(In thousands, except number of stores, share and per share data) DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 31 Reclassifications Fiscal Year Principles of Consolidation Lease Accounting NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Use of Estimates NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At January 29, 2005, Dollar Tree Stores, Inc. (DTS or the Company) owned and operated 2,735 discount variety retail stores that sell substantially all items for $1.00 or less. The Company’s stores operate under the names of Dollar Tree, Dollar Bills, Dollar Express, Only One Dollar, and Only $One. Our stores average approximately 7,475 selling square feet. The Company’s headquarters and one of its distribution centers are located in Chesapeake, Virginia. The Company also operates distribution centers in Mississippi, Illinois, California, Pennsylvania, Georgia, Oklahoma, Utah, and Washington. The Company’s stores are located in all 48 contiguous states. The Company’s merchandise includes candy, food, housewares, health and beauty care, seasonal goods, party goods, toys, stationery, gifts, and other consumer items. Approximately 40% of the Company’s merchandise is imported, primarily from China. The consolidated financial statements include the financial statements of Dollar Tree Stores, Inc., and  its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year was a calendar year in 2002. The Company changed its fiscal year end from December 31 to the Saturday closest to January 31, effective for the fiscal year beginning February 2, 2003 and ending January 31, 2004. The one-month period of January 1, 2003 through February 1, 2003 (the Transition Period) is presented separately in these consolidated financial statements. Unless specifically indicated otherwise, any reference herein to “2004” or “Fiscal 2004” and “2003” or “Fiscal 2003” relates to as of or for the years ended January 29, 2005 and January 31, 2004, respectively. Any references to “2002” or “Fiscal 2002” relate to as of or for the year ended December 31, 2002. Certain 2003 and 2002 amounts have been reclassified for comparability with the current period presentation, including the reclasses noted in the lease accounting discussion above. The Company recognized a one-time non-cash, after-tax adjustment of $5,751, or $0.05 per diluted share, in the fourth quarter of 2004 to reflect the cumulative impact of a correction of its accounting practices related to leased properties. Of the aforementioned amount, approximately $1,230 million, or $0.01 per diluted share, relates to the current year. Consistent with industry practices, in prior periods, the Company had reported its straight line expenses for leases beginning on the earlier of the store opening date or the commencement date of the lease. This had the effect of excluding the pre-opening or build-out period of its stores (generally 60 days) from  the calculation of the period over which it expenses rent. In addition, amounts received as tenant allowances were reflected in the balance sheet as a reduction to store leasehold improvement costs instead of being classified  as deferred lease credits. The adjustment made to correct these practices does not affect historical or future net cash flows or the timing of payments under related leases. Rather, this change affected the classification of costs on the statement of operations and cash flows by increasing depreciation and decreasing rent expense, which is included in cost of sales. In addition, fixed assets and deferred liabilities increased due to the net cumulative unamortized allowances and abatements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.