MANAGEMENT’S DISCUSSION & ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS in our larger, newer stores, particularly the stores over 10,000 square feet, have been stronger than those in our smaller, older stores. as operating leases, were consolidated in our financial statements effective January 1, 2003. The following table summarizes the components of the changes in our store size and count for fiscal years ended January 31, 2004 and February 1, 2003. Selling, General and Administrative Expenses. Selling, general and administrative expenses, as a percentage of net sales, remained unchanged at 25.9% in 2003; the changes in the components of selling, general and administrative expenses are detailed below: Operating Income. Due to the reasons discussed above, operating income margin was consistent at 10.5% for 2003 and 2002. Interest Income and Expense. Interest income, as a percentage of net sales, was consistent at 0.1% in  2003 and 2002. Interest expense increased $3.6 million primarily due to the consolidation of our variable-interest entity effective January 1, 2003. Income Taxes. Our effective tax rate was 38.5% in  2003 and 2002. Our business requires capital to build and open new stores, expand our distribution network and operate existing stores. Our working capital requirements for existing stores are seasonal and usually reach their peak  in September and October. Historically, we have satisfied our seasonal working capital requirements for existing stores and have funded our store opening and expansion Liquidity and Capital Resources  Of the 3.6 million selling square foot increase in 2003, approximately 0.9 million selling square feet was added by expanding existing stores. Gross Profit. Gross profit margin was 36.4% in 2003 and 2002. While gross profit margin remained consistent year to year, the changes in the components of gross margin are detailed below: • Depreciation expense increased approximately 50 basis points due to our larger new and expanded stores and the continued installation of our new point-of-sale systems and other technology assets. • This increase was partially offset by a decrease of approximately 40 basis points in payroll-related and store operating expenses. Continued improvements  in store-level labor productivity and store supply expenses were the primary drivers of our lower payroll-related and store operating expenses, as a percentage of net sales. • Markdown expense decreased approximately 20 basis points due to better seasonal sell-through, use of point-of-sale data to better manage the buying process and better allocated merchandise across store classes; • Offsetting the markdown improvement was a 20 basis point increase in occupancy costs. This increase was the result of two fewer selling days in 2003 compared to 2002 and increased occupancy rates in our smaller stores which generally experience lower comparable store net sales; • In addition, during 2003, gross profit margin was affected by approximately $3.8 million of additional non-cash depreciation expense in cost of sales associated with the adoption of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities . By adopting FIN 46, four of our distribution centers, previously accounted for DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 19 January 31,  February 1, Fiscal years ended 2004 2003 New stores 183 314 Acquired stores 100 — Expanded or relocated stores 124 110 Closed stores (42) (36)