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The following is an excerpt from a 10-Q SEC Filing, filed by SHOPKO STORES INC on 9/16/2003.
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SHOPKO STORES INC - 10-Q - 20030916 - MANAGEMENT_ANALYSIS

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following table sets forth items from the Company's unaudited condensed consolidated financial statements for the second quarter and first half of fiscal 2003 and 2002 as a percentage of net sales:

                                                             SECOND QUARTER                  YEAR TO DATE
                                                               (13 WEEKS)                     (26 WEEKS)
                                                       --------------------------      --------------------------
                                                         FISCAL          FISCAL          FISCAL          FISCAL
                                                          2003            2002            2003            2002
                                                       ----------      ----------      ----------      ----------
Revenues:
  Net sales                                               100.0%          100.0%          100.0%          100.0%
  Licensed department rentals and other income              0.4             0.4             0.4             0.4
                                                       --------        --------        --------        --------
                                                          100.4           100.4           100.4           100.4

  Cost of sales                                            73.6            74.5            73.9            74.6

  Gross margin                                             26.4            25.5            26.1            25.4

  Selling, general and administrative expenses             21.1            20.1            21.5            20.5
  Depreciation and amortization expenses                    2.7             2.6             2.8             2.8
                                                       --------        --------        --------        --------
                                                           23.8            22.7            24.3            23.3
                                                       --------        --------        --------        --------

Earnings from operations                                    3.1             3.2             2.2             2.6
Interest expense - net                                      1.4             1.6             1.4             1.7
                                                       --------        --------        --------        --------

Earnings before income taxes                                1.7             1.5             0.7             0.8
Provision for income taxes                                  0.7             0.6             0.3             0.3
                                                       --------        --------        --------        --------
Earnings before accounting change                           1.0%            0.9%            0.4%            0.5%
Cumulative effect of accounting change                       --              --              --           (12.3)
                                                       --------        --------        --------        --------
Net earnings (loss)                                         1.0%            0.9%            0.4%          (11.8)%
                                                       ========        ========        ========        ========

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The Company has two business segments: a ShopKo Retail segment and a Pamida Retail segment. The following tables set forth items from the Company's business segments as percentages of net sales:

                                                             SECOND QUARTER                  YEAR TO DATE
                                                               (13 WEEKS)                     (26 WEEKS)
                                                       --------------------------      --------------------------
                                                        FISCAL           FISCAL          FISCAL          FISCAL
                                                         2003             2002            2003            2002
                                                       ----------      ----------      ----------      ----------
SHOPKO RETAIL SEGMENT
  Net sales                                              100.0%           100.0%         100.0%          100.0%
  Licensed department rentals and other income             0.5              0.5            0.5             0.5
                                                       -------         --------        -------         -------
                                                         100.5            100.5          100.5           100.5

  Cost of sales                                           73.6             74.5           74.0            74.3

  Gross margin                                            26.4             25.5           26.0            25.7

  Selling, general and administrative expenses            19.8             18.5           20.1            18.8
  Depreciation and amortization expenses                   2.6              2.6            2.7             2.7
                                                       -------         --------        -------         -------
                                                          22.5             21.1           22.8            21.5
                                                       -------         --------        -------         -------

Earnings from operations                                   4.4%             4.9%           3.7%            4.7%
                                                       =======         ========        =======         =======

                                                             SECOND QUARTER                   YEAR TO DATE
                                                               (13 WEEKS)                      (26 WEEKS)
                                                       --------------------------      --------------------------
                                                         FISCAL          FISCAL          FISCAL          FISCAL
                                                          2003            2002            2003            2002
                                                       ----------      ----------      ----------      ----------
PAMIDA RETAIL SEGMENT

  Net sales                                              100.0%           100.0%         100.0%          100.0%
  Licensed department rentals and other income             0.2              0.2            0.2             0.2
                                                       -------         --------        -------         -------
                                                         100.2            100.2          100.2           100.2

  Cost of sales                                           73.5             74.8           73.7            75.5

  Gross margin                                            26.5             25.2           26.3            24.5

  Selling, general and administrative expenses            20.8             20.8           22.1            21.6
  Depreciation and amortization expenses                   2.8              2.7            3.0             2.9
                                                       -------         --------        -------         -------
                                                          23.5             23.6           25.2            24.5
                                                       -------         --------        -------         -------

Earnings from operations                                   3.1%             1.9%           1.3%            0.3%
                                                       =======         ========        =======         =======

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NET SALES:

The following table presents the Company's consolidated net sales for the second quarter and first half of fiscal 2003 and fiscal 2002:

                               SECOND QUARTER                % INCREASE/
                                 (13 WEEKS)                   (DECREASE)
                         -------------------------------------------------------
                           FISCAL         FISCAL
                            2003           2002         TOTAL ***         COMP**
                         ----------     ----------     ----------       --------
ShopKo Retail            $    558.8     $    583.3       (4.2)%           (4.2)%
Pamida Retail*                205.9          200.1        2.9 %            3.7 %
                         -------------------------------------------------------
Consolidated             $    764.7     $    783.4       (2.4)%           (2.2)%
                         =======================================================

                                YEAR TO DATE                  % INCREASE/
                                 (26 WEEKS)                    (DECREASE)
                         -------------------------------------------------------
                           FISCAL         FISCAL
                            2003           2002        TOTAL ***          COMP**
                         ----------     ----------     ----------       --------
ShopKo Retail            $  1,089.3     $  1,135.7       (4.1)%           (4.1)%
Pamida Retail*                383.3          376.4        1.8 %            2.6 %
                         -------------------------------------------------------
Consolidated             $  1,472.6     $  1,512.1       (2.6)%           (2.4)%
                         =======================================================

* Changes in store sales are exclusive of layaway sales, which are immaterial.

** Changes in comparable store sales are based upon those stores open for the entire preceding fiscal year.

*** Pamida division reflects sales from six closed locations which were not replaced.

The 4.2 percent decrease in ShopKo comparable store sales during the second quarter was primarily the result of decreased general merchandise sales as a result of the challenging retail climate, adjustments to the advertising calendar and less aggressive advertised pricing, partially offset by strong sales in retail health services. Changes in ShopKo comparable store sales in the second quarter of fiscal 2003 by category were as follows: Retail Health, 4.7%; Hardlines/Home, (8.8)%; and Softlines, (6.6)%. The 3.7 percent increase in Pamida comparable store sales was driven by increased pharmacy (including sales at new pharmacy locations in existing Pamida stores) and advertised sales, resulting from new convenience and value merchandising and marketing efforts. Changes in Pamida comparable store sales in the second quarter of fiscal 2003 by category were as follows: Pharmacy, 20.9%; Hardlines, 1.8%; and Softlines, (4.1)%.

The 4.1 percent decrease in ShopKo comparable store sales during the first half of fiscal 2003 was primarily the result of decreased general merchandise sales as a result of weak consumer sentiment, adjustments to the advertising calendar and competitive store openings, partially offset by strong sales in retail health services. Changes in ShopKo comparable store sales in the first half of fiscal 2003 by category were as follows: Retail Health, 4.6%; Hardlines/Home,
(9.2)%; and Softlines, (6.7)%. The 2.6 percent increase in Pamida comparable store sales during the first half of fiscal 2003 was driven by increased pharmacy and advertised sales, resulting from new convenience and value merchandising and marketing efforts. Changes in Pamida comparable store sales in the first half of fiscal 2003 by category were as follows:

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Pharmacy, 18.2%; Hardlines, (0.5)%; and Softlines, (0.3)%. As mentioned earlier, the increase in Pharmacy sales for the Pamida division is inclusive of new pharmacy openings in existing stores.

Generating sales growth is a Company priority, which will be challenging in the current environment. The Company expects competitive store openings to continue to affect sales in a similar manner for the foreseeable future. To address the sales growth priority, the Company has initiated investments in infrastructure, in both organization and technology, additional store remodeling plans and is continuing store development plans to focus on our strong Retail Health segment and to strengthen performance in Hardlines/Home and Softlines. Moreover, the Company will continue to refine merchandising and advertising techniques in this challenging environment. There can be no assurance that such efforts will succeed.

The Company's store activity is summarized below:

                                                         26 WEEKS ENDED
                                                     -----------------------     YEAR ENDED
                                                     AUGUST 2,     AUGUST 3,     FEBRUARY 1,
                                                       2003           2002          2003
                                                       ----           ----          ----
SHOPKO STORES
     Beginning number of stores                         141           141            141
     Openings                                             0             0              0
     Closings                                             0             0              0
                                                     -------------------------------------
     Ending number of stores                            141           141            141
                                                     =====================================

PAMIDA STORES
     Beginning number of stores                         223           225            225
     Openings                                             0             0              0
     Closings                                             4             1              2
                                                     -------------------------------------
     Ending number of stores                            219           224            223
                                                     =====================================

GROSS MARGIN:

Consolidated gross margin, as a percent of net sales for the second quarter of fiscal 2003, was 26.4 percent compared with 25.5 percent for the same period last year. Consolidated gross margin dollars increased 1.1 percent to $201.7 million for the same period. The adoption of EITF No. 02-16 favorably affected gross margin by 50 basis points, or $4.1 million. Excluding the effect of EITF No. 02-16, the Company experienced improved merchandise margins attributable to reduced shrinkage.

ShopKo's gross margin as a percent of net sales was 26.4 percent in the second quarter compared with 25.5 percent last year. ShopKo's gross margin dollars decreased 1.1 percent to $147.2 million for the same period, due primarily to lower sales volume. The adoption of EITF No. 02-16 favorably affected ShopKo's gross margin by 90 basis points, or $4.9 million. Pamida's gross margin as a percent of net sales was 26.5 percent in the second quarter of fiscal 2003 compared with 25.2 percent last year. Pamida's gross margin dollars increased 7.8 percent to $54.5 million for the same period. The improvement was primarily attributable to continued reductions in shrink expense. The adoption of EITF No. 02-16 adversely affected Pamida's gross margin by 40 basis points or ($0.8) million.

Consolidated gross margin, as a percent of net sales for the first half of fiscal 2003, was 26.1 percent compared with 25.4 percent for the same period last year. Consolidated gross margin dollars were flat at $384.4 million for the same period. The adoption of EITF No. 02-16 favorably affected gross margin by 70 basis points, or $10.4 million. Excluding the effect of

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EITF No. 02-16, the Company experienced compressed merchandise margins attributable to heavier clearance activity in the ShopKo division, offset by reduced shrink expense.

ShopKo's gross margin as a percent of net sales was 26.0 percent in the first half of fiscal 2003 compared with 25.7 percent last year. ShopKo's gross margin dollars decreased 2.8 percent to $283.7 million for the same period, due primarily to increased clearance sales. The adoption of EITF No. 02-16 favorably affected ShopKo's gross margin by 110 basis points or $11.5 million. Pamida's gross margin as a percent of net sales was 26.3 percent in the first half of fiscal 2003 compared with 24.5 percent last year. Pamida's gross margin dollars increased 9.0 percent to $100.7 million for the same period. The improvement was primarily attributable to continued reductions in shrink expense. The adoption of EITF No. 02-16 adversely affected Pamida's gross margin by 30 basis points or ($1.1) million.

The Company uses the last-in, first-out (LIFO) method for substantially all inventories. There was no LIFO charge or credit for the quarters ended August 2, 2003 and August 3, 2002. If the first-in, first-out (FIFO) method had been used to determine cost of inventories, the Company's inventories would have been $2.9 million higher at August 3, 2002. There was no difference between the LIFO and FIFO cost methods at August 2, 2003 and February 1, 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

Consolidated selling, general and administrative (SG&A) expenses, as a percent of net sales for the second quarter, were 21.1 percent compared with 20.1 percent last year. The adoption of EITF No. 02-16 adversely affected consolidated SG&A by 90 basis points or $6.7 million. Excluding the effect of EITF No. 02-16, the Company's expense rate would have increased by ten basis points over the same period last year. The higher rate is primarily attributable to lower sales volume.

ShopKo's selling, general and administrative expenses as a percent of net sales for the second quarter were 19.8 percent compared with 18.5 percent last year. The adoption of EITF No. 02-16 adversely affected SG&A by 130 basis points. Pamida's selling, general and administrative expenses for the second quarter were 20.8 percent of net sales, consistent with the second quarter of last year.

The second quarter difference in the effects of adopting EITF No. 02-16 between the $4.1 million in gross margin and the $6.7 million in SG&A expense, or $2.6 million, relates to the deferred recognition of vendor allowances into inventory until the merchandise is sold.

Consolidated selling, general and administrative (SG&A) expenses as a percent of net sales for the first half of fiscal 2003 were 21.5 percent compared with 20.5 percent last year. The adoption of EITF No. 02-16 adversely affected consolidated SG&A by 100 basis points or $14.4 million. Excluding the effect of EITF No. 02-16, the Company's expense rate would have been comparable with the same period last year.

ShopKo's selling, general and administrative expenses as a percent of net sales for the first half of fiscal 2003 were 20.1 percent compared with 18.8 percent last year. The adoption of EITF No. 02-16 adversely affected SG&A by 140 basis points. Pamida's selling, general and administrative expenses for the first half of fiscal 2003 were 22.1 percent of net sales compared with 21.6 percent for the first half of last year, reflecting store closing costs, increased payroll costs associated with pharmacy growth and increases in incentive compensation costs.

17

DEPRECIATION AND AMORTIZATION EXPENSE:

Consolidated depreciation and amortization expenses as a percent of net sales for the second quarter were 2.7 percent compared with 2.6 percent last year. The increase for the second quarter of fiscal 2003 was primarily attributable to lower sales. For the first half of fiscal 2003 and fiscal 2002, depreciation and amortization expenses were 2.8 percent of net sales.

INTEREST EXPENSE - NET:

Net interest expense for the second quarter of the fiscal year decreased 17.2 percent to $10.6 million and decreased 18.0 percent to $21.2 million for the first half of the fiscal year, when compared with the same periods in the prior fiscal year. The decrease in interest expense of $2.2 million for the second quarter and $4.7 million for the first half of the year was primarily due to reductions in debt levels compared with the prior year.

INCOME TAXES:

The Company's effective tax rate for the second quarter and first half of fiscal 2003 was 39.7 percent which is consistent with the effective tax rate for the second quarter and first half of fiscal 2002.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.

Management believes that its application of applicable accounting policies, and the estimates inherently required therein, are reasonable. Management periodically reevaluates these accounting policies and estimates in the preparation of our financial statements and makes adjustments when facts and circumstances dictate a change. We have identified certain critical accounting policies, which are described below.

Merchandise Inventory. Our merchandise inventory is carried at the lower of cost or market on a last-in, first-out (LIFO) basis. The valuation of inventories at cost requires certain management judgments and estimates, including among others, an assessment of any excess inventory levels, lower of cost or market value of merchandise inventory, and shrinkage rates. These assumptions can have a significant impact on current and future operating results and financial position.

Restructuring Reserve. In connection with the reorganization plan announced in the fourth quarter of fiscal 2000 to close 23 ShopKo retail stores, a distribution center, and to downsize its corporate workforce, the Company incurred a pre-tax charge of $125.0 million related to inventory and property write-downs, lease termination and property carrying costs, and employee separation and other costs. The inventory and fixed asset write-down reserves were recorded in the fourth quarter of fiscal 2000, and the Company closed all 23 stores and the distribution center in fiscal 2001. The Company utilized all of the employee severance reserve

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prior to fiscal 2002. Of the 24 properties initially covered by the restructuring reserve, six were disposed of in fiscal 2001 and nine were disposed of in fiscal 2002, leaving nine remaining properties covered by the restructuring reserve. During the first half of fiscal 2003, no additional leases were terminated or owned properties sold.

The amount of the asset write-downs and reserves for lease termination and property carrying costs are based in part on management's estimates as to the timing for disposition of, sales proceeds from, and disposition costs of the closed facilities. The Company's intention has been, and continues to be, to relieve all obligations associated with the closed facilities. Due to continuing softness in the retail real estate climate, as well as a growing number of vacant retail properties coming on the market as the Company's competitors continue to restructure and downsize their operations, the Company engaged a real estate consulting firm to evaluate the obligations of the remaining four leased closed stores and potential sales prices for the remaining five owned closed store properties during fiscal 2002. Based on this evaluation, the Company lowered the estimated valuations of the properties. Disposition of some properties may also take longer than originally estimated. As a result, the Company took an additional $5.6 million pre-tax impairment charge on the owned properties and an additional $0.4 million charge for future lease obligations on the leased properties during the fourth quarter of fiscal 2002.

The Company believes the reserves are adequate, and continues to negotiate lease terminations with landlords and actively market closed stores for sale. However, due to the unfavorable retail real estate climate described earlier, sales of owned stores and lease terminations have been slower than anticipated. Accordingly, the level of reserves could prove to be inadequate and additional charges may be required. The Company will continue to evaluate the adequacy of the amounts reserved as it proceeds with the disposition of the real estate and termination of the leases.

Vendor Allowances. The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. Allowances provided by vendors generally relate to profitability of inventory recently sold and, accordingly, are reflected as reductions of cost of merchandise sold. Vendor allowances received for advertising or fixturing programs reduce the Company's expense for the related advertising or fixturing program.

LIQUIDITY AND CAPITAL RESOURCES:

The Company's liquidity requirements are met primarily by cash generated from operations, with remaining funding requirements provided by short-term and long-term borrowings. Cash provided by operating activities was $8.8 million for the first half of fiscal 2003 compared with $82.1 million for the same period last year. The change in cash provided by operating activities in comparison to the first half of 2002 was primarily due to changes in merchandise inventory levels, payments of accrued income taxes and lower accruals for compensation and related taxes. The Company finances a significant portion of its operations through vendor financing. As of August 2, 2003, accounts payable totaled $251.0 million. The Company currently maintains favorable terms with its vendors, however these terms could change based on the Company's future operating performance.

As of August 2, 2003, the Company had $247.5 million of Senior Unsecured Notes outstanding. On August 15, 2003, the Company funded the retirement of $89.2 million in aggregate principal amount of notes due August 2003. The remaining Senior Unsecured Notes have maturity dates in November 2004 and March 2022, with approximately $58.2 million principal amount maturing in November 2004. Subject to certain limitations set forth in our amended and restated senior secured revolving credit facility (the "Amended Secured Credit Facility"), proceeds of the facility

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or funds from other sources may be used to retire or repurchase those Senior Unsecured Notes maturing during the term of the Amended Secured Credit Facility. During the first half of fiscal 2003, the Company purchased a combined total of $1.5 million in principal amount of the outstanding Senior Unsecured Notes due in November 2004. The Company anticipates funding the retirement of the notes due November 2004 through a combination of operating cash flow and available borrowings under the Amended Secured Credit Facility. Payments due under the Senior Unsecured Notes could be accelerated in the event the Company defaults on any debt obligation in excess of $25.0 million.

In addition to the Senior Unsecured Notes, the Company had $53.2 million outstanding under its secured credit facility at the end of the second quarter of fiscal 2003 compared with $130.9 million outstanding at the end of the second quarter of fiscal 2002. On August 19, 2003, the Company entered into the Amended Secured Credit Facility, which is secured by the Company's inventory and accounts receivable. The Amended Secured Credit Facility provides for revolving credit borrowings of up to $450.0 million, bearing interest at the bank's base rate plus a margin of 0.0% to 0.25% or the Eurodollar rate plus a margin of 1.5% to 2.0%, depending on borrowing availability under the facility.

The Amended Secured Credit Facility terminates August 19, 2007, limits the payment of dividends, new indebtedness, repurchases of common stock, and capital expenditures, and requires the Company to meet financial performance covenants relating to borrowing availability and minimum operating cash flows. The consequences of failing to comply with the various covenants and requirements range from increasing the interest rate to restrictions on cash management to default and acceleration of the debt. The indebtedness under the Amended Secured Credit Facility can be declared immediately due and payable in the event other Company debt in excess of $10.0 million is accelerated. As of August 2, 2003 and for the first half of fiscal 2003, the Company was in compliance with all covenants in the secured credit facility in place during the first half of the year.

The following schedule sets forth the Company's contractual obligations and commercial commitments as of August 2, 2003 (in thousands):

-----------------------------------------------------------------------------------------------------------
                                                          Less than 1                              After
CONTRACTUAL OBLIGATIONS                        Total         year       2-3 years    4-5 years    5 years
-----------------------------------------------------------------------------------------------------------
Long-Term Debt                               $  300,867   $   90,366   $   61,330   $    5,599   $  143,572
-----------------------------------------------------------------------------------------------------------
Capital Lease Obligations (1)                   184,223       15,119       29,139       26,299      113,666
-----------------------------------------------------------------------------------------------------------
Operating Leases (2)                            207,494       20,198       34,856       31,701      120,739
-----------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations           $  692,584   $  125,683   $  125,325   $   63,599   $  377,977
-----------------------------------------------------------------------------------------------------------

(1) Capital lease obligations represent the total minimum future obligations including interest.

(2) Operating leases are the aggregate future payments for operating leases as of August 2, 2003, including closed stores.

The Company believes that the Amended Secured Credit Facility and expected cash from operations together with continued favorable vendor credit terms, will provide sufficient liquidity to finance continuing operations, including planned capital expenditures, for fiscal 2003 and fiscal 2004. However, if the Company's operating results were to deteriorate significantly for any reason, or if the Company were to require significant additional capital for unexpected events, the Company could suffer liquidity problems, which would materially adversely affect its results of operations and financial condition. Furthermore, as described above, the Company has a significant amount of debt obligations maturing in November 2004. While the Company believes it will have sufficient liquidity to retire these debt obligations as they mature, there can be no assurance that the Company will be able to retire or refinance these obligations. If the Company

20

cannot retire or refinance these obligations as they mature, the Company's results of operations and financial condition will be materially adversely affected.

The Company spent $11.1 million in the second quarter and $14.0 million in the first half of fiscal 2003 on capital expenditures compared with $7.6 million and $10.5 million in the second quarter and first half of fiscal 2002, respectively. During the quarter, the Company completed the remodeling of eleven Pamida stores, began the remodeling of two ShopKo stores, prepared to open two new Pamida stores, and announced the test of a freestanding drug store concept.

The Company's total capital expenditures for fiscal 2003 are anticipated to be approximately $60.0 to $70.0 million. The expected expenditures during the remainder of fiscal 2003 relate primarily to investments in infrastructure, especially technology. The Company also expects that capital expenditures will be made for pharmacy growth, store remodels (including new merchandise initiatives), Pamida new store openings, initial development of a 2004 new store opening program and the test of a freestanding drug store concept. However, the Company does not expect to pursue significant growth of its retail store business through new store construction or acquisitions in fiscal 2003. Such plans may be reviewed and revised from time to time in light of changing conditions. Subsequent to the second quarter of fiscal 2003, the Company announced its intent to expend approximately $20 million in fiscal 2004 in connection with the expansion of the ShopKo distribution center in Omaha, Nebraska to accommodate the consolidation of the Pamida distribution operations located in Omaha, Nebraska into one automated facility serving both divisions.

INFLATION:

Inflation has and is expected to have only a minor effect on the results of operations of the Company and its internal and external sources of liquidity.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS:

Item 2 of this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. Such forward-looking statements include, without limitation, statements regarding earnings, growth and capital expenditure plans and capital requirements. The information under the heading "Forward-Looking Statements and Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended February 1, 2003, which information is incorporated herein by reference, provides cautionary statements identifying, for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, important factors that could cause our actual results to differ materially from those contained in the forward-looking statements, including: a.) significant debt levels; b.) continued availability of vendor financing; c.) failure to achieve the expected benefits of current or future reorganizations; d.) inability to execute future expansion plans; e.) failure to remodel existing stores on schedule or within budget; f.) quarterly performance fluctuations - most notably the highly seasonal nature of the Company's business; g.) competition; h.) long-term economic effects of U.S. and international political unrest and an extended economic slowdown; i.) general economic conditions and weather; j.) smooth functioning of the Company's distribution network; k.) labor conditions;
l.) pending or future changes in federal, state or local laws and regulations and m.) pending or future litigation. In addition, the impact of recent accounting pronouncements described in Item 1 of this report could cause our actual results to differ materially from those anticipated by the forward-looking statements. The Company undertakes no obligation to update any forward-looking statements to reflect subsequent events or circumstances.

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BROKERAGE PARTNERS