Until August 2, 2000, there was no established public trading market for our securities. However, on August 2, 2000, Spartan Stores common stock began trading on the National Market System of The Nasdaq Stock Market under the trading symbol "SPTN."

          The following table sets forth the high and low sale prices for Spartan Stores common stock for the fiscal quarters indicated, all as reported by Nasdaq:

*The second quarter of Spartan Stores' 2001 fiscal year ran from June 18, 2000 to September 9, 2000. However, as noted above, Spartan Stores common stock did not begin trading on Nasdaq until August 2, 2000.

          At June 14, 2002, there were approximately 882 record holders of Spartan Stores common stock.

          The amount of quarterly dividends for fiscal 2000 was $0.0125 per share of Spartan Stores Class A common stock. During fiscal 2001, we paid quarterly dividends of $0.0125 per share of Class A common stock for the first quarter, which ended on June 17, 2000, but did not pay any dividends for the other three quarters of that fiscal year. During fiscal 2002, we did not pay any dividends.

          We have not paid any dividends since the Seaway Food Town merger on August 1, 2000. The payment of future dividends will be determined by our board of directors. We anticipate that we will use any net earnings in our operations, to repay debt and to acquire additional retail operations, and that we will not pay any dividends for the foreseeable future.

          Our senior secured credit facility contains restrictions which materially limit our ability to pay future dividends and make a variety of other restricted payments. See the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 below for a more detailed discussion of these restrictions.

          The following table provides selected historical consolidated financial information of Spartan Stores. The historical information of Spartan Stores was derived from its audited consolidated financial statements for and as of each of the five fiscal years ended March 28, 1998 through March 30, 2002. Fiscal 2001 was a 53-week year. Certain reclassifications have been made to the fiscal 1998 through fiscal 2001 selected financial data to conform to the fiscal 2002 presentation.

(In thousands, except per share data)

(A)          See Note 3 to Consolidated Financial Statements
(B)          See Note 5 to Consolidated Financial Statements
(C)          See Note 4 to Consolidated Financial Statements
(D)          See Note 13 to Consolidated Financial Statements

Overview

          Spartan Stores, Inc. is a premier regional grocery retailer and grocery and convenience distributor, operating principally in Michigan and Ohio. Spartan Stores was originally formed as a food distribution cooperative in 1917 but converted to a for-profit business corporation in 1973. We have historically focused on the distribution of groceries and related merchandise to independently owned stores. However, since January 1999, we have completed six acquisitions of grocery store chains. We operate three primary business segments: retail grocery, grocery distribution and convenience distribution. We also operate a real estate segment.

          Our retail grocery segment operates 100 retail grocery stores in Michigan and Ohio under the banners Food Town, Family Fare Supermarkets, Glen's Markets, Great Day Food Centers, Prevo's Family Markets and Ashcraft's Markets and 25 deep discount food/drug combination stores in Ohio and Michigan under the banner The Pharm. Our retail grocery stores average approximately 40,000 square feet and have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores.

          Our grocery distribution segment provides approximately 40,000 products and 2,400 private label grocery and general merchandise items to more than 450 stores, including more than 330 independently owned grocery stores and 125 company-owned stores. We also provide many value-added services to our grocery distribution customers, including advertising, merchandising and other administrative services.

          Our convenience distribution segment provides a broad selection of tobacco products, specialty foods, grocery products and other items to approximately 3,800 convenience stores and other retail locations in Michigan, Ohio, Indiana, Kentucky, Tennessee and Pennsylvania out of three distinct convenience distribution centers. We also operate 12 cash and carry outlets in Michigan and Ohio that serve approximately 2,800 additional stores.

          Our results of operations from period to period can be significantly impacted by fluctuations in the level of net sales between our business segments. Our retail grocery segment generally produces significantly higher gross margins as a percent of net sales than our distribution segments. However, our retail grocery segment also generally incurs significantly higher selling, general and administrative (SG&A) expenses as a percent of sales. The results of operations of our convenience distribution segment are also subject to significant fluctuations due to the effects of price increases in tobacco products, which generally significantly impact sales and also result in periodic inventory gains.

          The matters discussed in this Item 7 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Results of Operations

          The following table sets forth items from our Consolidated Statements of Earnings as percents of net sales:

          Results of Operations for the Fiscal Year Ended March 30, 2002 Compared to the Fiscal Year Ended March 31, 2001

          Net Sales. Net sales decreased $4.7 million, or 0.1%, from $3,505.9 in fiscal 2001 to $3,501.2 million in fiscal 2002.

          Fiscal 2002 consisted of 52 weeks compared with 53 weeks in fiscal 2001. Excluding the estimated effect of an early Easter holiday during fiscal 2002 and the 53rd week of sales in fiscal 2001, net sales would have increased 1.5%, from $3,440.9 million to $3,492.7 million.

          Net sales in our retail grocery segment increased $273.2 million, or 23.5%, from $1,160.6 million to $1,433.8 million. The increase reflects additional sales of $278.7 million from the merger with Seaway Food Town, Inc. ("Food Town") in the second quarter of fiscal 2001 and our acquisition of Prevo's Family Markets, Inc. ("Prevo's") in the fourth quarter of fiscal 2001. Excluding the 53rd week of sales in the prior year and the early Easter holiday in fiscal 2002, we estimate that sales would have increased $292.8 million, or 25.8%. Excluding the 53rd week of sales and the early Easter holiday in fiscal 2002, we estimate that same-store sales declined 3.2%. Same-store sales decreases are driven by increased competitive conditions in our Ohio markets, weak economic conditions in Michigan and a slow tourism season due to an uncharacteristically warm winter affecting the 37 stores in our tourism-dependent northern Michigan market.

          In response to the retail same-store sales declines, we have implemented plans to improve operations in our subsidiaries that operate retail grocery stores under the Food Town banner and deep discount food/drug combination stores under The Pharm banner in Ohio and southeastern Michigan. The plans focus on customers' in-store experiences, product offering, quality, selection and value, community involvement and quality of physical facilities. We continue to evaluate other acquisition opportunities in the retail grocery industry and, while currently focused on our operational performance, expect acquisitions to contribute to future sales growth.

          Net sales in our grocery distribution segment, after intercompany eliminations, declined $244.0 million, or 17.2%, from $1,422.5 million to $1,178.5 million. The decrease primarily resulted from our acquisition of a grocery distribution segment customer during fiscal 2001 (requiring the reclassification of $62.3 million of sales to that customer from our grocery distribution segment to our retail grocery segment), the loss of a customer in the second quarter of fiscal 2002 and the third quarter of fiscal 2001 totaling $114.6 million in sales for the comparable periods, a 53rd week of sales in fiscal 2001 which favorably affected sales in that year by an estimated $22.1 million, and declines in sales of grocery and general merchandise products due to current Michigan economic conditions and continued competitive market conditions. Partially offsetting the decrease were increases in sales of perishables of $12.1 million and an estimated increase in sales of $4.3 million as a result of the early Easter holiday in fiscal 2002.

          Net sales in our convenience distribution segment decreased $33.1 million, or 3.6%, from $915.2 million to $882.1 million. The decrease is the result of a 53rd week of sales in fiscal 2001, the impact of customers lost in fiscal 2001 and 2002, decreases in cigarette sales volume to grocery stores as a result of higher cigarette prices and the competition of discount tobacco stores and wholesale clubs, partially offset by cigarette price inflation and new business that we obtained in fiscal 2002. Excluding the 53rd week in the prior year, we estimate that net sales would have decreased $15.1 million, or 1.7%.

          Gross Margin. Gross margin increased by $51.0 million, or 9.4%, from $545.3 million to $596.3 million. As a percent of net sales, gross margin increased from 15.6% to 17.0%. The increase was primarily the result of the increase in retail grocery sales as a percent of consolidated net sales, from 33.1% in fiscal 2001 to 41.0% in fiscal 2002. This increase was partially offset by lower convenience distribution segment gross margin related to cigarette price increases and competitive pricing pressures. Additionally, we believe that declining economic conditions, layoff announcements and uncertain employment conditions caused many grocery customers to purchase lower margin food products.

          Selling, General and Administrative Expenses. SG&A expenses increased $73.7 million, or 15.2%, from $483.9 million to $557.6 million, and were 15.9% of net sales compared to 13.8% last year. The increase was primarily due to the increased sales of our retail grocery segment, which generates a higher SG&A expense percent than our distribution segments, and lower sales volumes, which resulted in less leveraging of existing infrastructure. Annualized savings of approximately $6 million have been realized due to synergies resulting from the Food Town merger.

          We signed a new labor agreement with our Grand Rapids warehouse associates and drivers in fiscal 2002. This agreement will allow improved work rule flexibility and is expected to result in reduced operating expenses in the future. In January 2002, as part of our continuing focus on reducing our operating costs, we announced a corporate restructuring which resulted in an approximate 5% reduction in corporate and administrative staff. Additionally, we plan to continue our efforts to lower our operating cost structure during fiscal 2003. In April 2002, a further reduction of approximately 50 administrative staff associates was made.

          Interest Expense. Interest expense decreased $4.4 million, or 14.3%, from $31.2 million to $26.8 million, and was 0.8% of net sales for fiscal 2002 compared to 0.9% for fiscal 2001. Total average borrowings increased to $333.6 million from $318.0 million for the prior year as a result of the Food Town and Prevo's acquisitions and borrowings on the revolving credit component of our senior secured credit facility, partially offset by debt repayments of $42.2 million. The effective borrowing rate (computed to take the effect of interest rate hedging into account) decreased to 8.02% at March 30, 2002 from 9.83% at March 31, 2001.

          Interest Income. Interest income was unchanged as a percentage of sales compared to fiscal 2001. In the second quarter of fiscal 2002, we received $0.4 million in interest related to federal income tax refunds for prior years' filings. Interest income has been adversely impacted by lower interest rates in

fiscal 2002, our reduced excess cash due to acquisitions, and reduced marketable securities holdings due to the sale of our insurance segment (see "Discontinued Operations," below).

          Other, Net. Other, net remained fairly constant. During fiscal 2002, other, net consisted primarily of $2.1 million in sales of real estate and $1.4 million in sales of stock in both suppliers and a service provider. Partially offsetting these gains was an impairment loss of $1.0 million on certain assets. During fiscal 2001, other, net resulted primarily from $3.3 million in gains on sales of real estate, offset by an impairment loss of $1.1 million on certain technology-related equipment.

          Income Taxes. Our effective tax rate decreased from 37.6% for fiscal 2001 to 32.8% for fiscal 2002. During the second quarter of fiscal 2002, we reached a settlement with the Internal Revenue Service regarding certain deductions taken in prior years. The resulting refund reduced income tax expense by $0.7 million.

          Results of Operations for the Fiscal Year Ended March 31, 2001 Compared to the Fiscal Year Ended March 25, 2000

          Net Sales. Net sales increased by $475.0 million, or 15.7%, from $3,030.9 million in fiscal 2000 to $3,505.9 million in fiscal 2001. Fiscal 2001 consisted of 53 weeks compared with 52 weeks in fiscal 2000.

          Net sales in our retail grocery segment increased $620.5 million, or 114.9%, from $540.1 million in fiscal 2000 to $1,160.6 million in fiscal 2001. The increase reflects additional sales of $552.4 million from our acquisition of retail stores during the first and third quarters of fiscal 2000, the merger with Food Town in the second quarter of fiscal 2001, and our acquisition of Prevo's in the fourth quarter of fiscal 2001, as well as a 6.5%, or $68.1 million, increase in same-store sales. Same-store sales increases resulted primarily from improved marketing programs, better in-stock positions in acquired stores, expanded hours of operation at some stores and an aggressive advertising campaign in the third quarter of fiscal 2001.

          Net sales in our grocery distribution segment declined $143.3 million, or 9.2%, from $1,565.8 million to $1,422.5 million. The decrease primarily resulted from our acquisition of grocery distribution segment customers during fiscal 2000 and 2001 (requiring the reclassification of $70.6 million of sales to these customers from our grocery distribution segment to our retail grocery segment), the loss of a customer that generated sales of $71.5 million and declines in sales of grocery and general merchandise products due to continued competitive market conditions. Partially offsetting these declines were the 53rd week of sales in fiscal 2001, which added an estimated $22.1 million to sales in that year, and increases in sales of perishables and other direct sales.

          Net sales in our convenience distribution segment increased $0.5 million, or 0.1%, from $914.7 million to $915.2 million. The increase was the result of cigarette price inflation and a 53rd week of sales in fiscal 2001. Excluding the extra week of sales, our convenience distribution segment's sales declined as a result of increased competition in its markets and our acquisition of retail grocery stores that were convenience distribution segment customers with respect to tobacco products, candy and similar items (requiring the reclassification of $16.6 million of sales to these customers to our retail grocery segment).

          Gross Margin. Gross margin increased by $157.9 million, or 40.8%, from $387.4 million to $545.3 million. As a percent of net sales, gross margin increased from 12.8% to 15.6%. The increases reflect the increase in retail grocery sales from 17.8% of our consolidated net sales in fiscal 2000 to 33.1% in fiscal 2001, and improvements in the gross margins of our retail grocery and grocery distribution segments. These factors were partially offset by a 0.3% lower convenience distribution gross margin.

          Selling, General and Administrative Expenses. SG&A expenses increased by $138.9 million, or 40.3%, from $345.0 million to $483.9 million, and as a percent of net sales increased from 11.4% to 13.8%. The increase was primarily due to the increased sales of our retail grocery segment, which generates a higher SG&A expense percent than our distribution segments, and additional spending for promotional programs in certain markets.

          Interest Expense. Interest expense increased by $3.9 million, or 14.3%, from $27.3 million to $31.2 million. As a percent of net sales, interest expense was constant at 0.9%. Total average borrowings increased to $318.0 million from $283.5 million for the prior year, primarily as a result of the Food Town and Prevo's acquisitions. The effective borrowing rate (computed to take the effect of interest rate hedging into account) increased to 9.83% at March 31, 2001 from 9.63% at March 25, 2000.

          Interest Income. Interest income decreased slightly from fiscal 2000 due to cash used for retail acquisitions.

          Other, Net. Other, net of $2.5 million for fiscal 2001 consisted primarily of a $3.3 million gain on the sale of three real estate properties, partially offset by an impairment loss of $1.1 million on technology-related equipment in the grocery distribution segment.

Discontinued Operations

          During fiscal 2000, we sold all of the issued and outstanding shares of capital stock of Shield Benefit Administrators, Inc., a wholly owned subsidiary in our insurance segment. The gain on sale of $0.2 million was recognized in fiscal 2000.

          During the fourth quarter of fiscal 2001, we sold the insurance agency component of our insurance segment and approved a plan to discontinue the remaining operations of our insurance segment. Accordingly, results of operations of our insurance segment and the estimated net loss on disposal were recorded as discontinued operations.

          On December 31, 2001, we paid approximately $5 million to cede (transfer) a portion of our reinsurance loss portfolio to an unrelated third party. At that time, we also transferred the remaining underwriting, safety and claims components that had been previously retained to another unrelated third party. At March 30, 2002, we had approximately $6.6 million remaining in insurance reserves for open claims liabilities related to policies that were not ceded. We will remain obligated under these policies until all claims are closed and have retained an independent third party administrator to manage these claims. We have not retained any further insurance operations. As the timing and final terms of this transaction were different than initially anticipated, additional costs associated with discontinuing the operations of the insurance segment were recorded in fiscal 2002.

          All financial information in this Annual Report on Form 10-K has been adjusted for the discontinuance of the insurance segment.

Critical Accounting Policies

          This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance, closed store reserves, retirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we will make adjustments as facts and circumstances dictate.

          We believe that the following represent the more critical estimates and assumptions used in the preparation of our consolidated financial statements.

          Insurance Reserves. We are primarily self-insured for workers' compensation and health care costs. Additionally, the discontinued insurance segment has provided commercial insurance coverage for fire and other casualties, liability, automobile, fidelity, theft, bonds, workers' compensation, business interruption and group health plans. We record substantially all of our insurance liabilities based upon actuarial computations using actual claims data and estimates of claims incurred but not yet reported. If a greater amount of claims is incurred compared to estimates or health care costs increase more than anticipated, recorded reserves may be insufficient and additional costs could be recorded in the consolidated financial statements.

          Asset Impairment. We review and evaluate long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset's carrying amount, a discounted cash flow model is utilized to determine the impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices developed by certified valuation specialists. Estimates of future cash flows and expected sales prices are judgments based upon our experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, real estate market conditions and inflation.

          For stores to be closed that are subject to long-term lease commitments, reserves are recorded based upon the present value of remaining lease payments, net of estimated sublease recovery. If real estate and leasing markets change, additional reserves could be required.

          Discontinued Operations. The insurance segment is reflected as a discontinued operation in the consolidated financial statements. We have recorded estimates of expected liabilities to be incurred through their eventual discharge, which is expected to be several years in the future. The most significant liability remaining is for outstanding insurance claim loss reserves which have been actuarially determined.

Liquidity and Capital Resources

          Net cash provided by operating activities was $34.2 million in fiscal 2002, $56.9 million in fiscal 2001 and $52.5 million in fiscal 2000. The decrease in net cash provided by operating activities in fiscal 2002 is primarily the result of decreased net income and changes in working capital related to slower inventory turns. Net cash provided by operating activities increased in fiscal 2001 due to increased net income.

          Net cash used in investing activities was $16.3 million, $120.2 million and $32.8 million for fiscal 2002, fiscal 2001 and fiscal 2000, respectively. Cash used in investing activities decreased in fiscal 2002 primarily due to the acquisitions of Food Town and Prevo's in the prior year, offset partially by increased capital expenditures for the retail store remodeling campaign and systems integration during the current year. Cash used by investing activities increased in fiscal 2001 primarily due to increased capital expenditures and cash used for the acquisitions of Food Town and Prevo's.

          Net cash used in financing activities was $25.6 million for fiscal 2002 due primarily to debt repayments, partially offset by borrowings on the revolving credit component of our senior secured credit facility, other long-term borrowings and proceeds from the sale of common stock. Cash provided by financing activities was $48.5 million for fiscal 2001 due primarily to cash borrowed to finance the acquisitions of Food Town and Prevo's, partially offset by debt repayments. Net cash used in financing activities was $12.0 million in fiscal 2000 due primarily to debt repayments and purchases of our common stock.

          Our principal sources of liquidity are cash generated from operations and borrowings under a senior secured credit facility dated March 18, 1999, as amended. The credit facility consists of (1) a revolving credit facility in the amount of $100 million with a term of six years, (2) a term loan A in the amount of $100 million with a term of six years, (3) an acquisition facility in the amount of $75 million with a term of seven years and (4) a term loan B in the amount of $150 million with a term of eight years. At March 30, 2002, $286.5 million was outstanding under the credit facility. Available borrowings under the credit facility are based on stipulated levels of earnings before interest, income taxes, depreciation and amortization, as defined in the credit facility. The credit facility contains covenants that include the maintenance of certain financial ratios. At March 30, 2002, Spartan Stores was in compliance with the credit facility covenants. On Septemb er 14, 2002, certain of the financial covenants will become more restrictive. Spartan Stores anticipates that it may not be able to comply with the more restrictive senior debt to EBITDA (as defined) covenant in fiscal 2003. However, management believes that it has the ability to renegotiate its covenants and, if needed, secure alternative sources of available financing.

          The credit agreement which governs our senior secured credit facility also limits our ability to make "restricted payments." Payment of cash dividends and other restricted payments are permitted only under conditions specified and are limited to amounts determined under specific and detailed formulas and allowances provided in the bank credit agreement, which is filed as an exhibit to this Form 10-K. "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments. As of the date of filing of this Form 10-K, payment of cash dividends in limited amounts would be permitted under the bank credit facility. The covenants in the bank credit agreement could prohibit or limit the amount of dividends in the future. We intend to use any net earnings in our operations, to repay debt, to acquire additional retail operations and to make restricted payments other than cash dividends. We do not anticipate p aying any cash dividends for the foreseeable future, regardless of whether they are or are not permitted by the credit agreement.

          We have offered non-subordinated variable rate promissory notes to the public. The notes are offered in minimum denominations of $1,000 and may be issued by us at any time, although our credit facility restricts the total amount outstanding under the offering to approximately $15.0 million. The non-subordinated variable rate promissory notes are issued under a "shelf" registration statement filed with the Securities and Exchange Commission, effective February 26, 2001, which provides for the issuance of up to $100 million of debt securities. At March 30, 2002, approximately $13.1 million of these notes were outstanding.

          Our current ratio increased from 1.34 to 1.00 at March 31, 2001 to 1.62 to 1.00 at March 30, 2002 and working capital increased from $82.2 million at March 31, 2001 to $113.7 million at March 30, 2002.

          Our long-term debt to equity ratio at March 30, 2002 decreased to 1.28 to 1.00 from 1.41 to 1.00 at March 31, 2001. The decrease was primarily due to net income generated during the year and additional principal payments. Management continues to evaluate other acquisition opportunities, which could result in additional borrowings and additional leases being entered into if consummated, in turn increasing our leverage position.

          Our total capital structure includes borrowings under the senior secured credit facility, non-subordinated variable rate promissory notes, various other debt instruments, leases and shareholders' equity. Management believes that cash generated from operating activities and available borrowings under the credit facility will likely be sufficient to support operations under current circumstances.

Recent Accounting Pronouncements

          On April 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be reported on the balance sheets at fair value. If the derivative is designated as a cash-flow hedge, changes in fair value of the derivative are recorded in accumulated other comprehensive income (loss) ("AOCI") and recognized in the statements of earnings as realized. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge , changes in fair value will be recognized in earnings. We recorded a cumulative transition adjustment loss of $1.6 million in AOCI on April 1, 2001 (net of related income tax of $0.8 million) and a current year loss of $0.9 million in AOCI (net of related income tax of $0.5 million) pertaining to our interest rate swaps in accordance with SFAS No. 133.

          The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." Adoption of these statements became effective for us as of the beginning of fiscal 2003, and resulted in modifications relating to our accounting for intangible assets. Specifically, we ceased amortizing goodwill on March 31, 2002. For fiscal 2002, fiscal 2001 and fiscal 2000, total goodwill amortization was $4.1 million, $2.3 million and $2.2 million, respectively. Intangible assets with indefinite lives, including goodwill, are also subjected to new impairment testing criteria. As a result of adopting these statements, we recorded a cumulative effect of a change in accounting principle to recognize an impairment of goodwill in the retail grocery segment of approximately $42 million in the first quarter of fiscal 2003.

          In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and provisions of Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets, including discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We have determined that our current policy for the impairment of long-lived assets is consistent with SFAS No. 144.

          We are exposed to interest rate risk related to our outstanding debt and notes receivable from customers. The interest rate paid on a majority of our outstanding debt is vulnerable to changes in the prime rate, the federal funds rate or the Eurodollar rate. Interest received on notes receivable from customers is vulnerable to changes in the prime rate. We do not use financial instruments or derivatives for trading or speculative purposes.

          We manage interest rate risk on a portion of our debt through the use of interest rate swap agreements that are effective from June 30, 1999 to June 30, 2003. Under the terms of the agreements, we are protected against increases in interest rates from and after the date of the agreement in the initial aggregate notional amount of $162.5 million, which amount decreases in proportion to principal payments made on term loan A and term loan B under our senior secured credit facility. The aggregate notional amount will be $123.7 million at the end of the agreements' four-year term.

          The following table sets forth the maturities of our debt outstanding as of March 30, 2002:

INDEPENDENT AUDITOR'S REPORT