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 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:  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  (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. 2004 ANNUAL REPORT – PAGE 15 