit-sharing planwhereby, at the discretion of the Board of Directors, the Company may paycertain employees and officers an aggregate amount not to exceed 5% of theCompany’s consolidated income before income taxes.  Expenses under the profit-sharing plan were$5.5 million in fiscal 2004, $7.3 million in fiscal 2003 and $6.3 million infiscal 2002.

 

**Compensation deferral plans:**

The Company has a voluntary compensation deferralplan, under Section 401(k) of the Internal Revenue Code, available to eligibleemployees.  At the discretion of theBoard of Directors, the Company makes contributions to the plan which are allocatedto participants, and in which they become vested, in accordance with formulasand schedules defined by the plan. Company expenses for contributions to the plan were $2.7 million infiscal 2004, $2.3 million in fiscal 2003 and $2.0 million in fiscal 2002.  In fiscal 2003, the Company adopted adeferred compensation plan to provide certain key management employees theability to defer a portion of their base compensation and bonuses.  The plan is an unfunded nonqualifiedplan.  The deferred amounts and earningsthereon are payable to participants, or designated beneficiaries, at specifiedfuture dates, upon retirement or death. The Company does not make contributions to this plan or guaranteeearnings.

 

**8.             Commitments and Contingencies: **

 

**Operating leases:**

Except for its executive offices and primarydistribution centers, the Company generally conducts its operations from leasedfacilities.  Normally, store real estateleases are for initial terms of from five to ten years with multiple renewaloptions for additional five-year periods. Certain leases provide for contingent rental payments based upon apercentage of store sales.  For purposesof recognizing incentives, premiums and minimal rental expenses on astraight-line basis over terms of the leases, the Company uses the date ofinitial possesion to begin amortization, which is generally when the Companyenters the space and begins to make improvements in preparation of intendeduse.  For tenant improvement allowancesand rent holidays, the Company records a deferred rent liability and amortizesthe deferred rent over the terms of the leases as reductions to rent expense onthe Consolidated Statements of Income. The Company also has long-term leases for equipment generally with leaseterms of five years or less.

 

24

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Rental expenses on all operating leases, bothcancellable and non-cancellable, for each of the three years in the periodended August 28, 2004 were as follows (In thousands):

 
| ** **                                      | ** ** | **2004**  | ** **  | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------|------------|-----------|-------------|----------|------------|----------|------------|
| Minimum rentals,  net of minor sublease rentals | ** ** | **$**     | **238,188** |     | $          | 210,268  |       | $ | 183,232 |   |
| Contingent  rentals                             | ** ** | **4,722** |        | 5,134    |       | 5,054    |       |
|                                            | ** ** | **$**     | **242,910** |     | $          | 215,402  |       | $ | 188,286 |   |
|                                                 |            |           |             |          |            |          |            |  |  |  |  |

 

The following table shows the Company’s obligations and commitments asof August 28, 2004, to make future payments under contractual obligations,including future minimum rental payments required under operating leases thathave initial or remaining non-cancellable lease terms in excess of one year (Inthousands):

 
| ** **                          | ** ** | **Payments Due During One Year Fiscal Period Ending** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|
| **Contractual  Obligations**        | ** ** | **Total**                                             | ** ** | **August  2005** | ** ** | **August  2006** | ** ** | **August  2007** | ** ** | **August  2008** | ** ** | **August  2009** | ** ** | **Thereafter** | ** ** |
| Merchandise  letters of credit      |       | $                                                     | 91,360     |   | $ | 91,360 |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   | $ |   |   |
| Operating leases                    |       | 949,162                                               |       | 220,975 |   | 194,339 |   | 160,860 |   | 123,777 |   | 86,389 |   | 162,822 |   |
| Construction  obligations           |       | 41,326                                                |       | 41,326 |   |   |   |   |   |   |   |   |   |   |   |
| Total  Contractual Cash Obligations |       | $                                                     | 1,081,848  |   | $ | 353,661 |   | $ | 194,339 |   | $ | 160,860 |   | $ | 123,777 |   | $ | 86,389 |   | $ | 162,822 |   |

 

Most of the Company’s operating leases provide the Company with anoption to extend the term of the lease at designated rates.

 

The following table shows the Company’s other commercial commitments asof August 28, 2004 (In thousands):

 
| **Other  Commercial Commitments** | ** ** | **Total  Amounts  Committed** | ** ** |
|-----------------------------------|------------|-------------------------------|------------|
| Standby letters  of credit        |       | $                             | 70,000     |   |
| Surety bonds                      |       | 6,167                         |       |
| Total Commercial  Commitments     |       | $                             | 76,167     |   |

 

At August 28, 2004, approximately $55.6 million of the merchandiseletters of credit are included in accounts payable 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 future payment liabilities based on the total estimated costsof claims filed and claims incurred but not reported, and are not discounted.

 

Litigation:

 

On January 30, 2001, Janice Morgan and Barbara Richardson, twoindividuals who have held the position of Store Manager for subsidiaries of theCompany, filed a Complaint against the Company in the United States DistrictCourt for the Northern District of Alabama. Thereafter, pursuant to the Court’s ruling, notice of the pendency ofthe lawsuit was sent to approximately 13,000 current and former Store Managersholding the position on or after July 1, 1999. Based on currently availableinformation, approximately 2,550 of those receiving such notice filed consentforms and joined the lawsuit as plaintiffs, including approximately 2,300former Store Managers and approximately 250 current employees.

 

Pursuant to the Company’s motion, the Court dismissed approximately2,200 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 totalnumber of plaintiffs allowed to remain as parties remains unsettled and indispute.  Subject to the Court’s futurerulings, approximately 990 of the approximately 2,550 original plaintiffs havebeen dismissed and the Company currently believes that an additionalapproximately 450 plaintiffs should ultimately be dismissed given the presentrulings from the Court.

 

The case has proceeded as a collective action under the Fair LaborStandards Act (“FLSA”).  The Complaintalleges that the Company violated the FLSA by classifying the plaintiffs andother similarly situated current and former Store Managers as “exempt”employees who are not entitled to overtime compensation.  Plaintiffs seek to recover unpaid overtimecompensation, prejudgment interest, liquidated damages, an award of attorneys’fees, costs and expenses, and such other relief as the Court may 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.

 

25

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In general, the Company believes that the Store Managers are “exempt”employees under the FLSA and have been properly compensated, that this actionshould not proceed as a collective action and that the Company has meritoriousdefenses that should enable it to ultimately prevail.  However, the outcome of any litigation isinherently uncertain.  The Company bearsthe burden of proof at trial of establishing its entitlement to the exemptionfrom the overtime requirements of the FLSA, and no assurances can be given thatthe 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 matter couldhave a material adverse effect on the Company’s financial position, liquidityor results of operation.

 

The Company is involved in numerous other legal proceedings and claimsincidental to its business, including litigation related to alleged failures tocomply with various state and federal employment laws.  While the ultimate outcome cannot bedetermined, the Company currently believes that these proceedings and claims,both individually and in the aggregate, should not have a material adverseeffect on the Company’s financial position, liquidity or results ofoperations.  However, the outcome of anylitigation is inherently uncertain and, if decided adversely to the Company,the Company may be subject to liability that could have a material adverse effecton the Company’s financial position, liquidity or results of operations.

** **

**9.****                                      EmployeeStock Option Plan:**

 

The Company’s non-qualified stock option plan provides for the grantingof options to key employees to purchase shares of common stock at prices notless 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 acumulative basis, and expire five years from the date of the grant.

 

If the provisions of SFAS No. 123 expensing had been applied, theCompany’s net income and net income per common share would have been impactedas summarized in the discussion of the Company’s stock option accounting policyin Note. 1.

 

The average fair value of options granted during fiscal 2004, 2003 and2002 is $11.47, $9.14 and $8.61 per share, respectively.

 

The fair value of each option grant is estimated on the date of grantusing the Black-Scholes option-pricing model with the****followingassumptions:

 
| ** **                                | ** ** | **August 30,  2004** | ** ** | **August 31,  2003** | ** ** | **September 1,  2002** | ** ** |
|-------------------------------------------|------------|----------------------|------------|----------------------|------------|------------------------|------------|
| Expected  dividend yield                  |       | .75                  | %          | 0.89                 | %          | 1.03                   | %          |
| Expected stock  price volatility          |       | 36.49                | %          | 41.54                | %          | 44.31                  | %          |
| Weighted average  risk-free interest rate |       | 3.06                 | %          | 2.74                 | %          | 3.99                   | %          |
| Expected life of  options (years)         |       | 3.5                  |       | 3.5                  |       | 3.5                    |       |

 

These assumptions are evaluated and revised, as necessary, to reflectmarket conditions and experience.

 

The summary of the status of the Company’s stock based compensationplan as of August 28, 2004, August 30, 2003 and August 31, 2002, and changesduring the years then ended were as follows (In thousands, except per shareamounts):

 
| ** **                  | ** ** | **Options  Outstanding** | ** ** | **Range of Option  Prices Per Share** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|-----------------------------|------------|--------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| Balance,  September 2, 2001 |       | 4,386                    |       | $5.58 to $30.25                       |       | $                                    | 15.44      |   |
| Granted                     |       | 1,475                    |       | 24.25 to 35.50                        |       | 25.02                                |       |
| Exercised                   |       | (1,292                   | )          | 5.58 to 24.75                         |       | 10.02                                |       |
| Cancelled                   |       | (158                     | )          | 11.38 to 34.75                        |       | 20.42                                |       |
| Balance, August  31, 2002   |       | 4,411                    |       | $11.38 to $35.50                      |       | $                                    | 20.05      |   |
| Granted                     |       | 1,793                    |       | 24.75 to 39.00                        |       | 28.99                                |       |
| Exercised                   |       | (1,079                   | )          | 11.38 to 27.75                        |       | 16.11                                |       |
| Cancelled                   |       | (124                     | )          | 15.00 to 37.50                        |       | 24.95                                |       |
| Balance, August  30, 2003   |       | 5,001                    |       | $14.75 to $39.00                      |       | $                                    | 23.99      |   |
| Granted                     |       | 2,036                    |       | 26.00 to 44.00                        |       | 39.56                                |       |
| Exercised                   |       | (761                     | )          | 14.75 to 31.25                        |       | 19.60                                |       |
| Cancelled                   |       | (320                     | )          | 16.00 to 42.25                        |       | 30.55                                |       |
| Balance, August  28, 2004   |       | 5,956                    |       | $14.75 to $44.00                      |       | $                                    | 29.52      |   |

 

26

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At August 28, 2004, August 30, 2003 and August 31, 2002, options for1.2 million, 1.0 million and 1.5 million shares were exercisable,respectively.  The following tablesummarizes information about stock options outstanding at August 28, 2004 (Inthousands, except per share amounts):

 
| ** **                     | ** ** | **Options Outstanding**             | ** ** | ** **                                        | ** ** | **Options Exercisable**              | ** ** |
|--------------------------------|------------|-------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------|------------|
| **Range  of  Exercise Prices** | ** ** | **Number  Outstanding  at 8/28/04** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Number  Exercisable  at 8/28/04** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| $14.75 to $24.49               |       | 2,206                               |       | 1.43                                              | years      |                                 | $          | 21.09 |   | 1,179 |   | $ | 20.09 |   |
|   24.50 to  34.49    |       | 1,910                               |       | 3.24                                              |       |                                 | 28.75      |   | 52 |   | 28.87 |   |
|   34.50 to  44.00    |       | 1,840                               |       | 4.07                                              |       |                                 | 40.43      |   | 8 |   | 34.98 |   |
| $14.75 to $44.00               |       | 5,956                               |       | 2.83                                              | years      |                                 | $          | 29.52 |   | 1,239 |   | $ | 20.55 |   |

 

At August 28, 2004, August 30, 2003 and August 31, 2002, sharesavailable for granting of stock options under the Company’s stock option planwere 5.5 million, 7.2 million and 2.9 million shares, respectively.

 

**10.****                               CommonStock:**

 

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.

 

On October 9, 2002, the Company announced that the Board of Directorsauthorized the purchase of up to 5 million shares of its outstanding commonstock from time to time as market conditions warrant.  During the year ended August 30, 2003, theCompany purchased in the open market, 2.2 million shares at a cost of $65.9million.  On April 22, 2004, the Companyannounced that the Board of Directors authorized the purchase of up to anadditional 5 million shares of its outstanding common stock from time to timeas market conditions warrant.  During theyear ended August 28, 2004, the Company purchased 5.6 million shares at a costof $176.7 million, leaving 2.2 million shares authorized to be purchased.

 

The following table sets forth the computation of basic and diluted netincome per common share (In thousands, except per share amounts):

 
| ** **                                          | ** ** | **August 28,  2004** | ** ** | **August 30,  2003** | ** ** | **August 31,  2002** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **(as restated)**    | ** ** | **(as restated)**    | ** ** | **(as restated)**    | ** ** |
| Basic net income  per share:                        |       |                 |       |                 |       |                 |       |
| Net income                                          |       | $                    | 257,904    |                 | $          | 243,309              |       | $ | 212,782 |   |
| Weighted average  number of shares outstanding      |       | 170,770              |       | 172,346              |       | 172,800              |       |
| Net income per  common share — basic           |       | $                    | 1.51       |                 | $          | 1.41                 |       | $ | 1.23 |   |
| Diluted net  income per share:                      |       |                 |       |                 |       |                 |       |
| Net income                                          |       | $                    | 257,904    |                 | $          | 243,309              |       | $ | 212,782 |   |
| Weighted average  number of shares outstanding      |       | 170,770              |       | 172,346              |       | 172,800              |       |
| Effect of  dilutive securities — stock options |       | 854                  |       | 1,008                |       | 1,249                |       |
| Average shares —  diluted                      |       | 171,624              |       | 173,354              |       | 172,049              |       |
| Net income per  common share — diluted         |       | $                    | 1.50       |                 | $          | 1.40                 |       | $ | 1.22 |   |
|                                                     |            |                      |            |                      |            |                      |            |  |  |  |  |  |  |

 

27

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**11.****                        ****UnauditedSummaries of Quarterly Results:**

 
| ** **                                    | ** ** | **First**         | ** ** | **Second**        | ** ** | **Third**         | ** ** | **Fourth**        | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **(In thousands, except  per share amounts)** | ** ** | **Quarter**       | ** ** | **Quarter**       | ** ** | **Quarter**       | ** ** | **Quarter**       | ** ** |
| ** **                                    | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** |
| **2004**                                      |       |              |       |              |       |              |       |              |       |
| Net sales                                     |       | $                 | 1,244,683  |              | $          | 1,402,798         |       | $                 | 1,310,159  |   | $ | 1,324,248 |   |
| Gross margin                                  |       | 431,325           |       | 473,814           |       | 457,376           |       | 423,095           |       |
| Net income                                    |       | 63,437            |       | 80,432            |       | 72,383            |       | 41,652            |       |
| Net income per common share*                  |       | $                 | .37        |              | $          | .46               |       | $                 | .42        |   | $ | .25 |   |
|                                          |       |              |       |              |       |              |       |              |       |
| **2003**                                      |       |              |       |              |       |              |       |              |       |
| Net sales                                     |       | $                 | 1,108,637  |              | $          | 1,256,183         |       | $                 | 1,176,877  |   | $ | 1,208,474 |   |
| Gross margin                                  |       | 380,832           |       | 417,521           |       | 408,382           |       | 397,648           |       |
| Net income                                    |       | 56,488            |       | 71,698            |       | 68,542            |       | 46,581            |       |
| Net income per common share*                  |       | $                 | .32        |              | $          | .41               |       | $                 | .40        |   | $ | .27 |   |
|                                          |       |              |       |              |       |              |       |              |       |
| **2002**                                      |       |              |       |              |       |              |       |              |       |
| Net sales                                     |       | $                 | 977,133    |              | $          | 1,105,165         |       | $                 | 1,022,082  |   | $ | 1,058,272 |   |
| Gross margin                                  |       | 334,413           |       | 364,745           |       | 355,347           |       | 341,414           |       |
| Net income                                    |       | 49,348            |       | 62,847            |       | 59,855            |       | 40,732            |       |
| Net income per common share*                  |       | $                 | .28        |              | $          | .36               |       | $                 | .34        |   | $ | .24 |   |
|                                               |            |                   |            |                   |            |                   |            |                   |            |  |  |  |  |  |  |  |  |

----

* Figures represent diluted earnings per share.

 

**12.****                               RelatedParty Transactions:**

 

The Company purchased a variety of merchandise in the ordinary courseof business from entities owned or represented by non-employee family membersof the Company’s former Chairman of the Board and the current Chairman of theBoard and Chief Executive Officer.  Thesetransactions totaled approximately $1.2 million, $17.8 million and $11.3million in fiscal 2004, 2003 and 2002, respectively.  The Company also leased space in a buildingfor storing merchandise from an entity in which the former Chairman of theBoard and his brother each owns a 50% interest. A total of $171,470 in rent was paid in fiscal 2002.  The term of this lease expired on April 30,2002, and was not renewed.

 

13.  Restatementof Financial Statements

 

On February 7, 2005, theOffice of the Chief Accountant of the Securities and Exchange Commission("SEC") issued a letter to the American Institute of Certified PublicAccountants expressing its views regarding certain operating lease accountingissues and their application under generally accepted accounting principles inthe United States of America ("GAAP").  In light of this letter, the Company'smanagement initiated a review of its lease-related accounting and determined thatits then-current method of accounting for leasehold improvements funded bylandlord incentives or allowances under operating leases (tenant improvementallowances), its then-current method of accounting for rent holidays and itsthen-current amortization of leasehold improvements were not in accordance withGAAP.  As a result, the Company isrestating its consolidated condensed financial statements for the quarter endedNovember 27, 2004, and its consolidated financial statements for the fiscalyears 2002 through 2004.

 

The Company previouslyamortized leasehold improvements over their estimated useful economic life ofup to ten years.  In some cases thisperiod extended into an option period for the lease.  The Company will now amortize leaseholdimprovements over the shorter of the term of the related lease (generally fiveyears) or the asset's useful economic life. Further, the Company had recognized rent expense for leases beginning onthe rent commencement date.  This had theeffect of excluding the pre-opening period of its stores from the calculationof the period over which it expensed rent. The Company now recognizes straight-line rent expense (including anyrent adjustment during the lease term) over a period that includes thepre-opening period.  For tenantimprovement allowances and rent holidays, the Company now records a deferredrent liability and amortizes the deferred rent over the terms of the leases asreductions of rent expense.  Therestatement had no impact on historic or future cash flows or the timing oflease payments.

 

The Company previously recorded auction rate securities and variablerate demand notes as cash and cash equivalents and has changed theclassification of these investments to investment securities.  Additionally, the Company has changed the classificationof outstanding checks in excess of available funds from cash and cashequivalents to accounts payable and accrued liabilities.  The reduction to cash and cash equivalents asof August 28, 2004 and August 30, 2003 as a result of these changes in classificationswas approximately $62.6 million and $125.7 million respectively.

 

** **

**The effectof the restatement described above as well as the change in classification ofinvestment securities and outstanding checks****in excess of available funds from****cash and cash equivalents is as follows (in thousandsexcept per share amounts):**

 

**Consolidated  Balance Sheets**
|                                            |   | As Previously |   | As         |   | As Previously |   | As         |   |
|-------------------------------------------------|--------|---------------|--------|------------|--------|---------------|--------|------------|--------|
|                                            |   | Presented     |   | Restated   |   | Presented     |   | Restated   |   |
|                                            |   | August 28,    |   | August 28, |   | August 30,    |   | August 30, |   |
|                                            |   | 2004          |   | 2004       |   | 2003          |   | 2003       |   |
| Cash and cash equivalents                       |   | 149,602       |   | 87,023     |   | 206,731       |   | 80,994     |   |
| Investment securities                           |   | —        |   | 120,840    |   | —        |   | 204,499    |   |
| Deferred income taxes                           |   | 77,341        |   | 84,084     |   | 61,769        |   | 67,255     |   |
| Total current assets                            |   | 1,225,308     |   | 1,290,312  |   | 1,156,492     |   | 1,240,740  |   |
| Property and equipment, net                     |   | 926,514       |   | 918,449    |   | 812,123       |   | 807,572    |   |
| Total assets                                    |   | 2,167,422     |   | 2,224,361  |   | 1,985,695     |   | 2,065,392  |   |
| Accounts payable                                |   | 476,144       |   | 534,405    |   | 401,799       |   | 480,561    |   |
| Accrued liabilities                             |   | 237,407       |   | 266,180    |   | 192,861       |   | 217,595    |   |
| Total current liabilities                       |   | 713,551       |   | 800,585    |   | 595,331       |   | 698,827    |   |
| Deferred income taxes                           |   | 93,471        |   | 86,694     |   | 79,395        |   | 74,133     |   |
| Retained earnings                               |   | 1,522,208     |   | 1,498,890  |   | 1,315,600     |   | 1,297,063  |   |
| Total shareholders’ equity                 |   | 1,360,400     |   | 1,337,082  |   | 1,310,969     |   | 1,292,432  |   |
| Total liabilities and shareholders’ equity |   | 2,167,422     |   | 2,224,361  |   | 1,985,695     |   | 2,065,392  |   |

 

28

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**Consolidated Statements of Income**

 
| ** **                                    | ** ** | **As Previously** | ** ** | **As**         | ** ** | **As Previously** | ** ** | **As**         | ** ** | **As Previously** | ** ** | **As**         | ** ** |
|-----------------------------------------------|------------|-------------------|------------|----------------|------------|-------------------|------------|----------------|------------|-------------------|------------|----------------|------------|
| ** **                                    | ** ** | **Presented**     | ** ** | **Restated**   | ** ** | **Presented**     | ** ** | **Restated**   | ** ** | **Presented**     | ** ** | **Restated**   | ** ** |
| ** **                                    | ** ** | **Year Ended**    | ** ** | **Year Ended** | ** ** | **Year Ended**    | ** ** | **Year Ended** | ** ** | **Year Ended**    | ** ** | **Year Ended** | ** ** |
| ** **                                    | ** ** | **August 28,**    | ** ** | **August 28,** | ** ** | **August 30,**    | ** ** | **August 30,** | ** ** | **August 31,**    | ** ** | **August 31,** | ** ** |
| ** **                                    | ** ** | **2004**          | ** ** | **2004**       | ** ** | **2003**          | ** ** | **2003**       | ** ** | **2002**          | ** ** | **2002**       | ** ** |
| Selling, general  and administrative expenses |       | 1,371,395         |       | 1,378,948      |       | 1,214,658         |       | 1,221,239      |       | 1,054,298         |       | 1,060,849      |       |
| Income before  provision for taxes on income  |       | 414,215           |       | 406,662        |       | 389,725           |       | 383,144        |       | 341,621           |       | 335,070        | ** ** |
| Provision for  taxes on income                |       | 151,530           |       | 148,758        |       | 142,250           |       | 139,835        |       | 124,692           |       | 122,288        | ** ** |
| Net income                                    |       | 262,685           |       | 257,904        |       | 247,475           |       | 243,309        |       | 216,929           |       | 212,782        | ** ** |
| Net income per  common share - Basic          |       | 1.54              |       | 1.51           |       | 1.44              |       | 1.41           |       | 1.26              |       | 1.23           | ** ** |
| Net income per  common share - Diluted        |       | 1.53              |       | 1.50           |       | 1.43              |       | 1.40           |       | 1.25              |       | 1.22           | ** ** |

 

**Consolidated Statements of CashFlows**

 
| ** **                                        | ** ** | **As  Previously** | ** ** | **As**          | ** ** | **As  Previously** | ** ** | **As**          | ** ** | **As  Previously** | ** ** | **As**          | ** ** |
|---------------------------------------------------|------------|--------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|
| ** **                                        | ** ** | **Presented**      | ** ** | **Restated**    | ** ** | **Presented**      | ** ** | **Restated**    | ** ** | **Presented**      | ** ** | **Restated**    | ** ** |
| ** **                                        | ** ** | **Year  Ended**    | ** ** | **Year  Ended** | ** ** | **Year  Ended**    | ** ** | **Year  Ended** | ** ** | **Year  Ended**    | ** ** | **Year  Ended** | ** ** |
| ** **                                        | ** ** | **August  28,**    | ** ** | **August  28,** | ** ** | **August  30,**    | ** ** | **August  30,** | ** ** | **August  31,**    | ** ** | **August  31,** | ** ** |
|                                              |       | **2004**           |       | **2004**        |       | **2003**           | ** ** | **2003**        | ** ** | **2002**           | ** ** | **2002**        | ** ** |
|                                              |       |               |       |            |       |               |       |            |       |               |       |            |       |
| Net income                                        |       | 262,685            |       | 257,904         |       | 247,475            |       | 243,309         |       | 216,929            |       | 212,782         |       |
| Depreciation and  amortization                    |       | 97,883             |       | 102,010         |       | 88,315             |       | 92,360          |       | 77,015             |       | 80,652          |       |
| Deferred income  taxes                            |       | (1,496             | )          | (4,268          | )          | (1,325             | )          | (3,740          | )          | 12,499             |       | 10,095          |       |
| Accounts payable  and accrued liabilities         |       | 117,569            |       | 121,608         |       | 62,233             |       | 65,277          |       | 139,541            |       | 144,860         |       |
| Cash flows from  operating activities             |       | 375,864            |       | 376,477         |       | 301,813            |       | 302,321         |       | 412,726            |       | 415,131         |       |
| Purchases of  investment securities               |       | —             |       | (282,265        | )          | —             |       | (281,859        | )          | —             |       | (294,375        | )          |
| Sales of  investment securities                   |       | —             |       | 365,924         |       | —             |       | 249,110         |       | —             |       | 122,625         |       |
| Capital  expenditures                             |       | (218,135           | )          | (218,748        | )          | (219,777           | )          | (220,285        | )          | (186,687           | )          | (189,093        | )          |
| Cash flows from  investing activities             |       | (216,585           | )          | (133,539        | )          | (218,726           | )          | (251,983        | )          | (184,040           | )          | (358,196        | )          |
|                                              |       |               |       |            |       |               |       |            |       |               |       |            |       |
| Change in cash overdrafts                         |       | —             |       | (20,501         | )          | —             |       | 18,381          |       | —             |       | (4,036          | )          |
| Cash flows from  financing activities             |       | (216,408           | )          | (236,909        | )          | (96,621            | )          | (78,240         | )          | (30,174            | )          | (34,210         | )          |
|                                              |       |               |       |            |       |               |       |            |       |               |       |            |       |
| Net change in  cash and cash equivalents          |       | (57,129            | )          | 6,029           |       | (13,534            | )          | (27,902         | )          | 198,512            |       | 22,725          |       |
| Cash and cash  equivalents at beginning of period |       | 206,731            |       | 80,994          |       | 220,265            |       | 108,896         |       | 21,753             |       | 86,171          |       |
| Cash and cash  equivalents at end of period       |       | 149,602            |       | 87,023          |       | 206,731            |       | 80,994          |       | 220,265            |       | 108,896         |       |

 

**Consolidated Statement ofShareholders’ Equity**

** **
| ** **         | ** ** | **As Previously** | ** ** | **As**         | ** ** |
|--------------------|------------|-------------------|------------|----------------|------------|
| ** **         | ** ** | **Presented**     | ** ** | **Restated**   | ** ** |
| ** **         | ** ** | **Year Ended**    | ** ** | **Year Ended** | ** ** |
| ** **         | ** ** | **August 31,**    | ** ** | **August 31,** | ** ** |
| ** **         | ** ** | **2001**          |       | **2001**       |       |
| Retained  earnings |       | 945,192           |       | 934,968        |       |

 

 

ITEM9.                                         CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.                               CONTROLSAND PROCEDURES

 

Based on an evaluation by management of the Company(with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer), as of the end of the period covered by this report, theCompany’s Chief Executive Officer and Chief Financial Officer concluded thatthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”)) were effective to provide reasonable assurance thatinformation required to be disclosed by the Company in reports that the Companyfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission  (“SEC”) rules and forms andthat such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, to allowtimely decisions regarding required disclosures. Consistent with the suggestionof the SEC, the Company has formed a Disclosure Committee consisting of keyCompany personnel designed to review the accuracy and completeness of alldisclosures made by the Company.

29

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In March 2005, after consulting with its AuditCommittee, the Company concluded that its financial statements for the firstquarter of fiscal 2005 and for the years ended August 28, 2004, August 30, 2003and August 31, 2002 should be restated to correct certain errors relating toaccounting for leased properties and therefore should no longer be relied upon.The Company has discussed this restatement with its independent registeredpublic accountants. On March 22, 2005, the Company issued a press releaseannouncing the intended restatement of the Company’s historical financialstatements and filed a report on Form 8-K with the SEC advising that theCompany’s prior financial statements should no longer be relied upon.

 

The Company does not consider the impact of correctingthe previously issued financial statements to be material with respect to anyindividual reporting period.  However, because the cumulative effect ofsuch change, if recorded in the current quarterly period, would be material tothat period, the Company determined that a restatement of prior periodfinancial statements was appropriate. See Note 13 to the consolidated financial statements.

 

There was no change in the Company’s internal controlover financial reporting during the fiscal year to which this report relatesthat has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

 

ITEM 9B.                                 OTHERINFORMATION

 

None

 

30

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PART III

 

ITEM 10.                                   DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

 

The information required by this item as to theCompany’s directors, director nominees, audit committee financial expert, auditcommittee, and procedures for stockholders to recommend director nominees willbe included in the Company’s proxy statement to be filed for the Annual Meetingof Stockholders to be held on January 20, 2005, under the captions “Election ofDirectors” and “Corporate Governance” and is incorporated by referenceherein.   The information required bythis item as to compliance by the Company’s directors, executive officers andcertain beneficial owners of the Company’s Common Stock with Section 16(a) ofthe Securities Exchange Act of 1934 also will be included in said proxystatement under the caption “Section 16(a) Beneficial Ownership ReportingCompliance” and also is incorporated herein by reference.  The information required by this item as toexecutive officers is included in Item 4A in Part I of this report and also isincorporated herein by reference.

 

The Company has adopted: (i) a Code of Ethics thatapplies to the Chief Executive Officer and senior financial officers, includingthe Chief Financial Officer;  (ii) a Codeof Business Conduct that governs the actions of all Company employees,including officers; and (iii) a Board of Directors Code of Business Conductapplicable to all directors (collectively the “Codes of Conduct”).  The Codes of Conduct are posted within theInvestors section of the Company’s Internet Website at www.familydollar.com.  The Company will provide a copy of the Codesof Conduct to any Stockholder upon request. Any amendments to and/or any waiver from a provision of any of the Codesof Conduct granted to any director, executive officer or any senior financial officer,must be approved by the Board of Directors and will be disclosed on the Company’sInternet Website within three business days following the amendment orwaiver.  The information contained on orconnected to the Company’s Internet Website is not incorporated by referenceinto this Form 10-K and should not be considered part of this or any otherreport that the Company files with or furnishes to the Securities and ExchangeCommission.

 

ITEM 11.                                   EXECUTIVECOMPENSATION

 

The information required by this item will be includedin the Company’s proxy statement to be filed for the Annual Meeting ofStockholders to be held on January 20, 2005, under the caption “ExecutiveCompensation” and is incorporated herein by reference.

 

ITEM12.                                   SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

 

The information required by this item as to securityownership by certain beneficial owners and management will be included in theCompany’s proxy statement to be filed for the Annual Meeting of Stockholders tobe held on January 20, 2005, under the caption “Ownership of the Company’sSecurities” and is incorporated herein by reference.  The information required by this item as tosecurities authorized for issuance under equity compensation plans also will beincluded in said proxy statement under the caption “Equity Compensation PlanInformation” and also is incorporated herein by reference.

 

ITEM 13.                                   CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

 

The information required by this item will be includedin the Company’s proxy statement to be filed for the Annual Meeting ofStockholders to be held on January 20, 2005, under the caption “RelatedTransactions” and is incorporated herein by reference.

 

ITEM 14.                                   PRINCIPALACCOUNTANT FEES AND SERVICES

 

The information required by thisitem is included in the Company’s proxy statement to be filed for theAnnual Meeting of Stockholders to be held on January 20, 2005, under the caption “Independent Accountants’ Feesand Services” and is incorporated herein by reference.

 

31

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PART IV

 

ITEM 15.                                   EXHIBITS,FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

 

(a)                           Documentsfiled as part of this report:

 

1.                         ConsolidatedFinancial Statements (See Item 8):

 

2.                         Allschedules for which provision is made in the applicable accounting regulationsof the Securities and Exchange Commission are not required under the relatedinstructions, are inapplicable or the information is included in theConsolidated Financial Statements, and therefore, have been omitted.

 

The FinancialStatements of Family Dollar Stores, Inc. (Parent Company) are omitted becausethe registrant is primarily a holding company and all subsidiaries included inthe consolidated financial statements being filed, in the aggregate, do not haveminority equity and/or indebtedness to any person other than the registrant orits consolidated subsidiaries in amounts which together exceed 5 percent of thetotal assets as shown by the most recent year-end consolidated balance sheet.

 

3.                       Exhibits:

 

Exhibits incorporated byreference:

 
|   |   |   |   | 3(a)(i) |   | Certificate of Incorporation, dated November 24,  1969, (filed as Exhibit 3(a) to the Company’s Registration Statement on Form  S-1, No. 2-35468).                                                                                                              |   |
|--------|--------|--------|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (ii)    |   | Certificate of Amendment, dated February 2, 1972, of  Certificate of Incorporation (filed as Exhibit 3(a)(ii) to the Company’s Form  10-K (File No. 1-6807) for the year ended August 31, 1980).                                                                |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (iii)   |   | Certificate of Amendment, dated January 23, 1979, of  Certificate of Incorporation (filed as Exhibit 2 to the Company’s Form 10-Q  (File No. 1-6807) for the quarter ended February 28, 1979).                                                                  |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (iv)    |   | Certificate of Amendment, dated January 20, 1983, of  Certificate of Incorporation (filed as Exhibit 4(iv) to the Company’s  Registration Statement on Form S-3, No. 2-85343).                                                                                  |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (v)     |   | Certificate of Amendment, dated January 16, 1986, of  Certificate of Incorporation (filed as Exhibit 3(a)(v) to the Company’s Form  10-K (File No. 1-6807) for the year ended August 31, 1986).                                                                 |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (vi)    |   | Certificate of Amendment, dated January 15, 1987, of  Certificate of Incorporation (filed as Exhibit 3(a)(vi) to the Company’s Form  10-K (File No. 1-6807) for the year ended August 31, 1987).                                                                |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (vii)   |   | Certificate of Amendment, dated January 15, 1998, of  Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s  Registration Statement on Form S-8, No. 333-48751).                                                                                  |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
|   |   |   |   | (viii)  |   | Certificate of Amendment, dated January 17, 2002, of  Certificate of Incorporation filed as Exhibit 3(i) to the Company’s Form 10-Q  (File No. 1-6807) for the quarter ended March 2, 2002).                                                                    |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
| *      |   | 10     |   | (i)     |   | Family Dollar Compensation Deferral Plan (filed as  Exhibit 10 to the Company’s Form 10-Q (File No. 1-6807) for the quarter ended  March 1, 2003).                                                                                                              |   |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |   |
| *      |   | 10     |   | (ii)    |   | Family Dollar Employee Savings and Retirement Plan  and Trust, amended and restated as of January 1, 2002 (filed as Exhibit 10  (iii) to the Company’s Form 10-Q (File No. 1-6807) for the quarter  ended March 2, 2002).                                       |
|   |   |   |   |    |   |                                                                                                                                                                                                                                                                 |
|   |   | 10     |   | (iii)   |   | Amended and  Restated Credit Agreement, dated as of May 31, 2001, between the Company and  Family Dollar, Inc., as Borrower, and Bank of America, N.A. (filed as Exhibit  10 to the Company’s Form 10-Q (File No. 1-6807) for the quarter ended June 2,  2001). |
|        |        |        |        |         |        |                                                                                                                                                                                                                                                                      |        |  |

 

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|   |   | 10     |   | (iv)   |   | Amendment dated as of May 29, 2003, between the  Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A.,  amending the Amended and Restated Credit Agreement dated as of May 31, 2001  (filed as Exhibit 10(i) to the Company’s Form 10-Q (File No. 1-6807) for the  quarter ended May 31, 2003). |   |
|--------|--------|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
|   |   | 10     |   | (v)    |   | Second Amendment dated as of May 27, 2004, between  the Company and Family Dollar, Inc., as Borrower, and Bank of America, N.A.,  amending the Amended and Restated Credit Agreement dated as of May 31, 2001  (filed as Exhibit 10(a) to the Company’s Form 8-K (File No. 1-6807) dated May  27, 2004.)           |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
|   |   | 10     |   | (vi)   |   | Credit Agreement, dated as of August 7, 2001,  between the Company and Family Dollar, Inc., as Borrower, and First Union  National Bank (filed as Exhibit 10(i) to the Company’s Form 10-K (File No.  1-6807) for the year ended September 1, 2001).                                                               |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
|   |   | 10     |   | (vii)  |   | First Amendment dated as of May 29, 2003, between  the Company and Family Dollar, Inc., as Borrower, and Wachovia Bank, N.A.,  amending the Credit Agreement dated as of August 7, 2001 (filed as Exhibit  10(ii) to the Company’s Form 10-Q (File No. 1-6807) for the quarter ended May  31, 2003).               |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
|   |   | 10     |   | (viii) |   | Second Amendment dated as of May 27, 2004, between  the Company and Family Dollar, Inc., as Borrower, and Wachovia Bank, N.A., amending  the Credit Agreement dated as of August 7, 2001 (filed as Exhibit 10(b) to  the Company’s Form 8-K (File No. 1-6807) dated May 27, 2004.)                                 |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
| *      |   | 10     |   | (ix)   |   | Employment Agreement dated December 17, 1996,  between the Company and R. James Kelly (filed as Exhibit 10(i) to the  Company’s Form 10-Q (File No. 1-6807) for the quarter ended February 28,  1997).                                                                                                             |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
| *      |   | 10     |   | (x)    |   | Amendment dated June 21, 1999, to the Employment  Agreement dated December 17, 1996, between the Company and R. James Kelly  (filed as Exhibit 10(ii) to the Company’s Form 10-K (File No. 1-6807) for the  year ended August 28, 1999).                                                                           |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
| *      |   | 10     |   | (xi)   |   | Amendment dated September 2, 2001, to the Employment  Agreement dated December 17, 1996, as amended, between the Company and R.  James Kelly (filed as Exhibit 10(iii) to the Company’s Form 10-K (File No.  1-6807) for the year ended September 1, 2001).                                                        |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
| *      |   | 10     |   | (xii)  |   | Amendment dated September 1, 2002, to the Employment  Agreement dated December 17, 1996, as amended, between the Company and R.  James Kelly (filed as Exhibit 10(ii) to the Company’s Form 10-K (File No.  1-6807) for the year ended August 31, 2002).                                                           |   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |   |
| *      |   | 10     |   | (xiii) |   | Amendment dated August 31, 2003, to the Employment  Agreement dated December 17, 1996, as amended, between the Company and R.  James Kelly (filed as Exhibit 10(ii) to the Company’s Form 10-K (File No.  1-6807) for the year ended August 30, 2003).                                                             |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |
| *      |   | 10     |   | (xiv)  |   | Employment  Agreement dated April 29, 1997, between the Company and Howard R. Levine  (filed as Exhibit 10(i) to the Company’s Form 10-Q (File No. 1-6807) for the  quarter ended May 31, 1997).                                                                                                                   |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |
| *      |   | 10     |   | (xv)   |   | Amendment dated  August 28, 1997, to the Employment Agreement dated April 29, 1997, between  the Company and Howard R. Levine (filed as Exhibit 10(i) to the Company’s  Form 10-K (File No. 1-6807) for the year ended August 31, 1997).                                                                           |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |
| *      |   | 10     |   | (xvi)  |   | Amendment dated  August 29, 1999, to the Employment Agreement dated April 29, 1997, as  amended, between the Company and Howard R. Levine (filed as Exhibit 10(i) to  the Company’s Form 10-K (File No. 1-6807) for the year ended August 28,  1999).                                                              |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                    |
| *      |   | 10     |   | (xvii) |   | Amendment dated  August 27, 2000, to the Employment Agreement dated April 29, 1997, as  amended, between the Company and Howard R. Levine (filed as Exhibit 10(i) to  the Company’s Form 10-K (File No. 1-6807) for the year ended August 26,  2000).                                                              |
|        |        |        |        |        |        |                                                                                                                                                                                                                                                                                                                         |        |  |

 

33

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| *      |                     | 10     |   | (xviii)     |   | Amendment dated September 2, 2001, to the Employment  Agreement dated April 29, 1997, as amended, between the Company and Howard R.  Levine (filed as Exhibit 10(ii) to the Company’s Form 10-K (File No. 1-6807)  for the year ended September 1, 2001).        |   |
|--------|--------------------------|--------|--------|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xix)       |   | Amendment dated September 1, 2002, to the Employment  Agreement dated April 29, 1997, as amended, between the Company and Howard R.  Levine (filed as Exhibit 10(i) to the Company’s Form 10-K (File No. 1-6807)  for the year ended August 31, 2002).           |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xx)        |   | Amendment dated January 16, 2003, to the Employment  Agreement dated April 29, 1997, as amended, between the Company and Howard R.  Levine (filed as Exhibit 10(i) to the Company’s Form 8-K (File No. 1-6807)  dated January 16, 2003).                         |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxi)       |   | Amendment dated August 31, 2003, to the Employment  Agreement dated April 29, 1997, as amended, between the Company and Howard R.  Levine (filed as Exhibit 10(i) to the Company’s Form 10-K (File No. 1-6807)  for the year ended August 30, 2003).             |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxii)      |   | Employment Agreement dated August 25, 2000, between  the Company and R. David Alexander, Jr. (filed as Exhibit 10(ii) to the  Company’s Form 10-K (File No. 1-6807) for the year ended August 26, 2000).                                                         |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxiii)     |   | Amendment dated September 2, 2001, to the Employment  Agreement dated August 25, 2000, between the Company and R. David Alexander,  Jr. (filed as Exhibit 10(iv) to the Company’s Form 10-K (File No. 1-6807) for  the year ended September 1, 2001).            |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxiv)      |   | Amendment dated September 1, 2002, to the Employment  Agreement dated August 25, 2000, as amended, between the Company and R. David  Alexander, Jr. (filed as Exhibit 10(iii) to the Company’s Form 10-K (File No.  1-6807) for the year ended August 31, 2002). |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxv)       |   | Amendment dated January 16, 2003, to the Employment  Agreement dated April 25, 2000, as amended, between the Company and R. David  Alexander, Jr. (filed as Exhibit 10(ii) to the Company’s Form 8-K (File No.  1-6807) dated January 16, 2003).                 |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxvi)      |   | Amendment dated August 31, 2003, to the Employment  Agreement dated August 25, 2000, as amended, between the Company and R. David  Alexander, Jr. (filed as Exhibit 10(iii) to the Company’s Form 10-K (File No.  1-6807) for the year ended August 30, 2003).   |   |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |   |
| *      |                     | 10     |   | (xxvii)     |   | Retirement Agreement dated September 30, 2002,  between the Company and Leon Levine (filed as Exhibit 10 to the Company’s  Form 8-K (File No. 1-6807) dated October 2, 2002).                                                                                    |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
| *      |                     | 10     |   | (xxviii)    |   | Family Dollar  2000 Outside Directors Plan, as amended as of November 5, 2003 (filed as  Exhibit 10(iv) to the Company’s Form 10-K (File No. 1-6807) for the year  ended August 30, 2003).                                                                       |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
|   |                     | 14     |   |        |   | Code of Ethics  for Chief Executive and Senior Financial Officers (filed as Exhibit 14 to the  Company’s Form 10-K (File No. 1-6807) for the year ended August 30, 2003).                                                                                        |
|   | Exhibits filed herewith: |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
|   |                     | 3      |   | (ii)        |   | Bylaws, as  amended on August 17, 2004.                                                                                                                                                                                                                               |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
| *      |                     | 10     |   | (i)    |   | Incentive Profit  Sharing Plan, amended as of January 17, 2002.                                                                                                                                                                                                       |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
| *      |                     | 10     |   | (ii)   |   | Amendment dated  August 29, 2004, to the Employment Agreement dated April 29, 1997, as  amended, between the Company and Howard R. Levine.                                                                                                                            |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
| *      |                     | 10     |   | (iii)  |   | Amendment dated  August 29, 2004, to the Employment Agreement dated December 17, 1996, as  amended, between the Company and R. James Kelly.                                                                                                                           |
|   |                     |   |   |        |   |                                                                                                                                                                                                                                                                  |
| *      |                     | 10     |   | (iv)   |   | Amendment dated  August 29, 2004, to the Employment Agreement dated August 25, 2000, as amended,  between the Company and R. David Alexander, Jr.                                                                                                                     |
|        |                          |        |        |             |        |                                                                                                                                                                                                                                                                       |        |  |

 

34

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| *      |   | 10     |   | (v)   |   | Medical Expense  Reimbursement Plan amended as of November 2, 2004.                                           |
|--------|--------|--------|--------|------------|--------|---------------------------------------------------------------------------------------------------------------|
|   |   |   |   |       |   |                                                                                                          |
| *      |   | 10     |   | (vi)  |   | Family Dollar  Stores, Inc. 1989 Non-Qualified Stock Option Plan, amended as of August 17,  2004.             |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 21     |   |       |   | Subsidiaries of  the Company.                                                                                 |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 23     |   |       |   | Consent dated April  15, 2005, of PricewaterhouseCoopers LLP, independent registered public  accounting firm. |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 31.1   |   |       |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of Chief Executive Officer.                  |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 31.2   |   |       |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of Chief Financial Officer.                  |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 32.1   |   |       |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive  Officer.         |
|   |   |   |   |       |   |                                                                                                          |
|   |   | 32.2   |   |       |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial  Officer.         |

 

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*                         Exhibitrepresents a management contract or compensatory plan.

 

(b)                                                                                                       Reportson Form 8-K:

 
| (1)    |   | A Current Report on Form 8-K, dated June 3, 2004,  was furnished to the Securities and Exchange Commission (“SEC”) under Item 12  in connection with a news release reporting sales, including sales for the  four-week period ended May 29, 2004.                               |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                       |   |
| (2)    |   | A Current Report on Form 8-K, dated June 24, 2004,  was furnished to the SEC under Item 12 in connection with a news release  reporting sales and earnings for the third quarter ended May 29, 2004, and  other matters relating to the Company’s operations and financial condition. |   |
|   |   |                                                                                                                                                                                                                                                                                       |   |
| (3)    |   | A Current Report on Form 8-K, dated July 8, 2004,  was furnished to the SEC under Item 9 in connection with a news release  reporting sales, including sales for the five-week period ended July 3, 2004.                                                                                  |   |
|   |   |                                                                                                                                                                                                                                                                                       |   |
| (4)    |   | A Current Report on Form 8-K, dated August 5, 2004,  was furnished to the SEC under Item 9 in connection with a news release  reporting sales, including sales for the four-week period ended July 31,  2004.                                                                              |   |

 

35

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SIGNATURES

 

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

 
|       | FAMILY DOLLAR STORES, INC. |                    |   |
|------------|----------------------------|-------------------------|--------|
|       | (Registrant)               |                    |   |
|       |                       |                    |   |
| Date  | April 15, 2005             |                    | By     | /s/ R. James  Kelly |   | /s/ C. Martin  Sowers |
|       |                       | R. James Kelly          |   | C. Martin Sowers |
|       |                       | Vice Chairman -         |   | Senior Vice  President - |
|       |                       | Chief Financial Officer |   | Finance |
|            |                            |                         |        |  |  |  |

 

 

36

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