New Accounting Pronouncements Performance Objectives Shareholder Return 2004 Adoptions 2003 Adoptions Measuring Value Creation 24 Our primary objective is to maximize shareholder value over time through a combination of share price appreci- ation and dividend income while maintaining a prudent and flexible capital structure. Our total annualized return to shareholders (including reinvested dividends) over the last five years averaged 4.2 percent, returning about $123 for each $100 invested in our stock at the beginning of this period. The peer group we refer to in the adjacent graph represents those companies included in the S&P 500 Retailing and S&P 500 Food and Drug Retailing Indices, and is the group we refer to in our proxy statement. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, GLYPH<210>Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51GLYPH<211> (FIN No. 46). FIN No. 46 will be effective no later than the end of the first reporting period that ends after March 15, 2004. FIN No. 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entityGLYPH<213>s expected losses, receives a majority of the entityGLYPH<213>s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. We do not expect the adoption of FIN No. 46 to have a material impact on our net earnings, cash flows or financial position. We measure value creation internally using a form of Economic Value Added (EVA), which we define as after-tax segment profit less a capital charge for all investment employed. The capital charge is an estimate of our after-tax cost of capital adjusted for the age of our stores, recognizing that mature stores inherently have higher returns than newly opened stores. We use a benchmark of 9 percent for the estimated after-tax cost of capital invested in our retail operations and a benchmark of 5 percent for capital invested in our credit card operations, as a result of its ability to support higher debt levels. We expect to continue to generate returns in excess of these benchmarks, thereby producing EVA. EVA is used to evaluate our performance and to guide capital investment decisions. A significant portion of executive incentive compensation is tied to the achievement of targeted levels of annual EVA generation. We believe that managing our business with a focus on EVA helps achieve our objective of average annual earnings per share growth of 15 percent or more over time. Earnings per share has grown at a compound annual rate of 15 percent over the last five years. In the first quarter of 2003, we adopted EITF No. 02-16, GLYPH<210>Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.GLYPH<211> Under the new guidance, cash consider- ation received from a vendor is presumed to be a reduction of the prices of the vendorGLYPH<213>s products or services and should be classified as a reduction in cost of sales. If the cash consideration is for assets or services delivered to the vendor, it should be characterized as revenue. If the cash consideration is a reimbursement of costs incurred to sell the vendorGLYPH<213>s products, it should be characterized as a reduction of that cost. This guidance had no material impact on sales, cash flows or financial position for any period, and had a slight negative impact on net earnings. Our accounting policy regarding vendor income is discussed in the Notes to Consolidated Financial Statements on page 30. In the first quarter of 2003, we adopted SFAS No. 123, GLYPH<210>Accounting for Stock-Based Compensation,GLYPH<211> in accordance with the prospective transition method prescribed in SFAS No. 148, GLYPH<210>Accounting for Stock-Based Compensation GLYPH<209> Transition and Disclosure.GLYPH<211> The fair value based method has been applied prospectively to awards granted subsequent to February 1, 2003 (the last day of our 2002 fiscal year). The adoption of this method increased compensation expense by less than $.01 per share in 2003. Our accounting policy regarding stock-based compensation is discussed in the Notes to Consolidated Financial Statements  on page 30. In the first quarter of 2003, we adopted SFAS No. 143, GLYPH<210>Accounting for Asset Retirement Obligations.GLYPH<211> The adoption did not have an impact on current year or previously reported net earnings, cash flows or financial position. In the first quarter of 2003, we adopted SFAS No. 146, GLYPH<210>Accounting for Costs Associated with Exit or Disposal Activities.GLYPH<211> SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred 5 Year 10 Year 4% —1% 2% 23% 11% 25 15 20 10 5 0 13% Total Annualized Return Target S&P 500 Peer group