Economic Value Added®

We use Economic Value Added ("EVA") as a basis for our business decisions and for determining incentive compensation. In its simplest definition, EVA is equivalent to net operating profits after taxes minus a charge for the cost of invested capital necessary to generate those profits. We believe that one of our core strengths is our decentralized culture, where decisions are made at the store level, close to the customer. We believe this is one of our strongest competitive advantages, and that EVA is the best financial framework that team members can use to help make decisions that create sustainable shareholder value.

We use EVA extensively for capital investment decisions, including evaluating new store real estate decisions and store remodeling proposals. We only invest in projects that we believe will add long-term value to the Company. The EVA decision-making model also enhances operating decisions in stores. Our emphasis is on EVA improvement, as we want to challenge our teams to continue to innovate and grow EVA in new ways. We believe that opportunities always exist to increase sales and margins, to lower operating expenses and to make investments that add value in ways that benefit all of our stakeholders. We believe that focusing on EVA improvement encourages continuous improvement of our business.

Over 750 leaders throughout the Company are on EVA-based incentive compensation plans, of which the primary measure is EVA improvement. EVA-based plans cover our senior executive leadership, regional leadership and the store leadership team (store team leaders and assistant store team leaders) in all stores. Incentive compensation for each of these groups is determined based on relevant EVA measures at different levels, including the total company level, the regional level, the store or facility level, and the team level. We believe using EVA in a multi-dimensional approach best measures the results of decisions made at different levels of the Company. We expect EVA to remain a significant component of our compensation structure throughout the Company in the coming years.

The following table sets forth selected EVA information based on a 9% weighted average cost of capital and a 40% tax rate for the fiscal years ended September 30, 2007 and September 24, 2006 (in thousands):

The Company provides information regarding EVA as additional information about its operating results. EVA is a measure not in accordance with, or an alternative to, generally accepted accounting principles ("GAAP"). The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing the financial results of the Company and for incentive compensation and capital planning purposes. EVA is calculated by subtracting a charge for the use of capital (capital charge) from net operating profit after taxes ("NOPAT"). A reconciliation of GAAP net income to NOPAT follows (in thousands):

Capital charge is calculated by multiplying weighted average EVA capital by our weighted average cost of capital. A reconciliation of total net assets to ending EVA capital on a weighted basis follows (in thousands):

* Accumulated components of net income not included in NOPAT

— EVA® is a registered trademark of Stern Stewart & Co.