Additional Consolidated Results
Net Interest Income
Net interest income from continuing operations decreased to $4 million in fiscal 2003, compared with $18 million in fiscal 2002. The decrease in net interest income was primarily due to lower yields on short-term investments and a full year of interest expense associated with convertible debentures issued during fiscal 2002.

Net interest income from continuing operations declined to $18 million in fiscal 2002, compared with $38 million in fiscal 2001. The decrease in net interest income was primarily due to lower yields on short-term investments, as average interest rates declined by more than 200 basis points in fiscal 2002 compared with fiscal 2001. The impact of lower yields was partially offset by higher average cash balances resulting from strong operating cash flows and net proceeds from the issuance of convertible debentures.

Effective Income Tax Rate
Our effective income tax rate from continuing operations increased to 38.7% in fiscal 2003, as compared with 38.4% in the prior year on an as-adjusted basis. The increase in the effective income tax rate in fiscal 2003 was primarily due to increased tax expense related to our International segment and a slight increase in the effective state income tax rate.

Our effective income tax rate in fiscal 2002 was 38.4%, up slightly from 38.3% in fiscal 2001. Historically, our effective income tax rate has been impacted primarily by the taxability of investment income and state income taxes.

Liquidity and Capital Resources
Summary
Despite a challenging economic environment in fiscal 2003, our financial condition at the end of the year was strong and positioned us well for fiscal 2004. Cash and cash equivalents totaled $1.9 billion at the end of fiscal 2003, a slight increase from the end of fiscal 2002. Working capital, the excess of current assets over current liabilities, increased to $1.1 billion at the end of fiscal 2003, compared with $895 million at the end of fiscal 2002. In addition, our long-term debt-to-capitalization ratio declined slightly to 23% at the
end of fiscal 2003, as compared with 24% at the end of fiscal 2002.

A component of our long-term strategy is our capital expenditure program. This program includes, among other things, investments in new stores, store remodeling, store relocations and expansions, new distribution facilities and information technology enhancements. During fiscal 2003, we invested $725 million in property and equipment in continuing operations, including opening 90 new stores; remodeling, relocating and/or expanding 17 stores; continued construction of our new corporate campus; and improvements to our distribution centers and information systems.

Cash Flows
Cash provided by operating activities from continuing operations was $746 million in fiscal 2003, compared with $1.5 billion in fiscal 2002 and $861 million in fiscal 2001. The decrease in operating cash flows in fiscal 2003, compared with the prior fiscal year, was primarily due to the decrease in cash provided from changes in operating assets and liabilities, partially offset by increased earnings from continuing operations. Earnings from continuing operations increased to $622 million in fiscal 2003 as compared with $570 million in the prior fiscal year. Receivables increased due to the addition of new stores, timing of payments and increased cooperative advertising receivables. Merchandise inventories increased in fiscal 2003, primarily due to the addition of new stores and improved in-stock positions.

Accounts payable decreased slightly, primarily due to the timing of vendor payments and increased business volume. These decreases in cash were partially offset by cash provided by higher accrued income taxes resulting from the increase in earnings from continuing operations and an increase in other liabilities due to business growth and increased gift card liabilities.

Cash used in investing activities from continuing operations was $659 million in fiscal 2003, compared with $924 million and $1.0 billion in fiscal 2002 and 2001, respectively. In fiscal 2003, we used cash for construction of new retail locations, information systems, distribution center improvements, and other additions to property, plant and equipment, including continued construction of our new corporate campus. The primary purposes of the cash investment activity were to support our expansion plans, to improve our operational efficiency and to enhance shareholder value. In fiscal 2002, we used cash for investments in property, plant and equipment and the acquisition of Future Shop.

Cash provided by financing activities from continuing operations was $45 million in fiscal 2003, compared with $769 million in fiscal 2002 and $218 million in fiscal 2001. The change was primarily due to the issuance of convertible debentures in fiscal 2002. We raised $726 million, net of offering expenses, through the issuance of convertible debentures in fiscal 2002. Fiscal 2001 included a $200 million investment in our common stock by Microsoft Corporation. For more information regarding the convertible debentures, refer to note 4 of the Notes to Consolidated Financial Statements.

Cash used in discontinued operations was $79 million in fiscal 2003, compared with $270 million and $58 million in fiscal 2002 and 2001, respectively. The change in cash used in fiscal 2003, as compared to fiscal 2002, primarily related to the repayment of $274 million of long-term debt in fiscal 2002. >>