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ANNUAL REPORT 2005
Corporate Profile     Family Dollar Stores, Inc., operates a chain of almost
6,000 retail discount stores in 44 states. We have provided value-conscious
consumers with competitive prices in our neighborhood stores for more
than 46 years. Our stores offer a core assortment of name-brand and
quality consumable merchandise supplemented by fashion and seasonal
merchandise at everyday low prices in a convenient, self-service shopping
environment. Most merchandise is priced under $10.00.
    Family Dollar is one of the fastest growing retail chains in the United
States. During the last five years, we have opened nearly 2,200 new stores,
including 500 that were opened during the year ended August 27, 2005.
    Family Dollar operates small stores, generally ranging in size from
7,500 to 9,500 square feet, and most are operated in leased facilities. The
relatively small store size permits the Company to operate in rural, small
town, suburban and urban areas. Within these markets, stores are located
in shopping centers, freestanding buildings or in urban storefronts
convenient to the Company’s value-conscious customer base.
    The Company has been a publicly held corporation since 1970, and its
Common Stock is listed on the New York Stock Exchange under the ticker
symbol FDO.
value   Family Dollar Stores, Inc.


                          At the heart of Family Dollar’s mission is
                          the determination to provide exceptional
                          value to the people who are the most
                          important to us — our Shareholders, our
                          Customers and our Associates.

                          The Cooler Initiative: Our stores provide value and convenience to
                          our Customers through an expanded food assortment, which includes
                          refrigerated coolers for those frequent ‘milk and eggs’ fill-in trips.
                          Offering family staples in both perishable and non-perishable foods
                          keeps our Customers coming back day after day.

                          The Urban Initiative: The Urban Initiative addresses the opportunities
                          and challenges of operating in urban markets. Better Customer service
                          and store presentation standards, a more flexible organizational structure
                          and improved processes drive higher financial performance, creating
                          value for our Shareholders, our Customers and our Associates.

                          The Treasure Hunt Initiative: Our Customers appreciate the tremendous
                          value we deliver by offering both exciting and unique Treasure Hunt items,
                          as well as our everyday home and family necessities that they count on.

                          The New Store Initiative: By expanding into new areas and increasing
                          our presence in existing markets, our stores provide value and
                          neighborhood convenience to one of the fastest growing, yet vastly
                          under-served consumer segments.

                          Our Associates: Family Dollar’s most valuable asset is our team of
                          talented and dedicated Associates. We are committed to providing the
                          skills and development tools to allow our Associates to build not just
                          a job, but a career with us.
value                              To Our Shareholders


          As a fellow Shareholder, this is a difficult letter to write.
          While we achieved a record $5.8 billion in sales in fiscal
          2005, a 10.3% increase above 2004, net income was $217.5
          million, a decrease of 15.7% — our first decline in earnings
          since 1995. Despite these disappointing financial results,
          I am more excited than ever about our Company’s future
          prospects and our ability to create value for our Customers,     we could capture a larger portion of our Customers’
          for our Associates, and for you, our Shareholders.               limited wallet.
             We now operate approximately 6,000 stores, and we                 Second, we invested aggressively in our business to
          believe there is ample opportunity to grow the size of our       deliver greater long-term value for our Customers, our
          chain to better serve our expanding customer base. New           Associates and our Shareholders. During our 46-year
          geographical markets like California remain future growth        history, we have made significant investments that affected
          opportunities, and our Urban Initiative creates additional       short-term results but ultimately delivered long-term gains.
          store expansion opportunities in large metropolitan markets,     For example, in 1995, we made strategic investments
          which are largely under-served by other retailers. Our target    in support of our everyday low pricing strategy which
          Customer, the low and lower-middle income population,            had an adverse impact on our financial results that year —
          has experienced significant growth. Over the last five years,    net income declined 7.9%. Although not as quantifiable
          the number of people making less than $25,000 in annual          then, the long-term benefits are now clear: our Customers
          household income has increased more than ten percent,            benefited from lower prices, our Associates benefited
          and the number of families with income below the                 from less complicated merchandising strategies, and our
          poverty level has grown almost eight percent. Clearly,           earnings grew at a double-digit rate in the ensuing years.
          an increasing number of people need the values that                  During 2005, we again made significant investments
          Family Dollar offers.                                            in our business to create greater value for our Customers,
             As I reflect on our performance in 2005, I believe that       our Associates, and our Shareholders. To drive higher sales
          two factors affected our results: a challenging economic         and stronger profitability in both bullish and bearish
          environment and an aggressive investment agenda.                 economic environments, we invested in four strategic
             First, while our operational performance can always be        initiatives last year: the installation of refrigerated coolers
          better, the economic environment for our low and lower-          for the sale of perishable food; the Urban Initiative; our
          middle income Customer was challenging last year.                Treasure Hunt merchandise program; and new stores.
          The average cost of gasoline continued to soar in 2005,          We remain confident that these initiatives create a strong
                                             capturing a larger share of   foundation for our future growth. But that doesn’t mean
                                             our Customers‘ already        that every initiative performed equally well. In 2006, we
                                             strained budgets. As          will increase investment in those initiatives that performed
    Percentage of Consumer
    Households that Shopped                  energy costs increased,       well in 2005 to drive additional returns, and we will refine
        in a Dollar Store                    our Customers had less        and enhance initiatives that have not yet met our
                                             disposable income and         expectations, so that we may accelerate investment for
                                             bought fewer discretionary    higher returns in the future.
                                             items. In response, we            We are positioning Family Dollar to satisfy those fill-in
                                             continued to increase         food shopping trips that our Customers make frequently. At
                                             the value and selection       the beginning of 2005, we had planned to install refrigerated
                                             of basic consumable           coolers for the sale of perishable food in 500 stores.
                                             merchandise, like             However, our Customers reacted so quickly and positively to
       55%

               59%

                      62%

                             66%

                                    67%

                                           68%




                                             perishable food, so that      the program that we doubled our initial plan and installed
         ’00    ’01    ’02    ’03    ’04    ’05

Source: ACNielsen Homescan Consumer Insights 2005




     2
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




“We are committed to delivering value to our Shareholders, our Customers
 and our Associates as we position Family Dollar for future profitable growth.”



    refrigerated coolers in about 1,000 stores last year. This year   of new store openings will enable us to more efficiently
    we will expand the rollout to an additional 2,500 stores, and     accelerate our growth in the future.
    by the end of 2006, more than half of our chain will have             We continue to build our management team with
    refrigerated coolers.                                             strong talent to support our growth opportunity. Some
        In 2005, we launched our Urban Initiative in 1,200            excellent new players have joined our talented team of
    stores to address the unique challenges of operating high-        seasoned veterans, and we have realigned our senior
    volume stores in large metropolitan markets. The Urban            management structure to better support our cross-
    Initiative is designed to increase profitability in these         functional strategic agenda. As I assess Family Dollar
    markets through investments in people, process changes            today, I believe that we have a strong, cohesive team,
    and technology, including organizational changes to               and our new management alignment is having a tangible
    support a more mobile and flexible workforce. While               impact on our results.
    stores in the Urban Initiative experienced higher than                In the fourth quarter of 2005, our Board of Directors
    average sales growth and continued to be profitable, the          authorized the repurchase of $300 million of the
    program did not achieve our profitability goals in 2005.          Company’s Common Stock. In September 2005, we took
    We will continue to invest in the current Urban Initiative        advantage of a compelling stock price and a favorable
    markets in 2006, but we will not expand the program into          interest rate environment to repurchase ten million shares
    new markets until we have refined processes and                   of Family Dollar Common Stock using proceeds of a $250
    generated expected results.                                       million private placement of long-term debt. The issuance
        We experienced one of our strongest holiday seasons           of debt when combined with the stock repurchase program
    ever in 2005, generating comparable store sales increases         will enhance Shareholder value while continuing to
    of 5% in November and 4% in December. The addition of             maintain a strong financial position.
    exciting Treasure Hunt merchandise drove these results as             Fiscal 2005 was a challenging year, but, thanks to the
    our Customers were delighted to find unexpected holiday           hard work of all of our Associates, we made significant
    “treasures” at Family Dollar. We will expand our Treasure         progress in building the foundation upon which we intend
    Hunt merchandise program in 2006 to include more                  to increase our market share and profitability. I remain
    surprises for our Customers, better in-store presentations        excited about the growth opportunity that exists for our
    and improved merchandise allocations to stores to drive           Company, and I am confident in our ability to realize this
    higher inventory turns.                                           opportunity and deliver value to our Customers, our
        In 2005, we continued our aggressive store expansion          Associates, and you, our Shareholders.
    program with the opening of 500 new stores, but the
    timing of new store openings was weighted heavily toward
    the end of the fiscal year, increasing costs and operational
    inefficiencies. While we will maintain our commitment to
    new store growth with plans to open about 400 new stores                              HOWARD R. LEVINE
    in 2006, this slower rate of growth will allow us to focus on         CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
                                                                                            November 2005
    building processes to support an even distribution of store
    openings throughout the year. Creating a more steady flow




                                                                                                                                   3
value                                        The Cooler Initiative



     Milk. Eggs. Bread. These are the basics of every               As a result of enthusiastic and immediate Customer
     family’s pantry and are replenished more often than          response expressed through increased traffic and
     any other food items. They are the core of our               sales, we accelerated our refrigerated cooler program
     expanded food strategy. While many of our                    and installed coolers in about 1,000 of our stores in
     Customers make larger stock-up trips to refill their         2005. While some of the sales increases are a direct
     pantries, they also fit in more than 40 trips a year to      result of sales of new cooler items, we have leveraged
     pick up a gallon of milk or to buy more snacks for           the additional traffic to increase sales in other
     their children’s lunches. We have expanded our food          departments, resulting in larger Customer purchases
     assortment to provide Customers with more                    that include both perishable food and other items.
     neighborhood convenience and value for these                   In 2006, we will install refrigerated coolers in
     frequent fill-in trips.                                      approximately 2,500 additional stores, and by the
        Low and lower-middle income consumers spend a             end of our fiscal year, we will have coolers in more
     significant portion of their limited budgets on food.        than half our chain. Ultimately, we expect to install
     While Family Dollar doesn’t intend to be a full-service      refrigerated coolers in almost all of our stores.
     grocery store, we will satisfy the fill-in food trip needs   Offering everyday food necessities will keep our
     of our Customers by offering a variety of ready-to-eat       Customers coming back to Family Dollar day in and
     and quick preparation foods for breakfast, lunch,            day out.
     dinner and snack time. With limited budgets and
     cabinet space, busy moms like Gloria, who need to
     pick up milk and cereal for breakfast or bread and
     sandwich meat for lunch, know they can count on us
     for value and convenience.




 4
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




         “Family Dollar
          always has
          just what I
          need. My
          family and I
          value both
          the savings
          and the
          convenience.”
           Gloria and Kyla,
           Family Dollar Customers




                                            5
value                                       The Urban Initiative



     Urban markets represent a significant opportunity         teams drive our success in these markets, and we
     to provide under-served consumers with value and          have enhanced our training programs and leveraged
     neighborhood convenience. Two-thirds of all               technology to create a pipeline of qualified urban
     consumer spending occurs in the largest 50                store management candidates in anticipation of
     metropolitan markets, and inner city urban areas tend     predicted personnel needs. We have improved store
     to be the most under-served retail space. Yet, while      presentation standards and customer service, and we
     urban markets offer great opportunities, they also        have implemented new loss prevention technology
     present great operating challenges. Our stores in         and procedures to address elevated inventory
     urban markets serve more Customers and produce            shrinkage in urban locations.
     higher sales than stores in smaller towns, creating a       To address the higher costs inherent in operating
     greater velocity of products and people that is more      in urban markets, we are implementing a price
     difficult to manage. Available retail space is often      optimization strategy that enables us to provide
     older, smaller and has more restrictive delivery and      Customers with competitive prices on their everyday
     transportation conditions due to city ordinances and      needs but also allows us to partially offset the impact
     physical location. Higher crime, inventory shrinkage      of operating in these more expensive markets.
     risks and operating costs, including labor, rent and      We are also improving our supply chain to address
     other expenses, make it more challenging to operate       the challenges of producing increased sales and
     profitably in urban markets. Despite these obstacles,     inventory turns within the limited space common in
     we believe the opportunities in urban markets             urban stores.
     outweigh these challenges.                                  In 2005, we implemented the Urban Initiative in
        To address these challenges and drive higher           1,200 stores in major urban markets. While we have
     financial returns, we have developed the Urban            increased our investment in these stores, we have
     Initiative. The Urban Initiative is designed to improve   also increased the sales. The marginal contribution
     the consistency of customer service and operations        of the incremental sales is now offsetting the
     and drive higher financial performance through            incremental cost, but our goal is to create even more
     investments in people, process changes and                value for our Shareholders. In 2006, we plan to make
     technology. To respond to the fast-changing               dynamic adjustments to the existing program to drive
     dynamics of the urban market, we created a mobile         further performance improvement, producing
     and flexible Store Operations organization focused on     additional value for our Shareholders, our Customers
     managing by market areas, rather than operating           and our Associates.
     each store individually. Talented, experienced store




 6
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




“I am proud
 to manage a
 store where we
 bring value to
 Customers in
 my community.”
 Trina and Wanda,
 Family Dollar Associates




                                                                        7
value                                        The Treasure Hunt Initiative



     Our Customers tell us that they need the household       strategies. Advertising circulars help us tell our
     items that we consistently provide at our great,         Customers about the great everyday values in both
     everyday low prices. But they also tell us how much      Treasure Hunt and basic consumable merchandise.
     they love finding unexpected “treasures” that add          We began offering our Treasure Hunt merchandise
     excitement and “WOW!” to their shopping trips.           program to our Customers during the 2004 holiday
        While we continue to provide more value for our       season. Our Customers responded favorably, and our
     Customers by adding brand name, basic consumable         holiday sales were better than the economic
     merchandise to our assortment, we also are               conditions would have predicted. This year, we will
     increasing our selection of exciting Treasure Hunt       build upon last year’s successful holiday season by
     merchandise. Through opportunistic purchases and         providing additional Treasure Hunt values to keep the
     global sourcing, our merchants are creating a steady     Family Dollar shopping experience surprising, fresh
     stream of unique and compelling values for               and compelling.
     Customers. Fun Treasure Hunt merchandise is offered        Our refrigerated cooler program and Urban
     in almost every department so that a tired mom can       Initiative drive more traffic into our stores as
     put a smile on her child’s face with a new toy or her    Customers seek great values on basic consumable
     own with a trendy knickknack to add some spark to        merchandise, which generally has low profit margins.
     her living room. As you can see on the next page,        We intend to leverage these Customer trips by
     even our littlest Customers are delighted by our         offering exciting, unexpected “treasures” with higher
     merchandise, and Brock’s mom is pleased by the           profit margins, in addition to our excellent values
     great value she gets for her dollar.                     offered on everyday consumables.
        Treasure Hunt merchandise affords us an additional      While the focus of our Treasure Hunt items thus far
     opportunity to improve our in-store presentation and     has been fashion accessories, giftware and seasonal
     merchandise profitability. Our store Associates are      merchandise, we intend to expand our Treasure Hunt
     excited to offer their Customers an ever-changing        assortment into other categories to increase the total
     selection of seasonal and stylish merchandise at great   value proposition that we offer to our Customers.
     values, and our logistical specialists are improving
     their ability to get the right quantities to the right
     stores at the right time so we can maximize sales and
     minimize markdowns. Everyday low pricing continues
     to be the foundation of our merchandise and pricing




 8
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




”My son thinks your toys are
 the coolest. I just think they’re
 an amazing value.”
 Heather and Brock, Family Dollar Customers




                                                                                          9
value                                          The New Store Initiative



      Our small stores provide value and neighborhood               New stores not only increase our sales as we
      convenience to low and lower-middle income                  serve new Customers, but also create valuable devel-
      consumers, one of the fastest growing population            opment opportunities for Family Dollar Associates.
      segments in the U.S. During the last five years, the        In fact, in 2005 many of our new store managers were
      number of households with annual income below               promoted from within our organization. At right, Patty,
      $25,000 has increased more than ten percent, and            a dedicated Family Dollar Store Manager, arranges a
      the number of families with income below the poverty        festive holiday presentation to build excitement for
      level has grown almost eight percent. To address            her Customers during Grand Opening Day at the new
      this under-served population, we have aggressively          store she will manage.
      opened new stores to provide more value and                   In 2005, we opened 500 new stores. However,
      convenience to this growing customer base.                  with a large number of those new stores opened in
        To maximize the return on our investment, we              the last two months of the fiscal year, we created
      don’t place new Family Dollar stores in the first empty     unnecessary cost and operational inefficiencies. To
      lot we see or in any retail strip center with available     create more value for our Shareholders, we will slow
      space. Sophisticated evaluation processes and               our new store growth to about 400 stores in 2006
      technology ensure that new Family Dollar stores are         and build processes that support a more balanced
      advantageously located in the neighborhoods of our          schedule of store openings. Creating a more steady
      Customers, providing convenient shopping for their          flow of new store openings will enable us to more
      everyday needs. Advanced modeling techniques help           efficiently accelerate our growth in the future,
      us predict which neighborhoods will provide us with         creating greater value for our Shareholders, our
      the best opportunity for sales and profitability. We        Customers and our Associates.
      consider many variables in deciding where to locate a
      store, including customer demographics and site
      attributes such as traffic patterns, visibility and
      accessibility, as well as the overall projected financial
      return compared to the cost of the investment.




 10
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




       “Opening
        new stores
        is just one
        way we
        serve our
        expanding
        Customer
        base and
        bring value
        to our
        Shareholders.”
          Patty, Family Dollar Store Manager




                                               11
value                                       Our Associates



      Family Dollar’s Associates are our greatest                  One of our top priorities is to provide our Associates
      competitive advantage and our most valuable asset.         with a compelling place to work. To achieve this
      We employ more than 42,000 hard-working and                objective, we have invested in building career paths for
      talented Associates in our stores, distribution centers    each position to create development choices for those
      and corporate offices. But at Family Dollar, we’re not     Associates who wish to grow in their careers with the
      satisfied with creating and providing jobs; we’re          Company. Here at Family Dollar, we prefer to promote
      committed to building careers. The Company’s               talented Associates from within. To support these
      financial stability and growth opportunities attract top   efforts, we offer focused training and professional
      candidates to the Company; training, defined career        development programs that allow Associates to
      paths and significant potential for advancement            progress up the Family Dollar career ladder.
      keep them here.                                              To attract and retain talented Associates, we
        Our success begins with recruiting. In 2005, we          must offer equitable and competitive compensation.
      created a significant number of new jobs to support        During the last several years, we have partnered with
      our growth. We opened 500 new stores, creating             a leading compensation consultant to review and
      more than 3,000 jobs primarily in the neighborhoods        improve our compensation programs. In 2006, we
      where our Customers live. We opened our eighth             have asked our Shareholders to approve equity-based
      distribution center in Marianna, Florida, creating more    compensation programs that are based on pay for
      than 400 new positions, such as the one filled by          performance principles. These new compensation
      Brian in the shipping department. In 2006, with the        programs will better support our efforts to recruit and
      opening of our ninth distribution center in Rome,          retain talented Associates who will help us realize
      New York, we will create additional career                 Family Dollar’s growth opportunity.
      opportunities. To support our aggressive growth              Our dedicated training programs, career growth
      agenda, we have developed end-to-end technology            and advancement opportunities and equitable
      applications that have improved our recruiting,            compensation programs will help us hire and retain
      screening and selection processes.                         talented Family Dollar Associates and will drive higher
                                                                 returns for Shareholders.




 12
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




”The opportunities that Family Dollar offers let
 me know they value me as an Associate.”
 Brian, Family Dollar Distribution Center Associate




                                                                                                 13
value                                                              Family Dollar Stores, Inc.

      Family Dollar Stores, Inc. and Subsidiaries

      Financial Highlights
      As of August 27, 2005

           Years Ended (In thousands, except per share amounts and store data)                                August 27, 2005                              August 28, 2004

           Net sales                                                                                           $ 5,824,808                                     $ 5,281,888
           Cost of sales                                                                                             3,908,569                                     3,496,278
           Gross margin                                                                                              1,916,239                                     1,785,610
           Selling, general and administrative expenses                                                              1,573,444                                     1,378,948
           Income before income taxes                                                                                  342,795                                         406,662
           Income taxes                                                                                                125,286                                         148,758
           Net income                                                                                          $       217,509                                 $       257,904

           Net income per common share – basic                                                                 $               1.30                            $              1.51

           Net income per common share – diluted                                                               $               1.30                            $              1.50

           Dividends declared                                                                                  $            61,538                             $           56,077
           Dividends declared per common share                                                                 $               0.37                            $              0.33
           Total assets                                                                                        $ 2,409,501                                     $ 2,224,361
           Working capital                                                                                     $       460,157                                 $       489,727
           Shareholders’ equity                                                                                $ 1,428,066                                     $ 1,337,082
           Comparable store sales gain                                                                                              2.3%                                           1.9%
           Stores opened                                                                                                        500                                                500
           Stores closed                                                                                                            (68)                                           (61)
           Number of stores – end of year                                                                                    5,898                                          5,466




                                  Net Sales                        Net Income                     Net Income Per                           Shareholders’ Equity
                                                                                              Diluted Common Share
                         (millions of dollars)                   (millions of dollars)                                                           (millions of dollars)
                                                                                                             (dollars)
                 3,665

                          4,163

                                   4,750

                                           5,282

                                                   5,825




                                                                                                                                                   1,141

                                                                                                                                                           1,292

                                                                                                                                                                   1,337

                                                                                                                                                                           1,428
                                                                                               1.08

                                                                                                      1.22

                                                                                                              1.40

                                                                                                                     1.50

                                                                                                                             1.30
                                                           186

                                                                  213

                                                                         243

                                                                                258

                                                                                       218




                                                                                                                                           949




                   ’01      ’02      ’03     ’04     ’05    ’01    ’02    ’03    ’04    ’05     ’01    ’02     ’03    ’04     ’05           ’01      ’02     ’03     ’04     ’05




 14
FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005




Stores and Distribution Centers
As of August 27, 2005


                                                                                                Maquoketa
                                                                                                                                                                   Rome*
                                                                                                Distribution
                                                                                                                                                                 Distribution
                                                                                                  Center
                                                                                                                                                                   Center
                                                                                                                                                                                                             39

                                                                                                                                          Morehead
                                                                            6
                                                                                                                                          Distribution
                                                                                                                                                                                            9
                                                                                                                                            Center                                                20
                                                                                               63

                                                                                                                                                                                                 87
                             21                                                                                 133                                                                257                  20
                                                                            7                                                 306                                                               50
                                                   9
                                                                                                                                                                   227                   61
                                                                                                    36
                                                                             26
                19                                                                                                                                                         85
                                                                                                                                                                                     22
                                                                                                                            172                                            5
                                                                                                                  200                                                                                    Front Royal
                                    52
                                                                                                                                                      110                                                Distribution
                                                         82                                                                                                         203
                                                                                                                                                                                                           Center
                                                                                   34                    89
                                                                                                                                  178

                                                                                                                                                                   309
                                                                                                                             192
                                                                                        112
                                                                                                                                                            174
                              120                                                                         98                                                                           Matthews
                                                    86
                                                                                                                                                                                   Corporate Offices
                                                                                                                                                289                                 and Distribution
                                                                                                                              143
                                                                                                                      109
                                                                                                                                                                                        Center

                                                                                 739                      211


                                                                                                                                                            318
                                           Odessa
                                         Distribution
                                                                                                                              Marianna
                                           Center                                                   West Memphis
                                                                                                                             Distribution
                                                                                                     Distribution
                                                           Duncan                                                              Center
                                                                                                       Center
                                                         Distribution
                                                           Center




                                  Distribution Service Areas*                                                                                               Number of Stores
                                                                                                                                                                 as of fiscal year end
                     Marianna, Florida                                          Duncan, Oklahoma
                     907,000 Square Feet                                        907,000 Square Feet
                     Opened 2005                                                Opened 1999

                     Odessa, Texas                                              Front Royal, Virginia
                     907,000 Square Feet                                        907,000 Square Feet
                     Opened 2003                                                Opened 1998

                     Maquoketa, Iowa                                            West Memphis, Arkansas
                     907,000 Square Feet                                        850,000 Square Feet
                     Opened 2002                                                Opened 1994
                                                                                                                                        2,581
                                                                                                                                                 2,767
                                                                                                                                                         3,017
                                                                                                                                                                   3,324
                                                                                                                                                                           3,689
                                                                                                                                                                                    4,141
                                                                                                                                                                                                4,616
                                                                                                                                                                                                         5,027
                                                                                                                                                                                                                  5,466
                                                                                                                                                                                                                          5,898




                     Morehead, Kentucky                                         Matthews, North Carolina
                     907,000 Square Feet                                        890,000 Square Feet
                     Opened 2000                                                Opened 1974

                                                                                                                                         ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05
                     * Opening in 2006: Rome, New York Distribution Center, 907,000 Square Feet




                                                                                                                                                                                                                                  15
value                 Corporate and Shareholder Information


      Directors
      Mark R. Bernstein 2, 3*               Edward C. Dolby 1                   Howard R. Levine                        James G. Martin 1, 2*, 3
      Retired Partner (Of Counsel),         President, The Edward C. Dolby      Chairman of the Board and               Corporate Vice President,
      Parker, Poe, Adams and Bernstein      Strategic Consulting Group, LLC     Chief Executive Officer,                Carolinas HealthCare System
      L.L.P. Attorneys at Law;                                                  Family Dollar Stores, Inc.
                                            Glenn A. Eisenberg 1*                                                       1. Audit Committee
      Lead Director                         Executive Vice President,           George R. Mahoney, Jr.                  2. Compensation Committee
      Sharon Allred Decker                  Finance and Administration,         Retired, Former Executive Vice
                             2, 3
                                                                                                                        3. Nominating/Corporate Governance
                                                                                                                           Committee
      Chief Executive Officer,              The Timken Company                  President, Family Dollar Stores, Inc.
                                                                                                                        * Committee Chairperson
      The Tapestry Group, LLC


      Officers
      Howard R. Levine                      Janet G. Kelley                     Mark S. Chidester                       Dennis C. Merriam
      Chairman of the Board and             Senior Vice President —             Vice President — Human                  Vice President —
      Chief Executive Officer               General Counsel and Secretary       Resources, Store Operations             Human Resources, Distribution
                                                                                                                        and Employee Relations
      R. James Kelly                        John J. Scanlon                     Ramesh Chikkala
      Vice Chairman,                        Senior Vice President —             Vice President — Store Process          Jacob J. Modla
      Chief Financial Officer and           Hardlines and Marketing             Improvement                             Assistant General Counsel —
      Chief Administrative Officer                                                                                      Litigation
                                            C. Martin Sowers                    Charles D. Curry
      Robert A. George                      Senior Vice President — Finance     Vice President — Real Estate,           John R. Moffitt
      Executive Vice President —                                                Store Planning and Development          Vice President — Allocation
                                            Barry W. Sullivan
      Chief Merchandising Officer                                                                                       and Replenishment
                                            Senior Vice President —             Allen W. Fields
      Charles S. Gibson, Jr.                Store Operations                    Vice President — Store Operations       Stephen F. Phillips
      Executive Vice President —                                                                                        Vice President — Store Operations
                                            Elizabeth M. Austin                 Eric C. Gordon
      Supply Chain                          Vice President — Information        Vice President —                        Richard P. Siliakus
      Dorlisa K. Flur                       Technology Operations               Business Applications                   Vice President — General
      Senior Vice President —                                                                                           Merchandise Manager, Hardlines
                                            Samuel J. Bernstein                 R. Dodd Haynes
      Strategy and Business                 Vice President — Marketing          Vice President — Internal Audit         Kenneth T. Smith
      Development                                                                                                       Vice President — Finance
                                            Earl C. Bonnecaze                   Dennis A. Heskett
      Keith M. Gehl                         Vice President — Store Operations   Vice President — Store Operations       Jerome G. Vickers
      Senior Vice President —                                                                                           Vice President — Store Operations
                                            James R. Bowen                      Billy W. Jones, Jr.
      Construction and Facilities
                                            Vice President — Distribution       Vice President — Distribution           Michael J. Zuege
      Management
                                                                                                                        Vice President — Loss Prevention
                                            James W. Burns                      Timothy A. Matz
      Joshua R. Jewett
                                            Vice President — Transportation     Vice President — General                Daylon W. Powell
      Senior Vice President —
                                                                                Merchandise Manager, Hardlines          Assistant Treasurer
                                            Bryan P. Causey
      Chief Information Officer
                                            Vice President — Planning and                                               Janice B. Burris
                                            Merchandise Control                                                         Assistant Secretary



      Shareholder Information
      Annual Meeting                                                            Form 10-K and SEC and NYSE Certifications
      The Annual Meeting of Shareholders will be held at 2:00 p.m.              A copy of the Form 10-K filed by the Company with the Securities and
      at the Company’s Corporate Headquarters at 10401 Monroe Road,             Exchange Commission (the “SEC”) for fiscal 2005, which includes as
      Matthews, North Carolina, on Thursday, January 19, 2006.                  Exhibits the Chief Executive Officer and Chief Financial Officer
                                                                                Certifications required to be filed with the SEC pursuant to Section 302
      Independent Registered Public Accounting Firm
                                                                                of the Sarbanes-Oxley Act, may be obtained by shareholders without
      PricewaterhouseCoopers LLP
                                                                                charge upon written request to Janice B. Burris, Assistant Secretary, at
      Charlotte, North Carolina 28202
                                                                                the Corporate Headquarters. The Form 10-K is also available on Family
      Transfer Agent and Registrar                                              Dollar’s website at www.familydollar.com. The Company has filed with
      Mellon Investor Services LLC                                              the New York Stock Exchange (the “NYSE”) the Certification of its Chief
      480 Washington Boulevard                                                  Executive Officer confirming that the Company has complied with the
      Jersey City, New Jersey 07310                                             NYSE corporate governance listing standards.
      1-800-676-0868; 1-800-231-5469 (for hearing impaired);
      1-201-329-8660 (for foreign shareholders)
      www.melloninvestor.com




 16
value




FAMILY DOLLAR STORES, INC.       Post Office Box 1017        Charlotte, North Carolina 28201-1017       www.familydollar.com
                             ■                           ■                                          ■

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Family Dollar 2005 Annual Report Highlights Record Sales and Investments

  • 2. Corporate Profile Family Dollar Stores, Inc., operates a chain of almost 6,000 retail discount stores in 44 states. We have provided value-conscious consumers with competitive prices in our neighborhood stores for more than 46 years. Our stores offer a core assortment of name-brand and quality consumable merchandise supplemented by fashion and seasonal merchandise at everyday low prices in a convenient, self-service shopping environment. Most merchandise is priced under $10.00. Family Dollar is one of the fastest growing retail chains in the United States. During the last five years, we have opened nearly 2,200 new stores, including 500 that were opened during the year ended August 27, 2005. Family Dollar operates small stores, generally ranging in size from 7,500 to 9,500 square feet, and most are operated in leased facilities. The relatively small store size permits the Company to operate in rural, small town, suburban and urban areas. Within these markets, stores are located in shopping centers, freestanding buildings or in urban storefronts convenient to the Company’s value-conscious customer base. The Company has been a publicly held corporation since 1970, and its Common Stock is listed on the New York Stock Exchange under the ticker symbol FDO.
  • 3. value Family Dollar Stores, Inc. At the heart of Family Dollar’s mission is the determination to provide exceptional value to the people who are the most important to us — our Shareholders, our Customers and our Associates. The Cooler Initiative: Our stores provide value and convenience to our Customers through an expanded food assortment, which includes refrigerated coolers for those frequent ‘milk and eggs’ fill-in trips. Offering family staples in both perishable and non-perishable foods keeps our Customers coming back day after day. The Urban Initiative: The Urban Initiative addresses the opportunities and challenges of operating in urban markets. Better Customer service and store presentation standards, a more flexible organizational structure and improved processes drive higher financial performance, creating value for our Shareholders, our Customers and our Associates. The Treasure Hunt Initiative: Our Customers appreciate the tremendous value we deliver by offering both exciting and unique Treasure Hunt items, as well as our everyday home and family necessities that they count on. The New Store Initiative: By expanding into new areas and increasing our presence in existing markets, our stores provide value and neighborhood convenience to one of the fastest growing, yet vastly under-served consumer segments. Our Associates: Family Dollar’s most valuable asset is our team of talented and dedicated Associates. We are committed to providing the skills and development tools to allow our Associates to build not just a job, but a career with us.
  • 4. value To Our Shareholders As a fellow Shareholder, this is a difficult letter to write. While we achieved a record $5.8 billion in sales in fiscal 2005, a 10.3% increase above 2004, net income was $217.5 million, a decrease of 15.7% — our first decline in earnings since 1995. Despite these disappointing financial results, I am more excited than ever about our Company’s future prospects and our ability to create value for our Customers, we could capture a larger portion of our Customers’ for our Associates, and for you, our Shareholders. limited wallet. We now operate approximately 6,000 stores, and we Second, we invested aggressively in our business to believe there is ample opportunity to grow the size of our deliver greater long-term value for our Customers, our chain to better serve our expanding customer base. New Associates and our Shareholders. During our 46-year geographical markets like California remain future growth history, we have made significant investments that affected opportunities, and our Urban Initiative creates additional short-term results but ultimately delivered long-term gains. store expansion opportunities in large metropolitan markets, For example, in 1995, we made strategic investments which are largely under-served by other retailers. Our target in support of our everyday low pricing strategy which Customer, the low and lower-middle income population, had an adverse impact on our financial results that year — has experienced significant growth. Over the last five years, net income declined 7.9%. Although not as quantifiable the number of people making less than $25,000 in annual then, the long-term benefits are now clear: our Customers household income has increased more than ten percent, benefited from lower prices, our Associates benefited and the number of families with income below the from less complicated merchandising strategies, and our poverty level has grown almost eight percent. Clearly, earnings grew at a double-digit rate in the ensuing years. an increasing number of people need the values that During 2005, we again made significant investments Family Dollar offers. in our business to create greater value for our Customers, As I reflect on our performance in 2005, I believe that our Associates, and our Shareholders. To drive higher sales two factors affected our results: a challenging economic and stronger profitability in both bullish and bearish environment and an aggressive investment agenda. economic environments, we invested in four strategic First, while our operational performance can always be initiatives last year: the installation of refrigerated coolers better, the economic environment for our low and lower- for the sale of perishable food; the Urban Initiative; our middle income Customer was challenging last year. Treasure Hunt merchandise program; and new stores. The average cost of gasoline continued to soar in 2005, We remain confident that these initiatives create a strong capturing a larger share of foundation for our future growth. But that doesn’t mean our Customers‘ already that every initiative performed equally well. In 2006, we strained budgets. As will increase investment in those initiatives that performed Percentage of Consumer Households that Shopped energy costs increased, well in 2005 to drive additional returns, and we will refine in a Dollar Store our Customers had less and enhance initiatives that have not yet met our disposable income and expectations, so that we may accelerate investment for bought fewer discretionary higher returns in the future. items. In response, we We are positioning Family Dollar to satisfy those fill-in continued to increase food shopping trips that our Customers make frequently. At the value and selection the beginning of 2005, we had planned to install refrigerated of basic consumable coolers for the sale of perishable food in 500 stores. merchandise, like However, our Customers reacted so quickly and positively to 55% 59% 62% 66% 67% 68% perishable food, so that the program that we doubled our initial plan and installed ’00 ’01 ’02 ’03 ’04 ’05 Source: ACNielsen Homescan Consumer Insights 2005 2
  • 5. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 “We are committed to delivering value to our Shareholders, our Customers and our Associates as we position Family Dollar for future profitable growth.” refrigerated coolers in about 1,000 stores last year. This year of new store openings will enable us to more efficiently we will expand the rollout to an additional 2,500 stores, and accelerate our growth in the future. by the end of 2006, more than half of our chain will have We continue to build our management team with refrigerated coolers. strong talent to support our growth opportunity. Some In 2005, we launched our Urban Initiative in 1,200 excellent new players have joined our talented team of stores to address the unique challenges of operating high- seasoned veterans, and we have realigned our senior volume stores in large metropolitan markets. The Urban management structure to better support our cross- Initiative is designed to increase profitability in these functional strategic agenda. As I assess Family Dollar markets through investments in people, process changes today, I believe that we have a strong, cohesive team, and technology, including organizational changes to and our new management alignment is having a tangible support a more mobile and flexible workforce. While impact on our results. stores in the Urban Initiative experienced higher than In the fourth quarter of 2005, our Board of Directors average sales growth and continued to be profitable, the authorized the repurchase of $300 million of the program did not achieve our profitability goals in 2005. Company’s Common Stock. In September 2005, we took We will continue to invest in the current Urban Initiative advantage of a compelling stock price and a favorable markets in 2006, but we will not expand the program into interest rate environment to repurchase ten million shares new markets until we have refined processes and of Family Dollar Common Stock using proceeds of a $250 generated expected results. million private placement of long-term debt. The issuance We experienced one of our strongest holiday seasons of debt when combined with the stock repurchase program ever in 2005, generating comparable store sales increases will enhance Shareholder value while continuing to of 5% in November and 4% in December. The addition of maintain a strong financial position. exciting Treasure Hunt merchandise drove these results as Fiscal 2005 was a challenging year, but, thanks to the our Customers were delighted to find unexpected holiday hard work of all of our Associates, we made significant “treasures” at Family Dollar. We will expand our Treasure progress in building the foundation upon which we intend Hunt merchandise program in 2006 to include more to increase our market share and profitability. I remain surprises for our Customers, better in-store presentations excited about the growth opportunity that exists for our and improved merchandise allocations to stores to drive Company, and I am confident in our ability to realize this higher inventory turns. opportunity and deliver value to our Customers, our In 2005, we continued our aggressive store expansion Associates, and you, our Shareholders. program with the opening of 500 new stores, but the timing of new store openings was weighted heavily toward the end of the fiscal year, increasing costs and operational inefficiencies. While we will maintain our commitment to new store growth with plans to open about 400 new stores HOWARD R. LEVINE in 2006, this slower rate of growth will allow us to focus on CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER November 2005 building processes to support an even distribution of store openings throughout the year. Creating a more steady flow 3
  • 6. value The Cooler Initiative Milk. Eggs. Bread. These are the basics of every As a result of enthusiastic and immediate Customer family’s pantry and are replenished more often than response expressed through increased traffic and any other food items. They are the core of our sales, we accelerated our refrigerated cooler program expanded food strategy. While many of our and installed coolers in about 1,000 of our stores in Customers make larger stock-up trips to refill their 2005. While some of the sales increases are a direct pantries, they also fit in more than 40 trips a year to result of sales of new cooler items, we have leveraged pick up a gallon of milk or to buy more snacks for the additional traffic to increase sales in other their children’s lunches. We have expanded our food departments, resulting in larger Customer purchases assortment to provide Customers with more that include both perishable food and other items. neighborhood convenience and value for these In 2006, we will install refrigerated coolers in frequent fill-in trips. approximately 2,500 additional stores, and by the Low and lower-middle income consumers spend a end of our fiscal year, we will have coolers in more significant portion of their limited budgets on food. than half our chain. Ultimately, we expect to install While Family Dollar doesn’t intend to be a full-service refrigerated coolers in almost all of our stores. grocery store, we will satisfy the fill-in food trip needs Offering everyday food necessities will keep our of our Customers by offering a variety of ready-to-eat Customers coming back to Family Dollar day in and and quick preparation foods for breakfast, lunch, day out. dinner and snack time. With limited budgets and cabinet space, busy moms like Gloria, who need to pick up milk and cereal for breakfast or bread and sandwich meat for lunch, know they can count on us for value and convenience. 4
  • 7. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 “Family Dollar always has just what I need. My family and I value both the savings and the convenience.” Gloria and Kyla, Family Dollar Customers 5
  • 8. value The Urban Initiative Urban markets represent a significant opportunity teams drive our success in these markets, and we to provide under-served consumers with value and have enhanced our training programs and leveraged neighborhood convenience. Two-thirds of all technology to create a pipeline of qualified urban consumer spending occurs in the largest 50 store management candidates in anticipation of metropolitan markets, and inner city urban areas tend predicted personnel needs. We have improved store to be the most under-served retail space. Yet, while presentation standards and customer service, and we urban markets offer great opportunities, they also have implemented new loss prevention technology present great operating challenges. Our stores in and procedures to address elevated inventory urban markets serve more Customers and produce shrinkage in urban locations. higher sales than stores in smaller towns, creating a To address the higher costs inherent in operating greater velocity of products and people that is more in urban markets, we are implementing a price difficult to manage. Available retail space is often optimization strategy that enables us to provide older, smaller and has more restrictive delivery and Customers with competitive prices on their everyday transportation conditions due to city ordinances and needs but also allows us to partially offset the impact physical location. Higher crime, inventory shrinkage of operating in these more expensive markets. risks and operating costs, including labor, rent and We are also improving our supply chain to address other expenses, make it more challenging to operate the challenges of producing increased sales and profitably in urban markets. Despite these obstacles, inventory turns within the limited space common in we believe the opportunities in urban markets urban stores. outweigh these challenges. In 2005, we implemented the Urban Initiative in To address these challenges and drive higher 1,200 stores in major urban markets. While we have financial returns, we have developed the Urban increased our investment in these stores, we have Initiative. The Urban Initiative is designed to improve also increased the sales. The marginal contribution the consistency of customer service and operations of the incremental sales is now offsetting the and drive higher financial performance through incremental cost, but our goal is to create even more investments in people, process changes and value for our Shareholders. In 2006, we plan to make technology. To respond to the fast-changing dynamic adjustments to the existing program to drive dynamics of the urban market, we created a mobile further performance improvement, producing and flexible Store Operations organization focused on additional value for our Shareholders, our Customers managing by market areas, rather than operating and our Associates. each store individually. Talented, experienced store 6
  • 9. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 “I am proud to manage a store where we bring value to Customers in my community.” Trina and Wanda, Family Dollar Associates 7
  • 10. value The Treasure Hunt Initiative Our Customers tell us that they need the household strategies. Advertising circulars help us tell our items that we consistently provide at our great, Customers about the great everyday values in both everyday low prices. But they also tell us how much Treasure Hunt and basic consumable merchandise. they love finding unexpected “treasures” that add We began offering our Treasure Hunt merchandise excitement and “WOW!” to their shopping trips. program to our Customers during the 2004 holiday While we continue to provide more value for our season. Our Customers responded favorably, and our Customers by adding brand name, basic consumable holiday sales were better than the economic merchandise to our assortment, we also are conditions would have predicted. This year, we will increasing our selection of exciting Treasure Hunt build upon last year’s successful holiday season by merchandise. Through opportunistic purchases and providing additional Treasure Hunt values to keep the global sourcing, our merchants are creating a steady Family Dollar shopping experience surprising, fresh stream of unique and compelling values for and compelling. Customers. Fun Treasure Hunt merchandise is offered Our refrigerated cooler program and Urban in almost every department so that a tired mom can Initiative drive more traffic into our stores as put a smile on her child’s face with a new toy or her Customers seek great values on basic consumable own with a trendy knickknack to add some spark to merchandise, which generally has low profit margins. her living room. As you can see on the next page, We intend to leverage these Customer trips by even our littlest Customers are delighted by our offering exciting, unexpected “treasures” with higher merchandise, and Brock’s mom is pleased by the profit margins, in addition to our excellent values great value she gets for her dollar. offered on everyday consumables. Treasure Hunt merchandise affords us an additional While the focus of our Treasure Hunt items thus far opportunity to improve our in-store presentation and has been fashion accessories, giftware and seasonal merchandise profitability. Our store Associates are merchandise, we intend to expand our Treasure Hunt excited to offer their Customers an ever-changing assortment into other categories to increase the total selection of seasonal and stylish merchandise at great value proposition that we offer to our Customers. values, and our logistical specialists are improving their ability to get the right quantities to the right stores at the right time so we can maximize sales and minimize markdowns. Everyday low pricing continues to be the foundation of our merchandise and pricing 8
  • 11. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 ”My son thinks your toys are the coolest. I just think they’re an amazing value.” Heather and Brock, Family Dollar Customers 9
  • 12. value The New Store Initiative Our small stores provide value and neighborhood New stores not only increase our sales as we convenience to low and lower-middle income serve new Customers, but also create valuable devel- consumers, one of the fastest growing population opment opportunities for Family Dollar Associates. segments in the U.S. During the last five years, the In fact, in 2005 many of our new store managers were number of households with annual income below promoted from within our organization. At right, Patty, $25,000 has increased more than ten percent, and a dedicated Family Dollar Store Manager, arranges a the number of families with income below the poverty festive holiday presentation to build excitement for level has grown almost eight percent. To address her Customers during Grand Opening Day at the new this under-served population, we have aggressively store she will manage. opened new stores to provide more value and In 2005, we opened 500 new stores. However, convenience to this growing customer base. with a large number of those new stores opened in To maximize the return on our investment, we the last two months of the fiscal year, we created don’t place new Family Dollar stores in the first empty unnecessary cost and operational inefficiencies. To lot we see or in any retail strip center with available create more value for our Shareholders, we will slow space. Sophisticated evaluation processes and our new store growth to about 400 stores in 2006 technology ensure that new Family Dollar stores are and build processes that support a more balanced advantageously located in the neighborhoods of our schedule of store openings. Creating a more steady Customers, providing convenient shopping for their flow of new store openings will enable us to more everyday needs. Advanced modeling techniques help efficiently accelerate our growth in the future, us predict which neighborhoods will provide us with creating greater value for our Shareholders, our the best opportunity for sales and profitability. We Customers and our Associates. consider many variables in deciding where to locate a store, including customer demographics and site attributes such as traffic patterns, visibility and accessibility, as well as the overall projected financial return compared to the cost of the investment. 10
  • 13. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 “Opening new stores is just one way we serve our expanding Customer base and bring value to our Shareholders.” Patty, Family Dollar Store Manager 11
  • 14. value Our Associates Family Dollar’s Associates are our greatest One of our top priorities is to provide our Associates competitive advantage and our most valuable asset. with a compelling place to work. To achieve this We employ more than 42,000 hard-working and objective, we have invested in building career paths for talented Associates in our stores, distribution centers each position to create development choices for those and corporate offices. But at Family Dollar, we’re not Associates who wish to grow in their careers with the satisfied with creating and providing jobs; we’re Company. Here at Family Dollar, we prefer to promote committed to building careers. The Company’s talented Associates from within. To support these financial stability and growth opportunities attract top efforts, we offer focused training and professional candidates to the Company; training, defined career development programs that allow Associates to paths and significant potential for advancement progress up the Family Dollar career ladder. keep them here. To attract and retain talented Associates, we Our success begins with recruiting. In 2005, we must offer equitable and competitive compensation. created a significant number of new jobs to support During the last several years, we have partnered with our growth. We opened 500 new stores, creating a leading compensation consultant to review and more than 3,000 jobs primarily in the neighborhoods improve our compensation programs. In 2006, we where our Customers live. We opened our eighth have asked our Shareholders to approve equity-based distribution center in Marianna, Florida, creating more compensation programs that are based on pay for than 400 new positions, such as the one filled by performance principles. These new compensation Brian in the shipping department. In 2006, with the programs will better support our efforts to recruit and opening of our ninth distribution center in Rome, retain talented Associates who will help us realize New York, we will create additional career Family Dollar’s growth opportunity. opportunities. To support our aggressive growth Our dedicated training programs, career growth agenda, we have developed end-to-end technology and advancement opportunities and equitable applications that have improved our recruiting, compensation programs will help us hire and retain screening and selection processes. talented Family Dollar Associates and will drive higher returns for Shareholders. 12
  • 15. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 ”The opportunities that Family Dollar offers let me know they value me as an Associate.” Brian, Family Dollar Distribution Center Associate 13
  • 16. value Family Dollar Stores, Inc. Family Dollar Stores, Inc. and Subsidiaries Financial Highlights As of August 27, 2005 Years Ended (In thousands, except per share amounts and store data) August 27, 2005 August 28, 2004 Net sales $ 5,824,808 $ 5,281,888 Cost of sales 3,908,569 3,496,278 Gross margin 1,916,239 1,785,610 Selling, general and administrative expenses 1,573,444 1,378,948 Income before income taxes 342,795 406,662 Income taxes 125,286 148,758 Net income $ 217,509 $ 257,904 Net income per common share – basic $ 1.30 $ 1.51 Net income per common share – diluted $ 1.30 $ 1.50 Dividends declared $ 61,538 $ 56,077 Dividends declared per common share $ 0.37 $ 0.33 Total assets $ 2,409,501 $ 2,224,361 Working capital $ 460,157 $ 489,727 Shareholders’ equity $ 1,428,066 $ 1,337,082 Comparable store sales gain 2.3% 1.9% Stores opened 500 500 Stores closed (68) (61) Number of stores – end of year 5,898 5,466 Net Sales Net Income Net Income Per Shareholders’ Equity Diluted Common Share (millions of dollars) (millions of dollars) (millions of dollars) (dollars) 3,665 4,163 4,750 5,282 5,825 1,141 1,292 1,337 1,428 1.08 1.22 1.40 1.50 1.30 186 213 243 258 218 949 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 ’01 ’02 ’03 ’04 ’05 14
  • 17. FAMILY DOLLAR STORES, INC. ANNUAL REPORT 2005 Stores and Distribution Centers As of August 27, 2005 Maquoketa Rome* Distribution Distribution Center Center 39 Morehead 6 Distribution 9 Center 20 63 87 21 133 257 20 7 306 50 9 227 61 36 26 19 85 22 172 5 200 Front Royal 52 110 Distribution 82 203 Center 34 89 178 309 192 112 174 120 98 Matthews 86 Corporate Offices 289 and Distribution 143 109 Center 739 211 318 Odessa Distribution Marianna Center West Memphis Distribution Distribution Duncan Center Center Distribution Center Distribution Service Areas* Number of Stores as of fiscal year end Marianna, Florida Duncan, Oklahoma 907,000 Square Feet 907,000 Square Feet Opened 2005 Opened 1999 Odessa, Texas Front Royal, Virginia 907,000 Square Feet 907,000 Square Feet Opened 2003 Opened 1998 Maquoketa, Iowa West Memphis, Arkansas 907,000 Square Feet 850,000 Square Feet Opened 2002 Opened 1994 2,581 2,767 3,017 3,324 3,689 4,141 4,616 5,027 5,466 5,898 Morehead, Kentucky Matthews, North Carolina 907,000 Square Feet 890,000 Square Feet Opened 2000 Opened 1974 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 * Opening in 2006: Rome, New York Distribution Center, 907,000 Square Feet 15
  • 18. value Corporate and Shareholder Information Directors Mark R. Bernstein 2, 3* Edward C. Dolby 1 Howard R. Levine James G. Martin 1, 2*, 3 Retired Partner (Of Counsel), President, The Edward C. Dolby Chairman of the Board and Corporate Vice President, Parker, Poe, Adams and Bernstein Strategic Consulting Group, LLC Chief Executive Officer, Carolinas HealthCare System L.L.P. Attorneys at Law; Family Dollar Stores, Inc. Glenn A. Eisenberg 1* 1. Audit Committee Lead Director Executive Vice President, George R. Mahoney, Jr. 2. Compensation Committee Sharon Allred Decker Finance and Administration, Retired, Former Executive Vice 2, 3 3. Nominating/Corporate Governance Committee Chief Executive Officer, The Timken Company President, Family Dollar Stores, Inc. * Committee Chairperson The Tapestry Group, LLC Officers Howard R. Levine Janet G. Kelley Mark S. Chidester Dennis C. Merriam Chairman of the Board and Senior Vice President — Vice President — Human Vice President — Chief Executive Officer General Counsel and Secretary Resources, Store Operations Human Resources, Distribution and Employee Relations R. James Kelly John J. Scanlon Ramesh Chikkala Vice Chairman, Senior Vice President — Vice President — Store Process Jacob J. Modla Chief Financial Officer and Hardlines and Marketing Improvement Assistant General Counsel — Chief Administrative Officer Litigation C. Martin Sowers Charles D. Curry Robert A. George Senior Vice President — Finance Vice President — Real Estate, John R. Moffitt Executive Vice President — Store Planning and Development Vice President — Allocation Barry W. Sullivan Chief Merchandising Officer and Replenishment Senior Vice President — Allen W. Fields Charles S. Gibson, Jr. Store Operations Vice President — Store Operations Stephen F. Phillips Executive Vice President — Vice President — Store Operations Elizabeth M. Austin Eric C. Gordon Supply Chain Vice President — Information Vice President — Richard P. Siliakus Dorlisa K. Flur Technology Operations Business Applications Vice President — General Senior Vice President — Merchandise Manager, Hardlines Samuel J. Bernstein R. Dodd Haynes Strategy and Business Vice President — Marketing Vice President — Internal Audit Kenneth T. Smith Development Vice President — Finance Earl C. Bonnecaze Dennis A. Heskett Keith M. Gehl Vice President — Store Operations Vice President — Store Operations Jerome G. Vickers Senior Vice President — Vice President — Store Operations James R. Bowen Billy W. Jones, Jr. Construction and Facilities Vice President — Distribution Vice President — Distribution Michael J. Zuege Management Vice President — Loss Prevention James W. Burns Timothy A. Matz Joshua R. Jewett Vice President — Transportation Vice President — General Daylon W. Powell Senior Vice President — Merchandise Manager, Hardlines Assistant Treasurer Bryan P. Causey Chief Information Officer Vice President — Planning and Janice B. Burris Merchandise Control Assistant Secretary Shareholder Information Annual Meeting Form 10-K and SEC and NYSE Certifications The Annual Meeting of Shareholders will be held at 2:00 p.m. A copy of the Form 10-K filed by the Company with the Securities and at the Company’s Corporate Headquarters at 10401 Monroe Road, Exchange Commission (the “SEC”) for fiscal 2005, which includes as Matthews, North Carolina, on Thursday, January 19, 2006. Exhibits the Chief Executive Officer and Chief Financial Officer Certifications required to be filed with the SEC pursuant to Section 302 Independent Registered Public Accounting Firm of the Sarbanes-Oxley Act, may be obtained by shareholders without PricewaterhouseCoopers LLP charge upon written request to Janice B. Burris, Assistant Secretary, at Charlotte, North Carolina 28202 the Corporate Headquarters. The Form 10-K is also available on Family Transfer Agent and Registrar Dollar’s website at www.familydollar.com. The Company has filed with Mellon Investor Services LLC the New York Stock Exchange (the “NYSE”) the Certification of its Chief 480 Washington Boulevard Executive Officer confirming that the Company has complied with the Jersey City, New Jersey 07310 NYSE corporate governance listing standards. 1-800-676-0868; 1-800-231-5469 (for hearing impaired); 1-201-329-8660 (for foreign shareholders) www.melloninvestor.com 16
  • 19.
  • 20. value FAMILY DOLLAR STORES, INC. Post Office Box 1017 Charlotte, North Carolina 28201-1017 www.familydollar.com ■ ■ ■