## 2004  $_{ }$ Management’s Discussion & Analysis of Financial Condition & Results of Operations 

(Dollar Amounts in Millions except Per Share Information and as Otherwise Noted) 

The Company has a letter of credit issued on its behalf to its insurance carrier. The future commercial commitment related to the letter of credit is $10. See notes 9 and 10 of the Notes to Consolidated Financial Statements for additional information related to these obligations and to our current line of credit. 

The Company declared a semi-annual dividend of $.31 per share on January 17, 2005. The Company paid an annual dividend per share of $.40, $.21, and $.05 in 2004, 2003, and 2002, respectively. 

The Company expects to incur approximately $52 in total capital expenditures in 2005, consisting of approximately $14 for manufacturing, warehouse and packaging equipment and facilities, $4 for shelving and related supplies for the Company’s CSP implementation, $14 for data processing equipment, $12 for store buildings and improvement to store buildings, and $8 for vehicles. The Company has expanded the number of owned store locations over the last several years, and expects to purchase additional locations in the future. As of December 31, 2004, the Company had no material outstanding commitments for capital expenditures. 

Management anticipates funding its current expansion plans with cash generated from operations, from available cash and cash equivalents, and, to a lesser degree, from its borrowing capacity. In addition to opening new sites in the United States, the Company plans to continue opening additional store locations in Canada, Puerto Rico, Mexico, Singapore, and the Netherlands. 

## Market Risk Management 

The Company is exposed to certain market risks from changes in interest rates and foreign currency exchange rates. Changes in these factors cause fluctuations in the Company’s earnings and cash flows. The Company evaluates and manages exposure to these market risks as follows: 

(1) Interest Rates – The Company has a $10 line of credit of which $0 was outstanding at December 31, 2004. The line bears interest at .9% over the LIBOR rate. 

(2) Foreign Currency Exchange Rates – Foreign currency fluctuations can affect the Company’s net investments and earnings denominated in foreign currencies. The Company’s primary exchange rate exposure is with the Canadian dollar against the United States dollar. The Company’s estimated net earnings exposure for foreign currency exchange rates was not material at December 31, 2004. 

(3) Commodities – Fluctuations in pricing of certain commodities like steel can affect the Company’s cost structure and pricing. 

