I n v e s t i n g  A c t i v i t i e s : The Company's cash flows for investing activities include capital expenditures for the last two years as set forth in the table below:

	Fiscal Year Ended
	January	January
In Millions	1998	1997
New stores	$ 53.1	$ 36.7
Store renovations and improvements	103.3	56.1
Office and distribution centers	36.0	26.4
Capital expenditures	$192.4	$119.2

The Company expects that capital expenditures will approximate $230 million for fiscal 1999. This includes $61 million for new stores, $108 million for store renovations and improvements and $61 million for the Company's office and distribution centers.
  Investing activities for fiscal 1998 include proceeds of $15.7 million for the sale of 352,908 shares of Brylane Inc., common stock obtained by converting approximately half of the Brylane note received as partial consideration for the sale of Chadwick's. Fiscal 1998 also includes a payment by the Company of $33.2 million as a final settlement of the sale proceeds from the sale of Chadwick's as described below.
  Fiscal 1997 investing activities include the estimated cash sale proceeds from the sale of the Chadwick's division to Brylane, Inc., which totaled $222.8 million. The purchase price was subject to a final adjustment based on the net assets of Chadwick's as of the sale date resulting in a payment to Brylane of $33.2 million during fiscal 1998. As part of the sale of Chadwick's, the Company retained the consumer credit card receivables of the division as of the closing date, which totaled approximately $125 million, with $54.5 million still outstanding as of January 25, 1997. The balance of the receivables was collected in the first quarter of fiscal 1998 and is classified as cash provided by discontinued operations. The Company also received a $20 million convertible note due in ten years with annual interest currently at 6%. The outstanding balance of the note as of January 31, 1998 is $10.3 million, as a portion was converted into common stock during fiscal 1998. Investing activities for fiscal 1997 also include a purchase price adjustment for the acquisition of Marshalls of $49.3 million. Marshalls was acquired by the Company in November 1995 for a total cost of $606 million. See Note A to the consolidated financial statements for more information regarding the Marshalls acquisition.

F i n a n c i n g  A c t i v i t i e s : The strong cash flows from operations as well as proceeds generated from the sale of the Chadwick's division provided adequate capital which exceeded the Company's needs in fiscal 1998 and fiscal 1997, and no additional borrowings were required. Financing activities for fiscal 1998 include principal payments on long-term debt of $27.2 million, including $8.5 million to fully retire the Company's 9 1/2% sinking fund debentures. As a result of its strong cash position, the Company prepaid certain long-term debt in addition to regularly scheduled maturities during fiscal 1997. On September 16, 1996, pursuant to a call for redemption, the Company prepaid $88.8 million of its 9 1/2% sinking fund debentures. In addition, during the fourth quarter of fiscal 1997, the Company retired the entire outstanding balance of the $375 million term loan incurred to acquire Marshalls (see discussion below). The Company recorded after-tax extraordinary charges totaling $5.6 million, or $.03 per share, due to the early retirement of these obligations. During fiscal 1997, the Company paid a total of $455.6 million for the prepayment of certain long-term debt and a total of $46.5 million for regularly scheduled maturities of long-term debt.
  During fiscal 1996, the Company's cash flows from financing activities includes the proceeds of $574.9 million from additional long-term borrowings. In June 1995, the Company issued $200 million of long-term notes under a shelf registration statement. The proceeds were used, in part, to repay short-term borrowings and for general corporate purposes. The Company currently has a shelf registration statement which provides for the issuance of up to $600 million of debt or equity. In connection with the purchase of Marshalls, the Company entered into an $875 million bank credit agreement under which the Company borrowed $375 million on a long-term basis to fund the cash portion of the Marshalls purchase price. The agreement also included a $500 million revolving loan capability which was terminated prior to its maturity, resulting in an after-tax extraordinary charge of $1.8 million, or $.01 per share, in fiscal 1998. The Company entered into a new revolving credit agreement in September 1997 as discussed below.
  In June 1997, the Company announced a $250 million stock buyback program. During fiscal 1998, the Company repurchased 8.5 million shares of common stock for a cost of $245.2 million. The program was completed in February 1998 at which time the Company announced a second $250 million stock repurchase program.
  The Company declared quarterly dividends on its common stock of $.05 per share in fiscal 1998 and $.035 per share in fiscal 1997. Annual dividends on common stock totaled $31.8 million in fiscal 1998 and $21.3 million in fiscal 1997. The Company also paid dividends on all of its outstanding preferred stock, which totaled $11.7 million in fiscal 1998, $13.7 million in fiscal 1997 and $9.4 million in fiscal 1996. During fiscal 1998, 770,200 shares of the Series E preferred stock were converted into 8.3 million shares of common stock and 2,500 shares were repurchased. Inducement fees of $3.8 million were paid on the Series E conversions, which are classified as preferred dividends for fiscal 1998. The 727,300 outstanding shares of the Series E preferred stock as of January 31, 1998 will automatically convert into common stock on November 17, 1998. During fiscal 1997, both the Series A cumulative convertible preferred stock and the Series C cumulative convertible preferred stock were converted into an aggregate of 4.4 million shares of common stock pursuant to separate calls for redemption. Preferred dividends were paid through the respective conversion dates. The Series D preferred stock automatically converted on November 17, 1996 into 1.3 million shares of common stock. Financing activities for fiscal 1998 and 1997 also includes proceeds of $15.5 million and $34.4 million, respectively, from the exercise of employee stock options. The proceeds include $6.1 million and $10.2 million for related tax benefits in fiscal 1998 and fiscal 1997, respectively.
  The Company has traditionally funded its seasonal merchandise requirements through short-term bank borrowings and the issuance of short-term commercial paper. The Company has the ability to borrow up to $500 million under a revolving credit facility it entered into in September 1997. This agreement replaced the agreement entered into at the time of the Marshalls acquisition and contains certain financial covenants which include a minimum net worth requirement and certain leverage and fixed charge coverage ratios. The Company recorded an extraordinary charge of $1.8 million, or $.01 per share, on the write-off of deferred financing costs associated with the former agreement. As of January 31, 1998, the entire $500 million was available for use. The Company's strong cash position throughout fiscal 1998 and 1997 required minimal short-term borrowings. There were no U.S. short-term borrowings outstanding during fiscal 1998. The maximum amount of U.S. short-term borrowings outstanding during fiscal 1997 and 1996 was $3 million and $200 million, respectively. The Company also has C$30 million of committed lines for its Canadian operations, all of which were available for use as of January 31, 1998. The maximum amount outstanding under its Canadian credit line during fiscal 1998 and 1997 was C$12.1 million and C$6 million, respectively. Management believes that its current credit facilities and availability under its shelf registration statement are more than adequate to meet its needs. See Notes B and F to the consolidated financial statements for further information regarding the Company's long-term debt, capital stock transactions and available financing sources.
  The Company is exposed to foreign currency exchange rate risk on its investment in its Canadian (Winners) and European (T.K. Maxx) operations. As more fully described in Note C to the consolidated financial statements, the Company hedges a large portion of its net investment and certain merchandise commitments in these operations with derivative financial instruments. The Company utilizes currency forwards and swaps, designed to offset the gains or losses in the underlying exposures, most of which are recorded directly in shareholders' equity. The contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. The Company does not enter into derivatives for speculative trading purposes.
  The Company has performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates applied to the hedging contracts and the underlying exposures described above. As of January 31, 1998, the analysis indicated that such market movements would not have a material effect on the Company's consolidated financial position, results of operations or cash flows.