10-K 1 n10knsc1030041f.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: October 30, 2004 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number: 33-63372 NUTRITIONAL SOURCING CORPORATION (Exact name of registrant as specified in its charter) Delaware 65-0415593 ------------------------------------ ----------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 1300 N.W. 22nd Street Pompano Beach, Florida 33069 ------------------------------------ ----------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (954) 977-2500 Registrant's worldwide web address: www.pueblo.net Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES NO X No voting stock of the Registrant is held by non-affiliates of the Registrant. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the Court. YES _X NO _ Number of shares of the Registrant's Common Stock, $ .10 par value outstanding as of December 23, 2004 -- 200. DOCUMENTS INCORPORATED BY REFERENCE: NONE PART I ITEM 1. BUSINESS Name of the Registrant Nutritional Sourcing Corporation was founded in 1993 under the name Pueblo Xtra International, Inc. and was known as Pueblo Xtra International, Inc. until July 22, 2002. Effective that date its name was changed to Nutritional Sourcing Corporation ("NSC"). General NSC is a Delaware holding company that owns all of the membership units of Pueblo International, LLC, a Delaware limited liability company. Prior to October 28, 2004, NSC also owned all of the common stock of Pueblo Entertainment, Inc. ("Pueblo Entertainment"), also a Delaware company. On October 28, 2004, Pueblo Entertainment, Inc. was merged into Pueblo International, LLC. Pueblo Entertainment was organized on January 28, 2001 to own and operate the in-home movie and game entertainment store assets in Puerto Rico. Prior to that date those assets were owned and operated by Pueblo International, Inc. Pueblo International, Inc. was converted to a Delaware limited liability company on November 4, 2001 and its name was changed to Pueblo International, LLC. Throughout this report, unless the context otherwise requires, "Company" refers to NSC together with its subsidiaries. Further, throughout this report Pueblo International, LLC, together with its subsidiaries, is referred to as Pueblo. Also on October 28, 2004, FLBN Corporation, a wholly owned subsidiary of Pueblo, was converted to a Delaware limited liability company and its name was changed to FLBN, LLC ("FLBN"). FLBN is the subsidiary that operates the Company's supermarkets and in-home movie and game entertainment stores in the U.S. Virgin Islands. Pueblo, which was founded in 1955 with the opening of the first mainland- style supermarkets in Puerto Rico, is one of the leading supermarket chains in the Commonwealth of Puerto Rico and the Territory of the U.S. Virgin Islands. In addition, the Company through its ownership of Pueblo is the leading operator of in-home movie and game entertainment outlets in Puerto Rico and the U.S. Virgin Islands through its franchise rights with Blockbuster Inc. ("BI"). As of October 30, 2004, the Company operated 41 supermarkets in Puerto Rico and 5 supermarkets in the U.S. Virgin Islands. As of October 30, 2004, the Company also operated 39 in-home movie and game entertainment stores in Puerto Rico and 2 in-home movie and game entertainment stores in the U.S. Virgin Islands. On November 2, 2001, NSC and its subsidiaries changed their fiscal year end from the Saturday closest to January 31 to the Saturday closest to October 31. Consequently, one of the previous comparable periods being reported in this Annual Report on Form 10-K is the forty weeks ended November 3, 2001. On July 28, 1993, NSC acquired all of the outstanding shares of common stock of Pueblo for an aggregate purchase price of $283.6 million plus transaction costs (hereinafter referred to as the "Acquisition"). Pursuant to the Acquisition, Pueblo became a wholly-owned subsidiary of NSC. The Acquisition was accounted for under the purchase method effective July 31, 1993 as discussed in the Goodwill and Trade Names section of NOTE 1 to the notes to the Company's consolidated financial statements included in Item 15 of this Form 10-K. In August 2002, NSC defaulted in the payment of interest on its outstanding notes, and consented to the entry of an order for relief under Chapter 11 of the Bankruptcy code the next month. NSC consummated a plan of reorganization and emerged from bankruptcy in June 2003. Business of the Company Puerto Rico and U.S. Virgin Islands Supermarket Industry Overview The grocery retailing business is extremely competitive. Competition is based primarily on price, quality of goods and service, convenience and product mix. The number and type of competitors, and the degree of competition experienced by individual stores, vary by location. The top four chains (including Pueblo) in the retail grocery industry in Puerto Rico account for approximately 75% of total industry sales, with the remainder divided among smaller chains and numerous independent operations. Total supermarket chain sales in calendar year 2003 were approximately $2.3 billion, a significant portion of which was attributable to the more densely populated greater San Juan metropolitan area, where the larger chains are concentrated. The grocery industry in less populated parts of the island is characterized by smaller family-run operations with limited selection and less competitive prices. No major U.S. supermarket chains have established operations in the Puerto Rico grocery market, although a number of national general merchandise chains have significant Puerto Rican operations. Wal-Mart purchased one of the top four chains, Supermercados Amigo, effective December 5, 2002. Amigo divested 6 of its stores to another party and Wal-Mart is operating the remaining chain of 30 stores as Amigo stores. Wal- Mart also operates Sam's Clubs, Wal-Mart Supercenters and Wal-Mart stores on the island of Puerto Rico. National warehouse clubs and mass merchandisers, which have entered the Puerto Rico and U.S. Virgin Islands markets since 1990 offering various bulk grocery and general merchandise items, have increased pricing pressures on grocery retailers including the Company. In Puerto Rico, the Company operates its supermarkets under the name Pueblo with emphasis on service, variety and high quality products at competitive prices. In Puerto Rico, the Company estimates that it has a grocery retailing market share of approximately 20%. During the 52 weeks ended October 30, 2004 ("Fiscal 2004"), the Company's stores in Puerto Rico averaged approximately 41,256 gross square feet and generated an average of approximately $423 of sales per selling square foot. During the 52 weeks ended October 30, 2004, the five supermarkets in the U.S. Virgin Islands averaged 35,773 gross square feet and generated an average of approximately $439 of sales per selling square foot. The Company estimates its U.S. Virgin Islands grocery retailing market share at approximately 31%. Supermarket Purchasing and Distribution The Company's buying staff purchases products from distributors, as well as directly from producers or manufacturers. The Company generally controls shipping from the point of purchase in an effort to reduce costs and control delivery times. During the 52 weeks ended October 30, 2004, the Company purchased approximately 51% of its total dollar volume of product purchases directly from manufacturers. The Company is seeking to increase this percentage to reduce costs and to obtain improved payment terms. The Company owns a full-line distribution center in greater San Juan with approximately 300,000 square feet which is the only facility of its type on the island with refrigerated, freezer and dry grocery capacity. The distribution center is equipped with a computerized tracking system which is integrated with the Company's purchasing, inventory management and shipping systems. This system enables the Company to make rapid procurement decisions, optimize inventory levels and increase labor productivity. During the fiscal year ended October 30, 2004, this facility provided approximately 52% of the goods (measured by purchase cost) supplied to the Company's supermarkets. This involved processing 20.5 million cases through the facility during that period. Supermarket Marketing and Merchandising General The Company's merchandising strategies integrate one-stop shopping convenience, premium quality products, attractive pricing, a customer loyalty program and effective advertising and promotion. The Company reinforces its strategies with friendly and efficient customer service and a variety of other services such as banks, restaurants, and private postal facilities, effective promotional programs including in-store promotional activities, and both brandname and high quality private label product offerings. Product Offerings Over the past several years management has increased the number of items offered and analyzed the preferences of its customers. The Company offered approximately 55,000 stock keeping units ("SKUs") for sale as of October 30, 2004. The Company continues to analyze the preferences of its customers and adjusts its levels of SKUs to meet those needs. Management believes the Company's supermarkets offer the greatest product variety within their market areas, as its competitors generally lack the sales volume, store size and procurement efficiencies to stock and merchandise the wide variety of products and services offered by the Company. The Company's management believes the convenience and quality of its specialty department products contribute to customer satisfaction. The following table sets forth the mix of products sold (as measured in sales dollars) in the Company's supermarkets for the fiscal periods indicated:

Pricing As one of the largest grocery store chain operators in its markets, the Company is able to take advantage of volume purchase discounts and shipping efficiencies to offer competitive pricing at its supermarkets. The Company utilizes advertising circulars and run-of-press advertisements to emphasize special offers. During the 52 weeks ended October 30, 2004 the supermarkets reduced the number of times circulars are inserted in local newspapers from 33 to 10. The times the circulars are inserted are during the Christmas selling season and for certain popular holidays. Circulars are printed every two weeks during the remainder of the year but are distributed at the supermarkets rather than inserted in local newspapers. However, run-of-press advertisements in newspapers are used during the periods when the circulars are not inserted. The circulars, whether inserted or distributed at the supermarkets, and run-of-press advertisements emphasize special offers to holders of the PuebloCard. The card is the cornerstone of the supermarket loyal customer program. The card has two pricing facets. One facet involves special prices that are made available to all customers that have the PuebloCard. The facet other involves additional discounts to customers that have attained, during the calendar year, certain levels of points which are accumulated as a result of making purchases at the supermarkets. Each dollar of purchase equals one point. The first point threshold allows the customer to receive a discount for the remainder of the calendar year of up to 12 percent in the department of the customer's choice. The second, higher point threshold allows the customer to choose a second, but different department to receive a discount of up to 12 percent for the remainder of the calendar year. Private Label The Company's private label program includes grocery, dairy, frozen foods, bakery and deli products in its supermarkets. As of October 30, 2004, the Company offered for sale approximately 217 SKUs of Pueblo brand items. The Company also utilizes Food Club brand and Value Time brand private label products through the Company's membership with Topco Associates, Inc. As of October 30, 2004 the Company offered for sale 502 SKUs of Food Club and Value Time products. Product offerings among Pueblo, Food Club and Value Time private label products and national brands are chosen on the basis of quality, cost, gross margin and sales volume in order to offer what management believes is the best selection and value to its customers. The Company's private label program consists of the products discussed above as well as products prepared in its bakery and deli departments and a variety of national brand labels sold exclusively at its supermarkets. During the fourth quarter of the fiscal year ended October 30, 2004, private label sales were approximately 11.2% of total supermarket sales. Supermarket Category Management The Company's category management system is designed to combine traditional product variety and pricing functions under the leadership of centralized category managers who are responsible for the supermarket product offerings to consumers. The category managers are supported by the supermarket procurement and replenishment staffs. The Company's management believes such a system improves sales, optimizes inventory levels, reduces purchase costs and thereby enhances gross profit and operating profit margins. Supermarket Advertising and Promotion In addition to utilizing newspaper and in-store advertising in Puerto Rico and the U.S. Virgin Islands, the Company uses direct mail to advertise the features of its customer loyalty program. At various times during the year this is supplemented by radio and television spots. Pueblo is the only supermarket operator in its markets that has a Customer loyalty program that provides special economic benefits to consumers that have chosen to participate in the program. Since its inception in March 2001, these benefits have included special discounts on selected items. In April 2004, the Company enhanced the program to offer additional savings to participants. The additional savings are based on the points earned by the participants as discussed above under pricing. There were approximately 1.1 million loyalty cards issued by Pueblo as of October 30, 2004. In-home Movie and Game Entertainment Operations The Company has operated franchised in-home movie and game entertainment locations in Puerto Rico since 1989 and in the U.S. Virgin Islands since 1993, and operated 41 in-home movie and game entertainment locations in Puerto Rico and the U.S. Virgin Islands as of October 30, 2004. Of the 39 in-home movie and game entertainment stores located in Puerto Rico, 16 are adjacent to the Company's supermarkets and 23 are freestanding stores. Of the 2 in-home movie and game entertainment stores located in the U.S. Virgin Islands, 1 is free- standing and 1 is located adjacent to the Company's store. The Company's free-standing in-home movie and game entertainment stores average approximately 5,399 gross square feet, while the Company's in-home movie and game entertainment outlets that are in the same building as its supermarkets average approximately 3,900 gross square feet. The Company is able to take advantage of cross-marketing opportunities with its supermarket operations, including promotional in-home movie and game entertainment and merchandising offers. The Company's In-home Movie and Game Entertainment Operations are currently the largest (in terms of number of stores and total revenue) in-home movie and game entertainment chain operating in Puerto Rico and the U.S. Virgin Islands. The Company believes its locations and name recognition give it an advantage over its competitors. In the last several years Video Avenue has opened 18 stores in Puerto Rico in competition with the Company. Each of the Company's free-standing in-home movie and game entertainment locations carries an average of approximately 10,000 tapes/discs dedicated to video rental whereas its in-home movie and game entertainment locations that are in the same building as its supermarkets average approximately 7,000 tapes/discs. Each location also offers for sale a selection of recorded and blank video tapes and discs, music compact discs, video games, prepaid phone cards, accessories, and snack food products. For promotions of its In-home Movie and Game Entertainment Division operations, the Company utilizes print, television, radio, billboards and in-store signage. The Company's franchisor also provides supplies and some licensed product and support services to the Company. These include, among other things, marketing programs and computer software. The Company's successful development of its in-home movie and game entertainment franchise has been the result of its ability to leverage its knowledge of Puerto Rico and existing market and retailing expertise. The Company's knowledge of real estate and its existing portfolio of desirable supermarket locations has enabled it to obtain attractive, high traffic locations for its In-home Movie and Game Entertainment Operations. The Company continues to evaluate expansion opportunities in Puerto Rico. Each in-home movie and game entertainment location is subject to a franchise agreement with the Company's franchisor that provides the right for such location to conduct in-home movie and game entertainment operations for a 20-year period from the initial date of operation of the location. The franchise agreement provides, in addition to other things, that the franchisor has the right to approve each location, approve the promotional activities of the division, approve products sold in each location as well as the cash register check-out hardware and software to be used at each location, and the communications systems to be used at each location. The agreement also specifies the franchise fees, as a percentage of sales, to be paid to the franchisor and provides for direction from the franchisor as to the monies spent on advertising, also as a percentage of sales. Although the Company's In-home Movie and Game Entertainment Operations constitute the largest in-home movie and game entertainment chain in Puerto Rico and the U.S. Virgin Islands, the Company competes with 18 Video Avenue stores, 14 Cinema Video stores, numerous local independent video retailers, and mass merchandisers in the category of retail sales of movies and game videos. In addition, the Company's in-home movie and game entertainment stores compete against cable, television, satellite broadcasting, movie theaters, the Internet, and other forms of entertainment. Management Information Systems The Company believes high levels of automation and technology are essential to its operations and has invested considerable resources in computer hardware, systems applications and networking capabilities. These systems integrate all major aspects of the Company's business, including the monitoring of store sales, inventory control, merchandise planning, labor utilization, distribution and financial reporting. All of the Company's stores are equipped with point of sale (POS) terminals with full price look-up capabilities that capture sales at the time of transaction down to the SKU level through the use of bar-code scanners. These scanners facilitate customer checkout and provide, by store, valuable information to assist our buyers in the reordering process and provide other valuable information used by category managers. Similar scanning technology is used by each store to electronically record goods received and orders generated. The Company's management information systems at its In-home Movie and Game Entertainment Operations are systems that are licensed to the Company by its franchisor. Employees As of October 30, 2004, the Company had approximately 4,212 employees (full and part-time), of whom approximately 3,342 were employed at the supermarket level, 447 at the administrative and financial services offices and distribution center and 423 by the In-home Movie and Game Entertainment Division. Approximately 68% of the Company's hourly supermarket employees were employed on a part-time basis and approximately 2,879 store employees were represented by a nonaffiliated collective bargaining organization under a four year contract expiring in July 2006. The Company considers its relations with its employees to be good. Trademarks, Tradenames and Service Marks The Company owns certain trademarks, tradenames and service marks used in its business, which are registered with the U.S. Patent and Trademark Office, and the appropriate governmental authorities in Florida, Puerto Rico, the U.S. Virgin Islands, and selected foreign jurisdictions. The Company believes that its trademarks, tradenames, and service marks, including, but not limited to, Pueblo, PuebloXtra, and Xtra, are valuable assets due to the fact that brand name recognition and logos are important considerations in the Company's consumer markets. As a franchisee, the Company has exclusive rights to use the franchisor's trademark in its specified franchise territories. Environmental Regulation Compliance by the Company with federal, commonwealth, territory and local environmental protection laws has not had, and is not expected to have, a material effect on capital expenditures, earnings or the competitive position of the Company. Risk Factors Forward Looking Statements Statements, other than statements of historical information, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K may constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others, statements concerning expectations of adequate liquidity and anticipated capital expenditures. These statements are based on Company management's expectations and are subject to various risks and uncertainties. Actual results could differ materially from those anticipated due to a number of factors, including but not limited to the Company's substantial indebtedness and high degree of leverage (including limitations on the Company's ability to obtain additional financing and trade credit, to apply operating cash flow for purposes in addition to debt service, to respond to price competition in economic downturns and to dispose of assets pledged to secure such indebtedness or to freely use proceeds of any such dispositions), the Company's limited geographic markets and competitive conditions in the markets in which the Company operates and buying patterns of consumers. Supermarket Industry The retail grocery industry is extremely competitive and is characterized by high inventory turnover and narrow profit margins. The Company's results of operations are therefore sensitive to, and may be materially adversely impacted by, among other things, competitive pricing, promotional pressures and additional store openings by competitors. The Company competes with national, regional and local supermarkets, warehouse club stores, supercenters, drug stores, convenience stores, discount merchandisers and other local retailers in the market areas it serves. Competition with these outlets is based on price, store location, advertising and promotion, product mix, quality and service. Some of these competitors have greater financial resources, and may have lower merchandise acquisition costs and lower operating expenses than the Company, and the Company may be unable to compete successfully in the future. In-home Movie and Game Entertainment Operations The Company's in-home movie and game entertainment franchise faces significant competition and risks associated with technological obsolescence, and the Company may be unable to compete effectively. The in-home movie and game entertainment industry is highly competitive. The Company competes with local, regional and national video retail stores, and with mass merchants, club stores, specialty retailers, supermarkets, pharmacies, convenience stores, bookstores, mail order operations, online stores and other retailers, as well as with noncommercial sources, such as libraries. This industry is also challenged by illegal and non-official competitors that copy and distribute illegal VHS tapes and DVD's, also known as piracy activity. As a result of direct competition with others, pricing strategies for in-home movies and games is a significant competitive factor in the Company's in-home movie and game entertainment business. The Company's in-home movie and game entertainment business also competes with other forms of entertainment, including cinema, television, sporting events and family entertainment centers. If the Company does not compete effectively with competitors in the in-home movie and game entertainment industry or with providers of other forms of entertainment, its revenues and/or its profit margin could decline and its business, financial condition, liquidity and results of operations could be adversely affected. Further, the division's operations are dependent on the studios that develop and distribute the product. Changes in video formats or distribution practices (for example from VHS tapes to DVD's)are disruptive to the division's operations as these changes may cause significant changes in its product acquisition costs, quantities it is required to purchase, the timing of the period a title may be rented before it is brought to market for sale (which impacts the length of time of high rental volume for a title - better known in the industry as the "rental window") and its per rental revenue depending on the distribution and pricing practices of the studios. The division is also dependent on the movie and game production industry for the development of new product and re-launches of older titles as it has no production or duplication facilities of its own. The Company is also dependent on its franchisor for technological advances and permission to expand the items offered for sale. Geographic Considerations; Regulation The Company is concentrated in the densely populated greater San Juan metropolitan area of Puerto Rico and in the U.S. Virgin Islands. As a result, the Company is vulnerable to economic downturns in those regions, as well as natural and other catastrophic events, such as hurricanes and earthquakes, that may impact those regions. These events may adversely affect the Company's sales which may lead to lower earnings, or even losses, and may also adversely affect its future growth and expansion and ability to acquire windstorm insurance coverage. Further, since the Company is concentrated on three islands, opportunities for future store expansion may be limited, which may adversely affect its business and results of operations. Additionally, the Company is subject to governmental regulations (such as import taxes) that impose obligations and restrictions and may increase its costs. The Company is Highly Leveraged The Company emerged from bankruptcy in June, 2003 and has a substantial amount of indebtedness and debt service obligations, which could adversely affect its financial and operational flexibility and increase its vulnerability to adverse conditions. The Company could incur substantial additional indebtedness in the future, including indebtedness that would be secured by its assets. Additionally, the Company's revolving and term loan debt is subject to variable interest rates. If the Company increases its indebtedness or if there is a substantial increase in interest rates, the related risks that it now faces could intensify. For example, the Company's current level of indebtedness and/or an increase in indebtedness and interest rates could: - require the Company to dedicate an increased portion of its cash flow to payments on its indebtedness; - limit the Company's ability to borrow additional funds; - increase the Company's vulnerability to general adverse economic and industry conditions; - limit the Company's ability to fund future working capital, capital expenditures and other general corporate requirements; - limit the Company's flexibility in planning for, or reacting to, changes in its business and the industry in which it operates or taking advantage of potential business opportunities; - limit the Company's ability to execute its business strategy successfully; and - place the Company at a potential competitive disadvantage in its industry. The Company's ability to satisfy its indebtedness will depend on its financial and operating performance, which may fluctuate significantly from quarter to quarter and is subject to economic, industry and market conditions and to risks related to its business and other factors beyond its control. The Company cannot provide assurance that its business will generate sufficient cash flow from operations or that future borrowings will be available to it in amounts sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. Further, as NSC is a holding company, indebtedness at the NSC level is effectively subordinated to indebtedness and other obligations at the operating subsidiary level. See Item 7 MANAGEMENTS'DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and NOTE 5 - DEBT to the consolidated financial statements included in item 15 of this Form 10-K. Market Risk In addition to the foregoing, the market price of the Company's debt securities may be significantly affected by change in market rates of interest, yields obtainable from investments in comparable securities, credit ratings assigned to the Company's debt securities by third parties and perceptions regarding its ability to pay its obligations on its debt securities. ITEM 2. PROPERTIES The following table sets forth information as of October 30, 2004 with respect to the owned and leased stores and support facilities used by the Company in its business:

(1) For five of the owned stores the Company owns the building and leases the land. Four of these are in Puerto Rico and one is in the U.S. Virgin Islands. The majority of the Company's supermarket operations are conducted on leased premises which have initial terms generally ranging from 20 to 25 years. The lease terms typically contain escalation clauses and renewal options allowing the Company to extend the lease term in five to ten year increments. The leases provide for fixed monthly rental payments subject to various periodic adjustments. The leases often require the Company to pay annual percentage rent based on sales and certain expenses related to the premises such as insurance, taxes and maintenance. See NOTE 6 - LEASES of the notes to the Company's consolidated financial statements included in Item 15 of this Form 10-K. The Company does not anticipate any difficulties in renewing its leases as they expire. The construction of new owned facilities and remodeling of existing facilities are financed principally with internally generated funds. All owned properties of Pueblo were pledged as collateral (by a pledge of the assets of the Company's operating subsidiaries) under the Company's May 2003 Bank Agreement with the 2003 Bank Lender (see NOTE 5 - DEBT in the notes to the Company's consolidated financial statements included in Item 15 of this Form 10-K). The Company owns its general offices, which includes the supermarket and In-home Movie and Game Entertainment Division offices and the distribution center located in Carolina, Puerto Rico (near San Juan), and leases its administrative offices located in Pompano Beach, Florida. The Company's management believes that its properties are adequately maintained and sufficient for its business needs. Since the Acquisition through October 30, 2004, the Company made capital expenditures of approximately $132.4 million (not including repairs and replacements resulting from Hurricane Georges) in its supermarket operations in Puerto Rico and the U.S. Virgin Islands, including the opening of seven new supermarkets, the acquisition of one new supermarket and the remodeling of 39 existing supermarkets. In the same period, the Company made capital expenditures totaling approximately $11.2 million in its In-home Movie and Game Entertainment Division operations. The history of store openings, closings and remodels, beginning with fiscal year ended January 27, 2001, is set forth in the following table:

The lease agreement for one of the Company's supermarkets in Puerto Rico is terminating on February 15, 2005 and the Company will close this store and return the property to the landlord on or before this date. ITEM 3. LEGAL PROCEEDINGS The Company is party to a number of legal proceedings involving claims for money damages arising in the ordinary course of conducting its business which are either covered by insurance or are within the Company's self- insurance program, and in a number of other proceedings which are not deemed material. It is not possible to determine the ultimate outcome of these matters; however, management is of the opinion that the final resolution of any threatened or pending litigation at such date is not likely to have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the 52 weeks ended October 30, 2004. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information There is no established public trading market for NSC's common equity. Holders NSC is a wholly-owned subsidiary of PXC&M Holdings, Inc., a Delaware corporation ("Holdings"). Shares of Holdings are indirectly beneficially owned by a trust primarily for the benefit of the family of Gustavo Cisneros, and a trust primarily for the benefit of the family of Ricardo Cisneros, with each trust having a 50% indirect beneficial ownership interest in the shares of Holdings. These trusts are referred to herein as the "Principal Shareholders." Messrs. Gustavo and Ricardo Cisneros disclaim beneficial ownership of the shares. Dividends and Repurchases No cash dividends have been declared on and no repurchases have been made of the Company's common stock since NSC's inception. Certain restrictive covenants in the May 2003 Bank Agreement impose limitations on the declaration or payment of dividends and repurchases of common stock by NSC. Additionally, dividend payments and repurchases by Pueblo to NSC are restricted under the terms of the May 2003 Bank Agreement. The May 2003 Bank Agreement, however, provides that so long as no default or event of default (as defined in the May 2003 Bank Agreement) exists, or would exist as a result, and certain other conditions are satisfied, Pueblo is permitted to pay its inter-company interest on its inter-company notes payable to NSC in accordance with the terms thereof. See NOTES 1 and 5 to the Company's consolidated financial statements included in Item 15 of this Form 10-K for a discussion of the issuance of New 10.125% Senior Secured Notes to the Holders and the May 2003 Bank Agreement. ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except average sales per selling square foot amounts)

See notes to Selected Financial Data at the end of this Item 6.

See notes to Selected Financial Data at the end of this Item 6.

See notes to Selected Financial Data at the end of this Item 6.

See notes to Selected Financial Data at the end of this Item 6. NOTES TO SELECTED FINANCIAL DATA (1) Represents the gain from three supermarket lease amendments (see NOTE 6 - LEASES in the notes to the consolidated financial statements included in item 15 of this Form 10-K). (2) Includes a gain from the Hurricane Georges insurance claim of $14.7 million and $2.5 million for the fiscal years ended November 2, 2002 and January 27, 2001, respectively. (3) Includes charges of $0.4 million and $3.5 million for the write down of stores that were closed for the fiscal years ended November 1, 2003 and January 27, 2001, respectively. Additionally, the Company recorded a charge of $1.2 million during the fiscal year ended November 1, 2003, for the write down of impaired assets related to two under performing stores in accordance with SFAS No. 144. (4) The fiscal years ended November 1, 2003 and November 2, 2002 amounts do not include contractual interest expense on pre-petition debt totaling approximately $10.0 million and $2.7 million, respectively. (5) Reorganization items consist primarily of the costs of the Company's and its noteholders' financial and legal professionals advising the parties on matters pertaining to the Company's Chapter 11 proceedings. (6) The 52 weeks ended November 1, 2003 included a gain from the Consummation of the Plan of Reorganization in which NSC provided consideration to the pre-petition noteholders equal to $59.5 million in cash and $90 million in New 10.125% Senior Secured Notes. The 52 weeks ended January 27, 2001 included a gain resulting from the Company's purchase of $87.7 million principal amount of its Notes and Series C Senior Notes. (7) The Company recorded a write down of goodwill during the fiscal year ended November 1, 2003 as a result of its adoption of SFAS No. 142. (8) Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. (9) The balance as of November 2, 2002 includes the carrying value of the Notes and Series C Senior Notes totaling approximately $176.2 million, which are included as Liabilities Subject to Compromise in the Company's consolidated financial statements. (10) EBITDA (as defined) represents earnings before interest, taxes, depreciation, amortization, the gain from early extinguishment of debt, reorganization items, and the cumulative effect of an accounting change. EBITDA (as defined) is not intended to replace cash flow from operations as defined by accounting principles generally accepted in the United States of America and should not be considered as an alternative to net income (loss) as an indication of the Company's operating performance or to cash flows as a measure of liquidity. EBITDA (as defined) is included as it is the basis upon which the Company assesses its financial performance. EBITDA (as defined) margin represents EBITDA (as defined) divided by net sales. The bank credit facility and the indenture underlying NSC's publicly issued debt contain various financial covenants. Some of these covenants are based on EBITDA. Consequently, EBITDA is disclosed and discussed as management believes it is an important means by which to measure the Company's liquidity and compliance with our debt covenants, and it is a measure by which management monitors operating results. Furthermore, EBITDA is used, in part, to determine incentive compensation for management. On January 22, 2003, the SEC issued release No. 33-8176 that set forth new requirements relating to the disclosure of non-Generally Accepted Accounting Principles (GAAP) financial measures, as defined in the release. Management presents EBITDA as management believes it is an important means by which to measure the Company's operating results. However, in compliance with release No. 33-8176 we have provided, in the first table in this ITEM 6, a reconciliation of EBITDA to the GAAP measure of net (loss) income. (11) For all periods presented, average sales are weighted for the period of time each store is open during the period. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General In recent years, the Company's retail grocery markets, and the Company, have been affected by an increasing level of competition from local supermarket chains, independent supermarkets, warehouse club stores, mass merchandisers, department stores, discount drug stores and convenience stores. Warehouse club stores and mass merchandisers, which began entering the Puerto Rico and U.S. Virgin Islands markets in 1990 offering various grocery and general merchandise items, have increased pricing pressures on grocery retailers including the Company. In addition, low inflation in food prices in recent years has made it difficult for the Company and other grocery store operators to increase prices and has intensified the competitive environment by causing such retailers to emphasize promotional activities and discount pricing to maintain or gain market share. The number of Company stores has decreased in recent years. Critical Accounting Estimates NSC's management has chosen accounting policies that management believes are appropriate to report accurately and fairly NSC's consolidated operating results and financial position, and those accounting policies are applied in a consistent manner unless otherwise indicated. The significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. Management bases these estimates on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Management believes that the following accounting policies are the most critical in the preparation of NSC's consolidated financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain. Self-Insurance Costs NSC's and its operating subsidiaries are, primarily, self-insured for costs related to workers' compensation, general liability claims and certain health insurance programs. Liabilities for general liability and workers' compensation claims are actuarially determined, by an outside actuary, and are recognized based on claims filed and an estimate of claims incurred but not yet reported. The Company has purchased stop-loss coverage to limit its exposure on a per claim basis. The Company is insured for covered costs in excess of these per claim limits. These costs are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations included in ITEM 15 of this Form 10-K. The assumptions underlying the ultimate costs of existing claim losses are subject to a high degree of unpredictability, which can affect the liability recorded for such claims. For example, variability in inflation rates of health care costs inherent in these claims can affect the amounts realized. Similarly, changes in legal trends and interpretations, as well as a change in the nature and method of how claims are settled, can impact ultimate costs. Although our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, any changes could have a considerable effect upon future claim costs and currently recorded liabilities. Impairments of Long-Lived Assets Management monitors the carrying value of long-lived assets for potential impairment based on whether trigger events have occurred. These events include current period losses, by location, combined with a history of losses, a projection of continuing losses or a significant decrease in the market value of an asset. When a trigger event occurs, an impairment calculation is performed, comparing projected undiscounted cash flows, utilizing current cash flow information and management's estimates of expected cash flows related to specific stores, to the carrying value for those stores. If impairment is identified for long -lived assets to be held and used, the value of the assets is written down to its estimated fair value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on our previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. The estimates included in this process involve subjective and complex judgments by management. Any reductions in the carrying value of assets resulting from the application of this policy are included in "Depreciation and amortization" in the Consolidated Statements of Operations included in ITEM 15 of this Form 10-K. Benefit Plans The determination of the Company's obligation and expense for pension and other post-retirement benefits is dependent upon selection of assumptions used by actuaries in calculating those amounts. Those assumptions are described in NOTE 8 - RETIREMENT BENEFITS in the notes to the Consolidated Financial Statements included in ITEM 15 of this Form 10-K and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in compensation. In accordance with generally accepted accounting principles, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect the Company's recognized expense and recorded obligation in future periods. While management believes that its assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect pension obligations and future expense. The cost of these plans are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations included in ITEM 15 of this Form 10-K. Revenue Recognition Revenues from the sale of products are recognized at the point of sale of our products or, in the case of video rentals, at the time of rental. Discounts provided to customers at the point of sale are recognized as a reduction in sales as the products are sold/rented. Cost of Goods Sold, including Vendor Allowances, Warehousing and Transportation Management believes the classification of costs included in merchandise costs could vary widely throughout our industry. Our approach is to include the direct, net costs of acquiring products and delivering them to the Company's stores in the "Cost of goods sold" line item in the Consolidated Statements of Operations. We believe this approach most accurately presents the actual costs of products sold, and is consistent with recently issued accounting standards on the topic. In addition to the cost of merchandise, net of discounts and allowances, inbound freight charges, warehousing costs, including receiving and inspection costs; and transportation costs are included in the "Cost of goods sold", line item of the Consolidated Statements of Operations. Allowances (including rebates) relating to the Company's buying and merchandising activity (including promotional activity) are recorded as a reduction in "Cost of goods sold" as earned according to subjective estimates by management relating to the underlying agreement, inventory movement and time. Purchasing management salaries and administration costs are not included in "Cost of goods sold". Rather, they are included in the "Selling, general, and administrative expenses" line item in the Consolidated Statements of Operations along with all other managerial and administrative costs and store operating costs (including store occupancy costs). Income Tax Expense NSC and its subsidiaries are subject to taxation in the United States of America (U.S.), and are included in the consolidated tax return of NSC'S parent (PXC&M Holdings, Inc) in that jurisdiction. Certain of the operating subsidiaries are also subject to tax in the Commonwealth of Puerto Rico and certain operating subsidiaries are subject to tax in the Territory of the U.S. Virgin Islands. The consolidated tax provision is computed based on the tax laws of these jurisdictions, including the availability of foreign tax credits in the U. S. As discussed in NOTE 7 - INCOME TAXES to the consolidated financial statements included in ITEM 15 to this Form 10-K, the Company has approximately $27.8 million in tax benefits from net operating losses and tax credit carry-forwards. These carry-forwards are in the Puerto Rico and U.S. Virgin Islands tax jurisdictions. Management has established a valuation reserve of approximately $21.7 million against these future tax benefits as their realization in these jurisdictions is doubtful during the carry-forward periods. Results of Operations 52 Weeks Ended October 30, 2004 vs. 52 Weeks Ended November 1, 2003 As of October 30, 2004, the Company operated a total of 46 supermarkets and 41 in-home movie and game entertainment locations in Puerto Rico and the U. S. Virgin Islands. During the fiscal year ended October 30, 2004, the Company closed one in-home movie and game entertainment store in Puerto Rico. The Company is evaluating replacement sites for this store. Net sales for the 52 weeks ended October 30, 2004 were $546.2 million versus $571.3 million in the comparable period of the prior year, a decrease of 4.4%. For the comparable 52 week periods, same store net sales were $523.5 million for the year ended October 30, 2004 versus $542.2 million for the comparable period of the prior year, a decrease of 3.5%. "Same stores" are defined as those stores that were open as of the beginning of both periods and remained open through the end of the periods. Same store net sales in the Retail Food Division decreased 3.3% for the 52 weeks ended October 30, 2004 as compared to the same period of the prior year. The primary factors contributing to the decrease in same store net sales in the Retail Food Division were continued growth in competition and a softening of the economy in Puerto Rico. The factors discussed above concerning the decline in same store net sales have created severe pressure on the Company's Retail Food Division as well as its competitors to reduce retail prices in the Company's markets. In response to these pressures the division introduced additional benefits to participants in Pueblo's customer loyalty program during the year (discussed on pages 4 and 6 of this Form 10-K). Since the introduction of these additional benefits, the decline in same store net sales in the Retail Food Division has abated and same store net sales in the retail food division increased by 2.5% during the fourth quarter (12 weeks) ended October 30, 2004 as compared to the comparable period of the prior year. In-home Movie and Game Entertainment Division same store net sales (rental revenue and sales) decreased 6.1% for the 52 weeks as compared to the same period in the prior year primarily due to a decline in rental revenue. As the popularity of DVD's has increased over the past several years, so has competition in this industry. This is because DVD titles are primarily released for rental and sale at the same time whereas VHS tapes are generally released for rental prior to being released for sale allowing the Company to benefit from a "rental window". Currently, substantially all DVD's are simultaneously released for rental and sale resulting in lower sell-through prices, which means prices that are low enough to allow an affordable sales price by the retailer to the consumer. This sell-through price has accelerated consumer interest in the format but has also served to increase competition from mass merchant retailers. Gross profit for the 52 weeks ended October 30, 2004 was $178.0 million versus $183.5 million for the comparable period of the prior year, a decrease of $5.5 million. Gross profit for the Retail Food Division was $148.3 million for the 52 weeks ended October 30, 2004 compared to $152.2 million for the comparable period of the prior year, a decrease of $3.9 million. The $3.9 million decrease in gross profit for the Retail Food Division was primarily a result of the decrease in net sales. The rate of gross profit (as a percentage of net sales) for the Retail Food Division was 29.1% for the 52 weeks ended October 30, 2004 compared to 28.7% for the 52 weeks ended November 1, 2003, an increase of 0.4%. This improvement in the retail food division's gross margin is a result of utilizing management information systems to better manage the division's promotions and their impact on the mix of sales and gross margin. The gross profit for the In-home Movie and Game Entertainment Division for the 52 weeks ended October 30, 2004 was $29.7 million versus $31.3 million for the comparable period of the prior year, a decrease of $1.6 million. The gross profit rate for the In-home Movie and Game Entertainment Division increased by 0.8% to 79.3% in the 52 weeks ended October 30, 2004. The increase in the gross profit rate was a result of a general improvement in gross margins on sell-through product. Selling, general and administrative expenses were $150.8 million for the 52 weeks ended October 30, 2004 compared to $156.4 million for the comparable period of the prior year. This decrease is a result of the decline in net sales and the cost reductions achieved through the Company's cost containment efforts to combat the highly competitive nature of its markets. Results for the 52 weeks ended November 1, 2003 include a $0.5 million loss (before income taxes) for the exit costs of two supermarkets that were closed. One of the stores is in Puerto Rico, and one is on the island of St. Thomas in the U.S. Virgin Islands. Both were closed based on management's view of their profit potential. The exit costs primarily included contractual occupancy costs, property taxes, and other occupancy costs beyond the closing date, employee severance and related benefit costs. The 52 weeks ended October 30, 2004 include a gain of approximately $2.0 million, net of related expenses, as a result of amending certain store leases. The amendments, and related gains, involve two Puerto Rico supermarkets and one U.S. Virgin Islands supermarket. The amendment concerning the U.S. Virgin Islands supermarket related to rent the Company had accrued and not paid over a number of previous years. The rent had not been paid based on certain provisions in the related lease as to the Company's use of the property it leases and use of property leased by other tenants in the same shopping center. The amendment to one of the Puerto Rico store leases involves an agreement to close the store earlier than the original lease termination date. Additional amounts are due the Company from the landlord when the store is returned to the landlord in February 2005 and will be recognized when realized. The amendment to the second Puerto Rico store lease involved the return of land to the landlord that the Company was not using and allowing the landlord to develop land at the shopping center that heretofore had been undeveloped. See NOTE 6 - LEASES in the notes to the consolidated financial statements included in item 15 of the Form 10-K. Depreciation and Amortization was $19.5 million for the 52 weeks ended October 30, 2004 compared to $23.5 million for the comparable period of the prior year, a decrease of $4.0 million. During the 52 weeks ended November 1, 2003, the Company recorded a write down of impaired assets in accordance with SFAS No. 144 of $1.2 million (see Long- Lived Assets in NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES in the notes to the consolidated financial statements included in Item 15 of this Form 10-K). The Company also recorded an adjustment of $1.0 million during the 52 weeks ended November 1, 2003 as a result of changing the estimated useful lives of its rental video and game inventory from one year to six months (see NOTE 2 - INVENTORIES to the notes to the consolidated financial statements included in Item 15 of this Form 10-K). The remaining decline during the current fiscal year is a result of normal depreciation on existing assets. Interest expense, net of interest income, increased by $5.7 million between the 52 weeks ended October 30, 2004 and the comparable period of the prior year primarily as a result of an increase in interest expense on debt as shown in the table below (dollars in thousands). The primary difference between the two periods resulted from the interest expense on debt for the 52 weeks ended November 1, 2003 not including contractual interest expense on pre-petition debt that totaled approximately $10,000.

There were no reorganization activities during the 52 weeks ended October 30, 2004. Reorganization items during the fiscal years ended November 1, 2003 consisted primarily of the costs of financial and legal professionals providing financial and legal services to both the Company and the Company's noteholders on matters pertaining to the Company's Chapter 11 proceedings. The 52 weeks ended November 1, 2003 include a $36.5 million gain resulting from extinguishment of debt on consummation of the Plan of Reorganization in which NSC provided consideration to the pre-petition noteholders equal to $59.5 million in cash and $90.0 million in New 10.125% Senior Secured Notes. The 52 weeks ended October 30, 2004 included an income tax benefit of $0.2 million compared to income tax expense totaling $0.1 million in the comparable period of the prior year. The effective rates for the 52 weeks ended October 30, 2004 and the comparable period of the prior year were 3.7% and 0.2%, respectively. Variances in the effective tax rates were primarily due to the relationship of items of permanent difference between (Loss) Income Before Income Taxes and Cumulative Effect of an Accounting Change for financial reporting purposes, and pretax income for income tax return reporting purposes. The Company realized net loss, before the cumulative effect of an accounting change, of $5.5 million for the 52 weeks ended October 30, 2004, compared to net income, before the cumulative effect of an accounting change, of $24.1 million in the comparable period of the prior year. The preceding paragraphs in this MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS discuss the reasons for the variances. During the 52 weeks ended November 1, 2003, the Company recorded a $139.9 million charge as the cumulative effect of an accounting change as a result of its adoption of SFAS No. 142 (see NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES to the notes to the consolidated financial statements included in Item 15 of this Form 10-K). No such adjustments was required during the 52 weeks ended October 30, 2004. 52 Weeks Ended November 1, 2003 vs. 52 Weeks Ended November 2, 2002 As of November 1, 2003, the Company operated a total of 46 supermarkets and 42 in-home movie and game entertainment locations in Puerto Rico and the U. S. Virgin Islands. During the fiscal year ended November 1, 2003, the Company opened one new supermarket and one new in-home movie and game entertainment store in Puerto Rico. Additionally, the Company closed two of its under-performing supermarkets, one in Puerto Rico and one in the U.S. Virgin Islands; both supermarkets had expiring leases. Total sales for the 52 weeks ended November 1, 2003 were $571.3 million versus $588.2 million in the comparable period of the prior year, a decrease of 2.9%. For the comparable 52 week periods, same store sales were $542.5 million for the year ended November 1, 2003 versus $576.0 million for the comparable period of the prior year, a decrease of 5.8%. "Same stores" are defined as those stores that were open as of the beginning of both periods and remained open through the end of the periods. Same store sales in the Retail Food Division decreased 6.1% for the 52 weeks ended November 1, 2003 as compared to the same period of the prior year. The factors contributing to the decrease in same store sales in the Retail Food Division were continued growth in competition and a softening of the economy in both Puerto Rico and the U.S. Virgin Islands. The above factors created severe pressure on the Company's Retail Food Division as well as its competitors to reduce retail prices in the Company's markets. In-home Movie and Game Entertainment Division same store sales (rental revenue and sales)decreased 1.5% for the 52 weeks as compared to the same period in the prior year primarily due to a decline in rental revenue. As the popularity of DVD's has increased over the past several years, so has competition in this industry. This is because DVD titles are primarily released for rental and sale at the same time whereas, VHS tapes are generally released for rental prior to being released for sale allowing the Company to benefit from a "rental window". Currently, substantially all DVD's are simultaneously released for rental and sale resulting in lower sell- through prices, which means prices that are low enough to allow an affordable sales price by the retailer to the consumer. This sell-through price has accelerated consumer interest in the format but has also served to increase competition from mass merchant retailers. Gross profit for the 52 weeks ended November 1, 2003 was $183.5 million versus $191.9 million for the comparable period of the prior year, a decrease of $8.4 million. Gross profit for the Retail Food Division was $152.2 million for the 52 weeks ended November 1, 2003 compared to $160.2 million for the comparable period of the prior year, a decrease of $8.0 million. The $8.0 million decrease in gross profit for the Retail Food Division was primarily a result of the decline in sales. The rate of gross profit (as a percentage of sales) for the Retail Food Division was 28.6% for the 52 weeks ended November 1, 2003 compared to 29.2% for the 52 weeks ended November 2, 2002, a decrease of 0.6%. The primary reason for the decline in the rate of gross profit in the Retail Food Division is the reduction of retail prices as a result of the pricing pressures mentioned above. The gross profit for the In-home Movie and Game Entertainment Division for the 52 weeks ended November 1, 2003 was $31.3 million versus $31.7 million for the comparable period of the prior year, a decrease of $0.4 million. The gross profit rate for the In-home Movie and Game Entertainment Division decreased by 1.1%, to 78.5% in the 52 weeks ended November 1, 2003. The decrease in the gross profit rate was a result of a decrease in video rentals, which have a higher gross margin rate than product sales, as a percentage of total In-home Movie and Game Entertainment Division sales. Selling, general and administrative expenses were $156.4 million for the 52 weeks ended November 1, 2003 compared to $154.4 million for the comparable period of the prior year. Considering the decline in same store sales and the stores closed during both periods selling general and administrative expenses would be expected to decline approximately $5.5 million dollars. However, included in the total for the 52 weeks ended November 1, 2003 are approximately $4.5 million in selling, general and administrative costs of the new supermarket and the new In-home Movie and Game Entertainment store, both opened in late November of 2002, and severance costs of approximately $0.5 million associated with staff reductions in the administrative areas of the Company in the Spring of 2003. In addition energy costs increased approximately $1.8 million primarily as a result of rate increases. All other selling general and administrative costs increased approximately $0.7 million net of the impact of the Company's "Challenge Program" which is part of the Company's cost containment effort to combat the highly competitive nature of its markets. These cost containment programs were initiated in the Spring of 2003 in the areas of administrative support costs, insurance, supply costs, repairs and maintenance, communications, advertising and store labor. Results for the 52 weeks ended November 2, 2002 include a $14.7 million gain (before income taxes) realized upon the settlement of the business interruption portion of the Company's Hurricane Georges insurance claim. Results for the 52 weeks ended November 1, 2003 include a $0.5 million loss (before income taxes) for the exit costs of two supermarkets that were closed. One of the stores is in Puerto Rico, and one is on the island of St. Thomas in the U.S. Virgin Islands. Both were closed based on management's view of their profit potential. The exit costs primarily included contractual occupancy costs, property taxes, and other occupancy costs beyond the closing date, employee severance and related benefit costs. Depreciation and Amortization was $23.5 million for the 52 weeks ended November 1, 2003 compared to $28.3 million for the comparable period of the prior year, a decrease of $4.8 million. This decrease was primarily a result of the discontinuation of amortization of goodwill and trade names as a result of the Company's adoption of SFAS No. 142, effective November 3, 2002. Goodwill and trade name amortization were $4.7 million and $0.9 million, respectively, during the 52 weeks ended November 2, 2002. Additionally, the Company recorded an adjustment of $1.0 million during the 52 weeks ended November 1, 2003 as a result of changing the estimated useful lives of its rental video and game inventory from one year to six months (see NOTE 2 - INVENTORIES to the notes to the consolidated financial statements included in Item 15 of this Form 10-K). The Company also recorded a write down of impaired assets in accordance with SFAS No. 144 of $1.2 million (see Long- Lived Assets in NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES in the notes to the consolidated financial statements included in Item 15 of this Form 10-K). Interest expense, net of interest income, decreased by $11.0 million between the 52 weeks ended November 1, 2003 and the comparable period of the prior year primarily as a result of a reduction in interest expense on debt as shown in the table below (dollars in thousands).

Reorganization items during the fiscal years ended November 1, 2003 and November 2, 2002 consisted primarily of the costs of financial and legal professionals providing financial and legal services to both the Company and the Company's noteholders on matters pertaining to the Company's Chapter 11 proceedings. The 52 weeks ended November 1, 2003 include a $36.5 million gain resulting from extinguishment of debt on consummation of the Plan of Reorganization in which NSC provided consideration to the pre-petition noteholders equal to $59.5 million in cash and $90.0 million in New 10.125% Senior Secured Notes. Income tax expense for the 52 weeks ended November 1, 2003 was $0.1 million compared to $2.8 million in the comparable period of the prior year, a decrease of $2.7 million. The effective rates for the 52 weeks ended November 1, 2003 and the comparable period of the prior year were 0.2% and 132.2%, respectively. Variances in the effective tax rates were primarily due to the relationship of items of permanent difference between (Loss) Income Before Income Taxes and Cumulative Effect of an Accounting Change for financial reporting purposes, and pretax income for income tax return reporting purposes to (Loss) Income Before Income Taxes and Cumulative Effect of an Accounting Change. The Company realized net income, before the cumulative effect of an accounting change, of $24.1 million for the 52 weeks ended November 1, 2003, an improvement of $24.8 million from the net loss, before the cumulative effect of an accounting change, of $0.7 million in the comparable period of the prior year. The preceding paragraphs in this MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS discuss the reasons for the variances. During the fiscal year ended November 1, 2003, the Company recorded a $139.9 million charge as the cumulative effect of an accounting change as a result of its adoption of SFAS No. 142 (see NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES to the notes to the consolidated financial statements included in Item 15 of this Form 10-K). This charge represented the write-off of goodwill from the original Acquisition of Pueblo, which was determined to be impaired. Liquidity and Capital Resources As discussed in Item 1, in August 2002, NSC defaulted in the payment of interest on its outstanding notes, and consented to the entry of an order for relief under Chapter 11 of the Bankruptcy code the next month. NSC consummated a plan of reorganization and emerged from bankruptcy in June 2003. The relief under Chapter 11 pertained to NSC only, not to its operating subsidiaries. However, the bank debt of the operating subsidiaries, which was guaranteed by NSC, was due on February 1, 2003. On January 30, 2003 a new bank lender assumed the existing bank debt under an Extension & Modification Agreement and committed to lend the operating subsidiaries additional funds at the time NSC emerged from bankruptcy. The new bank lender also obtained the guarantee of NSC. On May 23, 2003 the Company's operating subsidiaries entered into a new Loan and Security Agreement, and NSC entered into an Amended and Restated Guarantor General Security Agreement (collectively the "May 2003 Bank Agreement") with the lender thereunder (the "2003 Bank Lender"). Funding took place on June 5, 2003. The New 10.125% Senior Secured Notes issued by NSC at the time it emerged from Chapter 11 and the May 2003 Bank Agreement are discussed in NOTE 5 - DEBT in the notes to the consolidated financial statements included in ITEM 15 of this Form 10-K. Certain financial requirements (covenants) of the Company in the May 2003 Bank Agreement were amended effective May 14, 2004. NSC has no operations of its own, and its only asset is its equity interest in Pueblo and inter-company notes issued to NSC by its subsidiary that replaced inter-company notes issued at the time of the Acquisition. NSC has no source of cash to meet its obligations, including its obligations under the New 10.125% Senior Secured Notes ("New Notes"), other than payments by its subsidiaries on such inter-company notes. The inter-company notes are subordinated to the obligations of the subsidiaries under the May 2003 Bank Agreement and to the trade creditors of Pueblo. Certain restrictive covenants in the May 2003 Bank Agreement impose limitations on the declaration or payment of dividends by NSC. Additionally, dividend payments by Pueblo to NSC are restricted under the terms of the May 2003 Bank Agreement. The May 2003 Bank Agreement, however, provides that so long as no default or event of default (as defined in the May 2003 Bank Agreement) exists, or would exist as a result, and certain other conditions are satisfied, Pueblo is permitted to pay its inter-company interest on its inter-company notes payable to NSC in accordance with the terms thereof. Off-balance sheet arrangements At October 30, 2004 the Company did not have any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements. Contractual Obligations The following table reflects a summary of obligations and commitments outstanding as of October 30, 2004 (dollars in thousands).

Long-term debt - for a discussion, refer to NOTE 5 -- DEBT to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Capital lease obligations - for a discussion, refer to NOTE 6 - LEASES to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Operating lease obligations - includes operating leases, which generally provide for payment of direct operating costs in addition to rent. The amounts included in the table are future minimum lease payments and exclude such direct operating costs. For a discussion, refer to NOTE 6 -- LEASES to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Purchase obligations - the Company's purchase obligations include two contracts. Of the total $40,445 obligation, $34,783 relates to a contract to purchase merchandise to be sold in the Company's supermarkets in Puerto Rico. This contract has a term of five years with an expiration date of June 30, 2007. The contract stipulates a minimum purchase requirement over the five year term of the agreement, in cases (as defined by the agreement), and can be automatically extended by either the Company or the supplier for an additional term until such time as the minimum purchase requirement is met by the Company. Management anticipates the purchase requirement will be met during the five year term of the agreement. Another $5,303 relates to a contract to purchase supplies. This contract has a three year term with an expiration of December 31, 2005. The contract stipulates a minimum purchase requirement of $9.0 million over its term. This contract also stipulates that if, upon expiration or termination of the contract for any reason, the Company has not purchased $9.0 million in products, the Company shall pay to the supplier an amount equal to 1% of the minimum purchase requirement not achieved. The above purchase obligations have been apportioned by year in the table above based on estimates of current purchasing and price levels. Deferred income taxes - for a discussion, refer to NOTE 7 - INCOME TAXES to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Other long-term liabilities and deferred credits - for a discussion, refer to NOTE 4 -- OTHER LIABILITIES AND DEFERRED CREDITS to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Company operations, along with its available credit facility, are expected to provide adequate liquidity for the Company's operational needs. The initial term of the May 2003 Bank Agreement expires June 22, 2008 and will continue thereafter on a year-to-year basis unless sooner terminated by either party. The borrowers granted the 2003 Bank Lender a security interest in all assets, tangible and intangible, owned or hereafter acquired or existing as collateral. In addition, the May 2003 Bank Agreement is collateralized by a pledge of the capital stock of, and inter-company notes issued by, the Company's operating subsidiaries. The Company is required, under the terms of the May 2003 Bank Agreement and the May 14, 2004 amendment thereto, to meet certain financial covenants including minimum consolidated net worth (as defined) levels, minimum working capital (as defined) levels, minimum earnings before net interest, income taxes, depreciation and amortization (EBITDA) as defined, minimum net revenues, a minimum fixed charge coverage ratio (as defined) and maximum debt to EBITDA ratio (as defined). The May 2003 Credit Agreement also contains certain other restrictions, including restrictions on additional indebtedness and the declaration and payment of dividends. The May 2003 Bank Agreement provides both a revolving loan (with amounts available based on a borrowing base formula, not to exceed, except in the lender's discretion, $35.0 million outstanding including the total of borrowed money and letters of credit) and term loans facilities for various specified purposes and in certain specified amounts, aggregating $45.0 million. The borrowing base formula is discussed in NOTE 5 -- DEBT to the notes of the Company's consolidated financial statements included in Item 15 of this Form 10-K. Funding took place on June 5, 2003 at which time the existing bank debt for borrowed money outstanding was repaid in full and the 2003 Bank Lender lent the operating subsidiaries a total of approximately $57.4 million, $12.4 million of which was borrowed under the revolving credit facility. See NOTE 5 -- DEBT to these consolidated financial statements included in Item 15 of this Form 10-K. Debt issuance costs associated with the May 2003 Bank Agreement totaled $3.3 million. As of October 30, 2004, the Company had borrowings of $14.1 million under its May 2003 revolving credit facility. The weighted average per annum interest rate on these borrowings for the 52 weeks ended October 30, 2004 and November 1, 2003 was 6.021% and 5.851%, respectively. After giving effect to outstanding standby letters of credit in the amount of $2.4 million, as of October 30, 2004, the borrowing availability on a revolving basis under the terms of the May 2003 Bank Agreement was $7.0 million. As to cash provided or used during the 52 weeks ended October 30, 2004 the following pertains: Cash provided by operating activities was $6.8 million during the 52 weeks ended October 30, 2004 compared to $9.2 million in the comparable period of the prior year. The decline is primarily a result of the variance in the interest payments on the new 10.125% Senior Secured Notes, the impact of the payment of restructuring costs and the variance in timing of volume of business tax payments. When the Company emerged from bankruptcy, the first interest payment on the 10.125% Senior Secured Notes was due in February of 2003. The accrued amount of $3.7 million as of November 1, 2003 included interest from June 1, 2003 through November 1, 2003. All succeeding interest payments are due on August 1 and February 1 of each year. Consequently, the amount accrued as of October 30, 2004 included interest from August 2, 2004 through October 30, 2004, or $2.3 million. Net cash used in investing activities was $3.8 million and $4.0 million during the 52 weeks ended October 30, 2004 and the comparable period of the prior year, respectively. The decrease is a result of a decrease in purchases of property and equipment, net of proceeds from sales of property and equipment, during the 52 weeks ended October 30, 2004 as compared to the comparable period of the prior year. Net cash used in financing activities was $1.8 million for the 52 weeks ended October 30, 2004 versus $22.6 million in the prior year. Upon consummation of the Plan of Reorganization, the Company paid consideration to the holders of its Notes and Series C Senior Notes totaling $59.5 million in cash and $90.0 million in New 10.125% Senior Secured Notes. Also as part of its Plan of Reorganization, the Company received a capital contribution from its equity holders totaling $15.0 million. The Company also repaid its existing revolving credit facility, which totaled $32.0 million on November 2, 2002, and borrowed funds, net of repayments on term loans, totaling $54.6 million under its May 2003 Bank Agreement. During the fiscal year ended October 30, 2004, the Company repaid a net amount of $1.2 million under its May 2003 Bank Agreement. Working capital as of October 30, 2004 was a deficit of $17.7 million, an improvement of $1.4 million from the deficit of $19.1 million as of November 1, 2003, producing a current ratio of 0.81:1 as of October 30, 2004, versus 0.79:1 as of November 1, 2003. The improvement in the working capital deficit is a result of a general improvement in various components of working capital including an increase in prepaid expenses caused by a variance in the timing of volume of business tax payments, a reduction in the interest payable as the amount due to the bondholders as of November 1, 2003 was for a greater period of time than the amount due as of October 30, 2004, and an increase in current deferred tax assets. These improvements were offset by a decrease in inventory and increases in salaries and benefits payable and borrowings under the revolving credit facility. Current liabilities include the liability for cash borrowed under the revolving credit facility as the terms of the facility effectively require the balance fluctuate daily and availability is based on inventory levels. Since the facility was funded on June 5, 2003, cash borrowings have fluctuated from a high of $18.0 million to a low of $1.6 million. The total balance outstanding is not expected to be repaid in full in the current period. The Company's general liability and certain of its workers compensation insurance programs are self-insured. The Company maintains insurance coverage for claims in excess of $500,000 for 7 of its locations and $250,000 for all other locations. The current portion of the reserve, representing amounts expected to be paid in the next fiscal year, is $4.3 million as of October 30, 2004 and is anticipated to be funded with cash provided by operating activities. Capital expenditures for the 52 weeks ending October 29, 2005 are expected to be approximately $9.0 million. This capital program (which is subject to continuing change and review) includes the remodeling of certain existing locations, and updating of equipment and software. Impact of Inflation, Currency Fluctuations, and Market Risk The inflation rate for food prices continues to be lower than the overall increase in the U.S. Consumer Price Index. The Company's primary costs, products and labor, usually increase with inflation. Increases in inventory costs can typically be passed on to the customer. Other cost increases must by recovered through operating efficiencies and improved gross margins. Currency in Puerto Rico and the U.S. Virgin Islands is the U.S. dollar. As such, the Company has no exposure to foreign currency fluctuations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company does not trade or speculate in derivative financial instruments. The Company's primary market risk exposure relates to interest rate risk. The Company manages its interest rate risk in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. A hypothetical change of 1.0% in the Company's effective interest rate for its revolving credit borrowings from Fiscal 2004 levels would increase/decrease interest expense by approximately $0.1 million. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-34 and S-1 through S-4 appearing at the end of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, Company management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. In addition, Company management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the Company's internal control over financial reporting and there have been no changes during the Company's fourth fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The following is a list, as of the date of this filing, of the names of the directors and executive officers of the Company, their respective ages and their respective positions with the Company. The terms of the directors and executive officers of the Company expire annually upon the holding of the annual meeting of stockholders.

William T. Keon, III has been a Director of the Company since October 1995, at which time he assumed the position of President and Chief Executive Officer and was appointed Chairman of the Executive Committee. In July 2002, Mr. Keon was appointed Chairman of the Board of Directors in addition to his other duties. Since January 1983, Mr. Keon has served in senior managerial roles in the Cisneros Group. Steven I. Bandel has been a Director of the Company since the Acquisition. He was appointed to the Executive Committee in October 1995 and Chairman of the Audit and Risk Committee in July 2002. Since 1995, Mr. Bandel has held several senior management positions at companies within the Cisneros Group, with responsibilities in the areas of finance and business development. Mr. Bandel has the title of President and Chief Operating Officer of the Cisneros Group. He is also a member of the board of directors of America Online Latin America, Inc. In addition, the Board of Directors has determined that Steven I. Bandel qualifies as an "audit committee financial expert" as defined in Item 401(h) of Regulation S-K, but is not "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. Cristina Pieretti was appointed a Director in March 1997. Since February 1996, Ms. Pieretti has held a number of senior management positions within the Cisneros Group in the consumer goods, retail and telecommunications industries. From March 1995 to February 1996, Ms. Pieretti was a partner at Booz-Allen & Hamilton, a consulting firm. Ms. Pieretti has the title of Executive Vice-President Venezuela for the Cisneros Group. She is also a member of the board of directors of America Online Latin America, Inc. Daniel J. O'Leary joined the Company in June 1997 as Executive Vice President and Chief Financial Officer. From December 1992 until the time he joined the Company, Mr. O'Leary served as Senior Vice President of Finance and Chief Financial Officer of Phar-Mor, Inc., a deep discount drugstore chain. Prior to that time, he served as a Director and, at various times, President and Chief Operating Officer, Executive Vice President, Vice President of Finance and Chief Financial Officer at Fay's, Inc., a multi-concept retailer with drugstores and auto parts stores. From 1969 to 1987, Mr. O'Leary was a member of the accounting firm of Touche, Ross & Co. (now known as Deloitte & Touche LLP). Fernando J. Bonilla joined the Company in September 1997 as Vice President, General Counsel and Secretary. Before joining the Company, Mr. Bonilla served as General Counsel and Secretary to the Board of Directors of the Puerto Rico Maritime Shipping Authority and a junior partner of Fiddler Gonzalez and Rodriguez, a law firm in Puerto Rico. Since February 2003, Mr. Bonilla has been a member of the Board of Directors of the Authority of the Port of the Americas, a government corporation of the Commonwealth of Puerto Rico that is developing a transshipment port in southern Puerto Rico. Code of Ethics The Company has adopted a Code of Ethics that applies to all of its employees, including its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and any person performing similar functions (the "Senior Financial Officers"). The Company has filed a copy of this Code of Ethics as Exhibit 14.1 to this Form 10-K. The Company intends to satisfy its disclosure requirement regarding any amendment to, or waiver of, a provision of the Code of Ethics for any Senior Financial Officer by posting such information on its website or as otherwise provided by the Securities Exchange Act of 1934 and the rules there under. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid or distributed by the Company through October 30, 2004 to, or accrued through such date for the account of the Chief Executive Officer as well as each of the most highly compensated executive officers of the Company serving at October 30, 2004 (the "named executive officers") for services rendered to the Company during each of the last three fiscal years, if applicable. All compensation was paid by Pueblo. SUMMARY COMPENSATION TABLE

NOTES TO SUMMARY COMPENSATION TABLE (1) Amount represents the Company's matching contribution to an elective non-qualified deferred compensation plan maintained by the Company. (2) Includes costs related to the reimbursement of executive medical expense of $21,284, $10,650, and $10,264 and an automobile allowance in the amount of $12,350, $12,350, and $12,350 for Fiscal 2004, Fiscal 2003, and Fiscal 2002. (3) Includes costs related to the reimbursement of executive medical expense of $18,520, $15,335, and $8,504 and an automobile allowance in the amount of $10,400, $10,400, and $10,400 for Fiscal 2004, Fiscal 2003, and Fiscal 2002. (4) Includes costs related to the reimbursement of executive medical expense of $3,174, $2,590, and $2,898 and an automobile allowance in the amount of $9,100, $9,100, and $9,100 for Fiscal 2004, Fiscal 2003, and Fiscal 2002. (5) Effective March 15, 2003, the employment arrangements for Messrs. Keon, O'Leary and Bonilla were formalized in retention agreements. PENSION PLAN TABLES ------------------- The Company sponsors two defined benefit plans. The Pueblo International, LLC Employees' Retirement Plan (the "Retirement Plan") is tax-qualified under the Internal Revenue Code and covers all full-time and certain part-time employees of the Company over age 21 with one year of service. Based on an employees vesting, it provides an annual benefit equal to 1% of compensation per year of service. The Supplemental Executive Retirement Plan (the "SERP") is non-qualified and covers all officers of the Company and its subsidiaries. Based on an employees vesting, it provides an annual benefit equal to 3% of compensation per year of service (up to 20 years). Full vesting for the Retirement Plan and the SERP occurs upon completion of five years of service. The following tables give the estimated annual benefit payable upon retirement for participants in the Retirement Plan and the SERP. The SERP benefits are offset by the Retirement Plan benefits and by 100% of social security benefits. These offsets are reflected in the benefits shown in the SERP table. The Company does not sponsor any other defined benefit or actuarial plans. Table 1. Retirement Plan

Table 2. Supplemental Executive Retirement Plan

Compensation covered by the qualified Retirement Plan is equal to the total compensation paid to an employee during a plan year prior to any reduction under a salary reduction agreement entered into by the employee pursuant to a plan maintained by the employer which qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), or pursuant to a plan maintained by the employer which qualifies under Section 125 of the Code. Compensation in excess of $205,000 shall be disregarded, provided, however, that such $205,000 limitation shall be adjusted at the same time and in such manner as the maximum compensation limit is adjusted under Section 401(a)(17) of the Code. Compensation covered by the non-qualified Supplemental Executive Retirement Plan is the same as the qualified Retirement Plan, except that the $205,000 limit is not applicable. The estimated years of credited service and age for purposes of calculating benefits through October 30, 2004 for Mr. Keon is eleven and 58, respectively, and for Mr. O'Leary is seven and 58, respectively. The benefits provided by both the Retirement Plan and the SERP are on a straight-life annuity basis, as are the examples in the Retirement Plan table. Mr. Keon's retention agreement calls for some pension benefit adjustments for employment under the common controlled ownership group. Compensation Committee Interlocks and Insider Participation Mr. Bandel served as the sole member of the Compensation and Benefits Committee of the Board of Directors of the Company during all of the fiscal years ended October 30, 2004 and November 1, 2003. Mr. Keon served as a member of the Compensation and Benefits Committee through July 2002, at which time he resigned from the Committee. Mr. Keon also served as an officer of the Company during the fiscal years ended October 30, 2004 and November 1, 2003. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT a) Security Ownership of Certain Beneficial Owners As discussed in Part II, Item 5 - Market for the Registrant's Common Equity and Related Shareholder Matters, NSC is a wholly-owned subsidiary of Holdings. The following table sets forth certain information regarding the beneficial ownership of more than 5% of the common stock of Holdings as of the date of this filing. By virtue of its ownership of the Holdings common stock, the following entity may be deemed to own a corresponding percentage of NSC's common stock.

The shares of Holdings described above are beneficially owned by the Principal Shareholders by virtue of their indirect ownership of the entity listed above. The business address of the Principal Shareholders is New Court, St. Swithin's Lane, London EC 4P 4DU, United Kingdom. (b) Security Ownership of Management As of the date of this filing, the directors and executive officers of the Company have no beneficial ownership of Holdings. (c) Changes in Control The borrowings outstanding under the May 2003 Bank Agreement are collateralized by a pledge of the assets of the Company's operating subsidiaries and by the capital stock of, and inter-company notes issued by, the Company's operating subsidiaries. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Paid to the Independent Auditor The following table presents fees for professional audit services rendered by Deloitte & Touche LLP, the Company's independent public accountant, for the audit of the Company's annual financial statements ended October 30, 2004 and November 1, 2003, and fees for other services rendered by Deloitte & Touche LLP during those periods (dollars in thousands).

For purposes of the preceding table, the professional fees are classified as follows: * Audit Fees are fees for professional services performed for the audit of the Company, a review of financial statements included in the Company's 10-Q filings, services provided in connection with the audit of certain of NSC's operating subsidiaries' annual financial statements for statutory and regulatory filings or engagements, and services that generally only the Company's independent public accountant reasonably can provide, such as rent certification letters. * Audit-Related Fees are fees for assurance and related services that traditionally are performed by the Company's independent public accountant. More specifically, these include: employee benefit plan audits and consultation concerning financial accounting and reporting standards. * Tax Fees are fees for all professional services performed by professional staff in the Company's independent public accountant's tax division except those services related to the audit of our financial statements. These are fees for tax compliance, tax planning and tax advice. Audit and Risk Committee Pre-Approval Policies The Audit and Risk Committee currently does not have any pre-approval policies. All of the audit and audit-related services performed by Deloitte & Touche LLP that are described above were pre-approved by the Audit and Risk Committee. None of the hours expended on Deloitte & Touche LLP's engagement to audit the Company's financial statements for the fiscal years ended October 30, 2004 and November 1, 2003 were attributed to work performed by persons other than Deloitte & Touche LLP's full-time, permanent employees. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(1) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended January 29, 1994. (2) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended January 31, 1998. (3) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended January 27, 2001. (4) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended November 3, 2001. (5) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended November 2, 2002. (6) Previously filed and incorporated by reference to corresponding exhibits in the Company's Form 10-K for fiscal year ended November 1, 2003. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT No annual report to security holders covering the Company's last fiscal year and no proxy statement, form of proxy or other proxy soliciting material with respect to any annual or other meeting of security holders has, as of the date hereof, been sent to security holders by the Company. If such report or proxy material is to be furnished to security holders subsequent to the filing of the annual report of this Form 10-K, the Company will furnish copies of such material to the Commission when it is sent to the security holders. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NUTRITIONAL SOURCING CORPORATION Dated: December 23, 2004 /s/ Daniel J. O'Leary Daniel J. O'Leary, Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholder of Nutritional Sourcing Corporation Pompano Beach, Florida We have audited the accompanying consolidated balance sheets of Nutritional Sourcing Corporation and subsidiaries, (the "Company") as of October 30, 2004 and November 1, 2003, and the related consolidated statements of operations, stockholder's equity, and cash flows for the fifty two weeks ended October 30, 2004, November 1, 2003 and November 2, 2002. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 30, 2004 and November 1, 2003, and the results of its operations and its cash flows for the fifty two weeks ended October 30, 2004, November 1, 2003 and November 2, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, effective November 3, 2002, the Company changed its method of accounting for goodwill and other intangibles to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Deloitte & Touche LLP Miami, Florida December 21, 2004 F-1 NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements. F-2 NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements. F-3 NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements. F-4 NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements F-5 NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) 52 Weeks Ended October 30, 2004, November 1, 2003 and November 2, 2002 (Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements F-6 NUTRITIONAL SOURCING CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Nutritional Sourcing Corporation ("NSC"), and its wholly-owned subsidiaries (the "Company"). NSC is a wholly-owned subsidiary of PXC&M Holdings, Inc. Through its subsidiary, Pueblo International, LLC ("Pueblo"), NSC operates retail supermarkets and in-home movie and game entertainment locations in Puerto Rico and the U.S. Virgin Islands. Basis of Presentation The accompanying consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States of America. The Company's fiscal year ends on the Saturday closest to October 31. The fiscal years being presented in these consolidated financial statements are all 52 week years and include the years ended October 30, 2004, November 1, 2003 and November 2, 2002. The Property and Equipment components of the balance sheet as of November 1, 2003, have been reclassified to record the gross cost and accumulated depreciation applicable to assets still used in the business, which were previously recorded at a net cost of zero. Inter- company accounts and transactions are eliminated in consolidation. In August 2002, NSC defaulted in the payment of interest on its outstanding notes, and consented to the entry of an order for relief under Chapter 11 of the Bankruptcy code the next month. NSC consummated a plan of reorganization and emerged from bankruptcy in June 2003. Consequently, the consolidated statements of operations included herein for the 52 weeks ended November 1, 2003 and November 2, 2002 include the accounting treatment for the contractual interest expense for pre-petition debt and for reorganization items prescribed by the American Institute of Certified Public Accountants ("AICPA")'s Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code," ("SOP 90-7"). In accordance with SOP 90-7, the Company did not adopt fresh-start accounting. The relief under Chapter 11 pertained to NSC only, not to its operating subsidiaries. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to the useful lives surrounding the Company's rental library of disks and games, merchandise inventory reserves, income taxes, and impairment of its long lived assets, including goodwill. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (continued) the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less are considered cash equivalents. Inventories Inventories held for sale are stated at the lower of cost or market. The cost of inventories held for sale is determined, depending on the nature of the product, either by the last-in, first-out (LIFO) method or by the first- in, first-out (FIFO) method. In-home movie and game rental inventories are recorded at cost, net of accumulated amortization. In-home movies and games held for rental were previously amortized over one year on a straight-line basis. During the 52 weeks ended November 1, 2003, the Company re-evaluated and changed the estimated useful life of these movies and games from one year to six months. This change resulted in a charge of $932 to depreciation and amortization during the 52 weeks ended November 1, 2003 as a result of the average rental life of tapes and games decreasing. Property and Equipment Property and equipment, including expenditures for remodeling and improvements, are carried at cost. Routine maintenance, repairs and minor betterments are charged to operations as incurred. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, in relation to leasehold improvements and property under capital leases, over the lesser of the asset's useful life or the lease term, not to exceed 20 years. Estimated useful lives are 20 years for buildings and improvements, 5 to 12 years for furniture, fixtures and equipment, 4 years for automotive equipment and 3 years for computer hardware and software. Upon the sale, retirement or other disposition of assets, the related cost and accumulated depreciation or amortization are eliminated from the accounts. Any resulting gains or losses from disposals are included in the consolidated statements of operations. Goodwill and Trade names Goodwill previously represented the excess of cost over the then estimated fair value of the net tangible and other intangible assets acquired in connection with the 1993 purchase of all the outstanding common stock of Pueblo International, Inc. (the "Acquisition"). Trade names acquired at the time of the Acquisition were recorded based on valuations by independent appraisers. Goodwill and tradenames were being amortized using the straight- line method over periods of 40 years. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (continued) During the first quarter of Fiscal 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Accordingly, beginning November 3, 2002, goodwill and trade names are no longer amortized as a recurring charge to earnings and are tested annually for impairment. As a result of its adoption, the Company had an independent, qualified third party evaluator perform a transitional impairment test on its existing goodwill and intangible assets on November 3, 2002. This impairment test was calculated at the reporting unit level. The reporting units are the retail food division and the in-home movie and game entertainment division of the Company. The goodwill impairment test has two steps: the first identifies potential impairments by comparing the fair value of a reporting unit to its book value including goodwill. Generally, fair value represented a multiple of earnings before interest, taxes, depreciation, and amortization ("EBITDA") or discounted projected future cash flows. The Company determined that the carrying value of its retail food division, which included $139,856 of goodwill, exceeded its fair value. Impairment was not indicated for the goodwill associated with its in-home movie and game entertainment division. Additionally, no impairment was indicated for trade names. The second step of the impairment test calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write down is recorded. The third party evaluator performed step two of the impairment test, and as a result of this analysis, the evaluator determined that the retail food division goodwill was entirely impaired. This loss was recorded as a cumulative effect of an accounting change during the 16 weeks ended February 22, 2003. During the 52 weeks ended October 30, 2004 the Company had a qualified third party evaluator perform an impairment test on the existing goodwill and intangible assets as of August 8, 2004 (the first day of the Company's fourth quarter / annual impairment test date). No additional write down was required as a result of this test. The following table provides the comparable after-tax effect on net loss due to goodwill and trade names no longer being amortized pursuant to SFAS No. 142:

F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (continued) Self-Insurance The Company's general liability, certain of its workers compensation, and certain of its health insurance programs are self-insured. The general liability and workers compensation reserves for self-insurance claims are based upon an annual review, by the Company and its independent actuary, of claims filed and claims incurred but not yet reported. Due to inherent uncertainties in the estimation process, it is at least reasonably possible that the Company's estimate of the reserve for self-insurance claims could change in the near term. The liability for self-insurance is not discounted. Individual self-insured losses are limited to $500 per occurrence for general liability claims for seven of the Company's retail locations and to $250 per occurrence for general liability at all other locations and for certain workers compensation claims. The Company maintains insurance coverage for claims in excess of the self-insurance amounts. The current portion of the reserve for general liability and workers compensation, representing the amount expected to be paid in the next fiscal year, was approximately $4.3 million at both October 30, 2004 and November 1, 2003, and is included in the consolidated balance sheets as accrued expense. The reserve for health insurance programs was approximately $1,200 and $1,000 for fiscal years ending October 30, 2004 and November 1, 2003, respectively. It is included in the consolidated balance sheets caption entitled Salaries, wages, and benefits payable. Revenue Recognition The Company has two primary operating segments: retail food sales and in-home movie and game rentals and sales. Retail food sales - Revenues from the sale of products are recognized at the point of sale to the Company's customers. The discounts earned by supermarket customers by using their loyalty card are recorded as a reduction to the sales price to the customer. Rental income from in-store rental arrangements is recorded as a reduction of selling, general, and administrative expenses. In-home movie and game rentals and sales - Revenues from in-home movie and game rentals and sales are recognized at the point of rental or sale. Late fees for in-home movie and game rentals are written off (revenues reduced) if not collected after sixty days. Vendor Allowances Vendor allowances consist primarily of promotional, advertising, exclusivity and slotting allowances. The Company uses vendor allowances to fund pricing promotions, advertising expenses and slotting expenses. Vendor allowances and credits relating to the Company's buying and merchandising activity are recorded in cost of sales and are recognized as earned according to the underlying agreement, inventory movement and time. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (continued) Long-Lived Assets Long-lived assets are reviewed on an ongoing basis for impairment based on comparison of carrying value against undiscounted future cash flows, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which was issued in July of 2001. If an impairment is identified, the assets' carrying amount is adjusted to fair value. During the 52 weeks ended November 1, 2003, the Company recorded a charge of approximately $1,200 as a result of a review of its long-lived assets as required by SFAS No. 144. The long-lived assets that were written down included the assets of two under-performing stores in the Company's Retail Food Division. The write down of these impaired assets is included as Depreciation and amortization in the Company's consolidated financial statements. Pre-Opening Expenses Store pre-opening expenses are charged to operations as they are incurred. Advertising Expenses Advertising expenses are charged to operations as they are incurred. During the fiscal years ending October 30, 2004, November 1, 2003 and November 2, 2002, advertising expenses were approximately $7,732, $7,919, and $9,400, respectively. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires reporting the future tax consequences of deferred tax assets and liabilities. These deferrals are caused by temporary differences. Temporary differences occur when the tax law requirements for the timing of recognition and measurements differs from the timing of recognition and measurements required in the financial statements. Earnings Per Common Share NSC is a wholly-owned subsidiary of PXC&M Holdings, Inc. ("Holdings") with a total of 200 shares of common stock issued and outstanding. Earnings per share is not meaningful to the presentation of the consolidated financial statements and is therefore excluded. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits." This revision ("No. 132R") requires additional disclosures to those in the original SFAS No. 132 about assets, obligations, cash flows and the periodic benefit cost of defined benefit pension plans and other defined benefit post-retirement plans. The required information should be provided separately for pension plans and for other post-retirement benefit plans. This statement revision is effective for the fiscal years ended after December 14, 2003 and interim periods beginning after December 15, 2003. The adoption of this revision did not have a material impact on the Company's results of operations or financial position (see Note 8 - RETIREMENT BENEFITS to these consolidated financial statements). Comprehensive Income The Company reports comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). Comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net earnings but rather are recorded directly in shareholders' equity. The Company's accumulated other comprehensive loss is comprised of an additional minimum pension liability related to the Company's defined benefit plan. Reclassifications Certain amounts in the prior year's consolidated financial statements and related notes have been reclassified to conform to the current year's presentation. NOTE 2 -- INVENTORIES The cost of approximately 85% and 82% of total inventories at October 30, 2004 and November 1, 2003, respectively, is determined by the LIFO method. The excess of current cost over inventories valued by the LIFO method was approximately $3,443 and $2,816 as of October 30, 2004 and November 1, 2003, respectively. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 3 -- DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets consists of the following:

Favorable leases represent the difference between the rent required per the leases and the higher value of rents in the market at the time of the acquisition of the leases (mostly as part of the Acquisition). This asset is being amortized on a straight-line basis over the life of the particular lease. Franchise fees and rights include the unamortized portion of the franchise fees paid to the franchiser when each in-home movie and game entertainment store was opened and the unamortized portion of the step up in basis set up at the time of the Acquisition. The franchise rights were valued at approximately $7,500 at the time of the Acquisition and are being amortized over 17 years. During the 52 weeks ended October 30, 2004 the Company had a qualified third party evaluator perform an impairment test on Franchise fees and rights as of August 7, 2004. No impairment was found. Debt issue costs consist primarily of the unamortized portion of bank Fees paid in connection with establishing the Company's May 2003 Bank Agreement (see Note 5 - DEBT to these consolidated financial statements). These costs are being amortized through June 22, 2008, when the initial term of the agreement expires. Other includes, primarily, utility and other deposits required by the Puerto Rico and U.S. Virgin Islands power utilities and a trust to provide funding for a former employee's severance benefits. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 4 -- OTHER LIABILITIES AND DEFERRED CREDITS Other liabilities and deferred credits consists of the following:

Deferred pension plan contribution and Supplemental Employee Retirement Plan ("SERP") represents the long-term reserves for benefits payable under the Company's Retirement Plan and SERP. For a complete discussion of the Company's liabilities pursuant to these plans, see NOTE 8 - RETIREMENT BENEFITS. Deferred supplemental pension represents agreements with certain former executives, who were not participants in the SERP. The plans are essentially defined benefit plans with the beneficiary receiving benefits until death. After their death, surviving spouses receive 50% of the beneficiary's defined benefit amount. Deferred compensation represents the present value of an actuarially determined liability to a former officer for severance pursuant to the terms of his employment contract. Under the terms of the agreement the former officer receives a monthly benefit for life equal to one half of his base salary at the time of retirement and is reduced by the monthly benefits paid to him from the Company's Retirement Plan and SERP. The payments are funded from the earnings of a trust (see NOTE 3 - DEFERRED CHARGES AND OTHER ASSETS). Deferred gain on sale/leaseback represents the portion of the gain realized at the time the Company sold and leased back the related properties in June of 1999 that must be deferred and amortized over the initial 20 year term of the related leases pursuant to generally accepted accounting principles. Deferred escalation in leases represents the liability the Company is required to recognize as a result of certain of its operating leases having required rent increases during their fixed term. In such cases generally accepted accounting principles require that the Company recognize a rent expense in each period that is the proportionate share, for the period, of the total rent to be paid over the fixed term. Consequently, the rent F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 4 -- OTHER LIABILITIES AND DEFERRED CREDITS (Continued) recognized is a level (straight - line) amount regardless of the cash being paid. This liability is the difference between the cash paid and the level amount of rent expense recorded on the books. Other includes deferred allowances, which represents the un-amortized long-term portion of vendor allowance contracts and deposits due tenants, which represent the amounts received from tenants/subtenants at the Company's retail locations for security deposits and last months rent. NOTE 5 -- DEBT Total debt consists of the following:

Revolving Credit Facility and Term Loans On May 23, 2003 the Company's operating subsidiaries entered into a new Loan and Security Agreement, and NSC entered into an Amended and Restated Guarantor General Security Agreement (collectively the "May 2003 Bank Agreement") with the 2003 Bank Lender. The May 2003 Bank Agreement provides both a revolving loan and term loans facilities. The initial term of the May 2003 Bank Agreement expires June 22, 2008 and will continue on a year-to-year basis unless sooner terminated. The borrowers granted the 2003 Bank Lender a security interest in all assets, tangible and intangible, owned or hereafter acquired or existing as collateral. In addition, the May 2003 Bank Agreement is collateralized by a pledge of the capital stock of, and inter-company notes issued by the Company's operating subsidiaries. The Company is required, under the terms of the May 2003 Bank Agreement, to meet certain financial covenants, including minimum consolidated net worth (as defined) levels, minimum working capital (as defined) levels, minimum earnings before net interest, income taxes, depreciation and amortization (EBITDA) as defined, minimum net revenues, a minimum fixed charge coverage ratio (as defined) and maximum debt to EBITDA ratio (as defined). The May 2003 Bank Agreement also contains certain other restrictions, including restrictions on additional indebtedness and the declaration and payment of dividends. Certain financial requirements (covenants), of the Company, in the May 2003 Bank Agreement were amended effective May 14, 2004. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 5 - DEBT (Continued) The May 2003 Bank Agreement also stipulates the following prepayment penalties: From September 1, 2003 to and $1,050 plus 3% of the then outstanding including June 22, 2005 balance of the Term Loans. From June 23, 2005 to and $700 plus 2% of the then outstanding including June 22, 2006 balance of the Term Loans. From June 23, 2006 to and $350 plus 1% of the then outstanding including June 21, 2008 balance of the Term Loan. Funding took place on June 5, 2003 at which time the bank debt for borrowed money outstanding under the Extension and Modification Agreement, and other related agreements, was repaid in full and the 2003 Bank Lender lent the operating subsidiaries a total of $57,427. In addition, there were $3,900 of standby letters of credit outstanding. Capitalized terms used below shall have the meaning set forth in the May 2003 Bank Agreement. The revolving loan facility provides that from time to time the operating subsidiaries may borrow no greater than an amount equal to (collectively the "borrowing base"): - 90 % of the Net Amount of Eligible Accounts plus... - Up to the lesser of (A) 65% of the Value of Eligible Inventory or (B) 80% of the "Net Recovery Percentage" for Eligible Inventory, plus... - Up to 100% of Pledged Cash, less... - Any Availability Reserves... - Provided that, except in the Lender's discretion, the aggregate amount of Revolving Loans at any time outstanding shall not exceed $35,000. For all practical purposes the operating subsidiaries do not have any Eligible Accounts and no cash is pledged. Consequently, the borrowing base consists of Eligible Inventory less Availability Reserves. The revolving loan facility provides accommodations for letters of credit up to a maximum of $10,000. Fees for outstanding letters of credit are to be paid monthly, in arrears, at the rate of 2.5%, per annum, on the daily outstanding balance. Any issued and outstanding letters of credit reduce the amount available for borrowed money under the revolving loan facility. In addition, the facility provides for the Lender to charge, monthly, an Unused Line Fee of 0.5%, per annum, based on the difference between $30,000 and the sum of the average daily principal balance of the loans and letters of credit outstanding under the facility. Interest is payable monthly in arrears and, at the borrower's option with certain limitations, the interest rate on money borrowed under the revolving loan facility may be based on a spread over the Prime Rate or Eurodollar Rate. The spread over the Prime Rate is 1.5%, per annum, and the F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 5 - DEBT (Continued) spread over Eurodollar Rate is 3.5% per annum. However, in no event shall the interest rate be less than 6% per annum. Availability under the revolver was as follows as of October 30, 2004: Total availability $25,255 Less: Required excess availability reserve 1,800 Availability net of excess availability reserve 23,455 Less: Letters of credit outstanding as of October 30, 2004 2,400 Borrowed money as of October 30, 2004 14,051 Availability at October 30, 2004 $ 7,004 ======== The term loan facility in the May 2003 Bank Agreement provides for three term loans totaling $45,000 as follows: Term loan A $ 4,000 Term loan B 36,000 Term loan C 5,000 Term loan A was for the purpose of remodeling, relocating or opening new retail stores and purchasing new equipment for same in the original principal amount of up to the lesser of $4,000 or 70% of Eligible construction costs plus 70% of the equipment cost. The loan was drawn based on the costs of the Company's new supermarket and in-home movie and game entertainment outlet both of which opened on November 20, 2002. The loan is repayable in 60 equal monthly payments of principal with final payment due on June 1, 2008. Term loan B was for the purpose of partially refinancing existing indebtedness of the operating subsidiaries to the Company and for working capital in the lesser amount of $36,000 or 75% of the Net Fair Market Value of Eligible Real Property owned by the operating subsidiaries. Equal monthly repayments of principal are calculated on the basis of 180 months with the final payment being due on June 1, 2008. Term loan C was for working capital of the operating subsidiaries and in the lesser amount of $5,000 or 50% of the Net Value of Eligible Leaseholds. The loan is repayable in 60 equal monthly payments of principal with final payment due on June 1, 2008. As to all term loans, interest is payable monthly in arrears and, at the borrower's option with certain limitations, the interest rate may be based on a spread over the Prime Rate or Eurodollar Rate. The spread over the Prime Rate is 2.0% per annum, and the spread over Eurodollar Rate is 4.0% per annum. However, in no event shall the interest rate be less than 7% per annum. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 5 - DEBT (Continued) Emergence from Bankruptcy and New 10.125% Senior Secured Notes: On June 5, 2003, NSC emerged from Chapter 11 bankruptcy proceedings by consummating its Plan of Reorganization (the "Plan") which had been confirmed by the Court on April 30, 2003. The Plan was consummated by providing the following consideration to the pre-petition noteholders: Principal amount of New 10.125% Senior Secured Notes $ 90,000 Cash consideration 59,464 -------- $149,464 ======== As a result of the consummation of the Plan, the Company recorded a gain of approximately $36,508, as follows: Liabilities subject to compromise $ 186,208 Consideration provided (see above) (149,464) Unamortized debt issuance costs and other assets (236) ---------- Gain from extinguishment of debt $ 36,508 ========== The New 10.125% Senior Secured Notes are due August 1, 2009 with interest payable February 1 and August 1 of each year commencing February 1, 2004. Interest is payable to holders of record on the July 15th and January 15th prior to each interest payment date. The New 10.125% Senior Secured Notes are secured, subordinate to the 2003 Bank Lender, by the equity of all First-tier subsidiaries of NSC and the inter-company notes between the Company and its operating subsidiary. In addition, certain real property of the operating subsidiary is collateral for one of the inter- company notes. The inter-company notes are subordinate to both the 2003 Bank Lender and the trade creditors of the operating subsidiary. The New 10.125% Senior Secured Notes may be called by the holders of the Notes at 101% in the event of a change in control of NSC (as defined in the indenture). The New 10.125% Senior Secured Notes are senior to all future subordinated indebtedness which the Company may from time to time incur. Terms of the New 10.125% Senior Secured Notes restrict the Company and its subsidiary from engaging in certain activities and transactions. The proceeds of the pre-petition notes which were issued in 1993 and 1997 were advanced to the operating subsidiaries. At the time NSC emerged from bankruptcy on June 5, 2003 these advances were canceled and new inter- company notes were issued which are equal in amount, in total, to the New 10.125% Senior Secured Notes. The new inter-company note consists of a $90,000 restated subordinated inter-company real estate note due to NSC from Pueblo International, LLC. The source of the $59,464 of Cash consideration consisted of $15,000 from the holders of Existing Equity and $44,464 from the Company. Existing Equity refers to the pre-petition owners of NSC's equity interests. These owners retained ownership of 100% of equity when NSC emerged from bankruptcy. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 5 - DEBT (Continued) The source of the Company cash was Company funds and proceeds from the May 2003 Bank Agreement. Annual maturities of the Company's debt are as follows (in thousands):

Total interest paid on debt was approximately $15,864, $4,700 and $12,400 for Fiscal years 2004, 2003 and 2002, respectively. Interest payable was $2,546 and $3,724 as of October 30, 2004 and November 1, 2003, respectively. NOTE 6 - LEASES The Company conducts the major part of its operations on leased premises which have initial terms generally ranging from 20 to 25 years. Substantially all leases contain renewal options which extend the lease terms in increments of 5 to 10 years and include escalation clauses. The Company also has certain equipment leases which have terms of up to five years. Realty and equipment leases generally require the Company to pay operating expenses such as insurance, taxes and maintenance. Certain store leases provide for percentage rentals based upon sales above specified levels. The Company leases retail space to tenants in certain of its owned and leased properties. The lease terms generally range from two to five years. Property recorded as assets under capital leases consists of real estate as follows:

F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 6 -- LEASES (Continued) Depreciation of assets recorded under capital leases is included with depreciation and amortization expense in the consolidated statements of operations. Minimum rental payments to be made under noncancelable leases at October 30, 2004 as well as rent to be received as lessor of owned property and as lessor in sublease rentals of portions of leased property are as follows:

Sublease rental receipts to be received from capital and operating leases: Capital Operating Leases Leases ----------- ------------ Total minimum sublease rentals to be received in the future $ 844 $ 9,803 =========== ============ Rent expense and the related contingent rentals under operating leases were approximately $16,800 and $100 for Fiscal 2004, respectively, and $17,200 and $200 for Fiscal 2003, respectively, and $16,200 and $200 for Fiscal 2002, respectively. Contingent rentals under capital leases, which are directly related to sales, were approximately $90 for Fiscal 2004, $80 for Fiscal 2003, and $60 for Fiscal 2002. Interest paid on capital lease obligations was approximately $1,657 for Fiscal 2004, $1,748 for Fiscal 2003, and $1,820 for Fiscal 2002. Sublease rental income for operating and capital leases was approximately F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 6 -- LEASES (Continued) $4,200 for Fiscal 2004 and $4,300 for both Fiscal 2003 and Fiscal 2002. During the 52 weeks ended October 30, 2004, the Company recorded a gain of approximately $2,000 as a result of amending three store leases. The amendment concerning one lease related to rent the Company had accrued and not paid over a number of previous years due to a dispute with the landlord. Settlement of the dispute resulted in the landlord forfeiting back rent totaling $900 and reductions in future rent for 9 months. The forfeited back rent has been included in the gain. The benefit of the future rent reductions will be included in operating results when realized. The amendment to the second store lease involves an agreement to close the store and return the premises to the Landlord earlier than the original lease termination date and settle an on-going dispute with the landlord. The portion of the settlement included in operations for the 52 weeks ended October 30, 2004, $700, relates to settlement of the dispute and has been realized by the Company. Additional consideration will be paid to the Company when the premises are returned to the landlord in February 2005 and will be included in the results of operations at that time. The amendment to the third store lease involved returning to the landlord land the Company was leasing under the lease but not using and allowing the landlord to develop a different parcel of land at the shopping center that heretofore had been undeveloped. The return of the land resulted in a reduction of both long-term capital lease obligations and property under capital leases of approximately $487 and no amounts related thereto are included in the gain. However, $400 of the gain reported herein is a result of the landlord paying the Company this amount for the right to develop the undeveloped land. NOTE 7 -- INCOME TAXES As described in NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES, the Company's method of accounting for income taxes is the liability method as required by SFAS No. 109. F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 7 -- INCOME TAXES (Continued) The components of income tax (benefit) expense are as follows:

F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 7 -- INCOME TAXES (Continued) The significant components of the deferred tax assets and liabilities are as follows:

SFAS 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. Management believes that some portion of the deferred tax assets will not be realized based on this criterion. Consequently, the Company has recorded a valuation allowance of approximately $21,706 as of October 30, 2004 and $15,980 as of November 1, 2003. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 7 -- INCOME TAXES (Continued) A reconciliation of the difference between actual income tax (benefit) expense and income taxes computed at U.S. Federal statutory tax rates is as follows:

The Company's operations are located in U.S. possessions where they are subject to U.S. and local taxation. As of October 30, 2004, the Company has unused net operating loss carryforwards of approximately $14,812, $ 52,719 and $5,570 available to offset future taxable income in the U.S. Virgin Islands, Puerto Rico, and United States, respectively, through fiscal years 2024, 2011, and 2024, respectively. Utilization of the tax net operating loss carryforward may be limited each year. The Company also has unused alternative minimum tax credits in the amount of approximately $1 and $ 138 to offset future income tax liabilities in Puerto Rico and United States, respectively. This credit is carried forward indefinitely. Total income taxes paid were approximately $144 for Fiscal 2004, $608 for Fiscal 2003, and $1,200 for Fiscal 2002. The Treasury Department of the Government of Puerto Rico is currently auditing the Company's operating subsidiaries' tax years that ended January 1999 and 2000 for compliance with the various income tax and excise tax laws of the Commonwealth of Puerto Rico. Preliminarily, the Treasury Department has asserted the disallowance of certain deductions and the assessment of certain excise taxes that would, if sustained, result in charging the F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 7 -- INCOME TAXES (Continued) subsidiaries a total of $6,600 in a combination of additional taxes and related interest. The subsidiaries are continuing to work with the Treasury Department to provide documentation and rationale for the deductions taken and the excise taxes paid. The Company believes it has complied with the various tax regulations involved and the likelihood of paying these additional taxes and related interest is remote. However, the ultimate outcome and any related amount due are not determinable at this time. Consequently, no provision for this preliminary assertion has been made in the accompanying financial statements. NOTE 8 -- RETIREMENT BENEFITS The Company has a noncontributory defined benefit plan (the "Retirement Plan") covering substantially all full-time and certain part-time associates. Retirement Plan benefits are based on years of service and a base level of compensation. The Company funds retirement plan costs in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Retirement Plan assets consist primarily of stocks, bonds and U.S. Government securities. Full vesting for the Retirement Plan occurs upon the completion of five years of service. The future value of plan assets, the interest rates required to be used To calculate the pension obligations in the future, and future changes in legislation, will, among other factors, determine the amounts of any additional contributions. Pension expense for this plan is recognized on an accrual basis. Benefits are generally based on a fixed amount for each year of service. The Company contributed $4,386, $3,353 and $2,745 to these funds in fiscal 2004, 2003 and 2002, respectively. The Company plans to contribute approximately $4,091 during the fiscal year ending October 29, 2005. The provisions of SFAS No. 87, "Employers' Accounting for Pensions," require recognition in the balance sheet of an additional minimum liability for pension plans. An additional minimum liability for pension plans occurs when the accumulated benefit obligation exceeds the fair value of plan assets by more than the pension plan's net pension liability (the amount by which its projected benefit obligation exceeds the fair value of plan assets). For the Company's Retirement Plan, this occurred for the first time as of October 30, 2004. Accordingly, SFAS No. 87 required the Company to record an after-tax charge totaling $2,524 for the amount by which the additional minimum liability exceeded the net pension liability for the Company's Retirement Plan. This is a charge to the accumulated other comprehensive loss component of shareholders' equity in the accompanying consolidated balance sheet at October 30, 2004. The increase in the fair value of investments during this fiscal year was offset by an increase in the accumulated benefit obligations, primarily due to a decline in the discount rate from 6.50% at November 1, 2003 to 6.25% at October 30, 2004. The change in the discount rate was made pursuant to the provisions of SFAS No. 87 to reflect the current rates of return on high-quality corporate bonds. F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) Net pension cost under the Retirement Plan includes the following components:

Assets of the Company's defined benefit pension plan are invested in a directed trust. Assets in the directed trust were invested for the fiscal years ended October 30, 2004 and November 1, 2003, as follows:

F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) The funded status and amounts recognized in the Company's consolidated balance sheets for the Retirement Plan are as follows: October 30, November 1, 2004 2003 --------------- ------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $22,515 at October 30, 2004 and $19,660 at November 1, 2003 $23,375 $ 20,776 =============== ============== Plan assets at fair value - beginning of the year $12,276 $ 10,719 Actual return on plan assets 631 305 Employer contributions 4,386 3,353 Benefits paid (3,016) (2,101) --------------- -------------- Plan assets at fair value - end of the year 14,277 12,276 --------------- -------------- Projected benefit obligation for service rendered to date - beginning of the year (26,468) (27,639) Service cost (1,408) (1,214) Interest cost (1,643) (1,664) Actuarial (loss)/gain (3,302) 1,948 Benefits paid 3,016 2,101 --------------- -------------- Projected benefit obligation for service rendered to date - end of the year (29,805) (26,468) --------------- -------------- FUNDED STATUS (15,528) (14,192) Unrecognized net loss 8,986 5,516 Unrecognized prior service cost (32) (38) --------------- ------------- NET PENSION LIABILITY $ (6,574) $ (8,714) =============== ============= For the fiscal years ended October 30, 2004 and November 1, 2003, these liabilities were included under the captions entitled Accrued expenses, Other liabilities and deferred credits, and Accumulated other comprehensive loss. F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Net periodic benefit expense (income) for defined benefit plans is determined using assumptions as of the beginning of each year. The projected benefit obligation and related funded status are determined using assumptions as of the end of the year. Weighted-average assumptions used for the Company sponsored defined benefit pension plan were as follows:

F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) Expected long-term return on plan assets is estimated by asset class and is generally based on historical returns, volatilities and risk premiums. Based upon the plan's asset allocation, composite return percentiles are developed upon which the plan's expected long-term return is based. The overall investment strategy and policy has been developed based on the need to satisfy the long-term liabilities of the Company's pension plan. Risk management is accomplished through diversification across asset classes, multiple investment manager portfolios and both general and portfolio-specific investment guidelines. The asset allocation guidelines are as follows:

The Company maintains a Supplemental Executive Retirement Plan (the "SERP") for its officers under which the Company will pay, from general corporate funds, a supplemental pension equal to the difference between the annual amount of pension calculated under the SERP and the amount the participant will receive under the Retirement Plan. The pension benefit calculation under the SERP is limited to a total of 20 years employment and is based on a specified percentage of the compensation received per year of service, reduced by the participant's annual Retirement Plan and social security benefits. Full vesting for the SERP occurs upon the completion of five years of service. Net pension cost under the SERP includes the following components:

F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) The funded status and amounts recognized in the Company's consolidated balance sheets for the SERP are as follows: October 30, November 1, 2004 2003 --------------- -------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $6,732 at October 30, 2004 and $4,841 at November 1, 2003 $ 6,884 $ 4,969 =============== ============== Projected benefit obligation for service rendered to date $ (8,266) $ (6,483) --------------- -------------- FUNDED STATUS (8,266) (6,483) Unrecognized net loss/(gain) 1,228 (227) Unrecognized prior service cost - 5 --------------- -------------- NET PENSION LIABILITY $ (7,038) $ (6,705) =============== ============== For the fiscal years ended October 30, 2004 and November 1, 2003, these liabilities were included under the captions entitled Accrued expenses and Other liabilities and deferred credits. Change in benefit obligations was as follows: October 30, November 1, 2004 2003 --------------- -------------- Benefit obligation as of beginning of the year $ 6,483 $ 6,062 Service costs 317 363 Interest costs 409 413 Actuarial loss 1,455 0 Benefits paid (398) (355) --------------- -------------- Benefit obligation as of end of the year $ 8,266 $ 6,483 =============== ============== Change in plan assets were as follows: October 30, November 1, 2004 2003 --------------- -------------- Fair value of assets as of beginning of the year $ - $ - Employer contribution 398 355 Benefits paid (398) (355) --------------- -------------- Fair value of assets as of end of the year $ - $ - =============== ============== F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 8 -- RETIREMENT BENEFITS (Continued) The Company has a noncontributory defined contribution plan covering its eligible associates in Puerto Rico. Contributions to this plan are at the discretion of the Board of Managers of the Company. The Company also has a contributory thrift savings plan in which it matches eligible contributions made by participating eligible associates in the United States and the U. S. Virgin Islands. The cost of these plans are recognized in the year the cost is incurred. The Company recognized an expense of $690, $541 and $767 for these plans during Fiscal 2004, Fiscal 2003 and Fiscal 2002, respectively. NOTE 9 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash equivalents, accounts receivable, accounts payable, accrued expenses, a revolving credit facility and the 10.125% New Senior Secured Notes due in 2009. Cash equivalents, accounts receivable, accounts payable, accrued expenses - These accounts are carried at amounts that approximate their fair value due to their short-term nature. Revolving credit facility - Due to the variable interest rates, the fair value of the revolving credit facility approximates its carrying value. 10.125% New Senior Secured Notes due in 2009 - The Company believes that the value of the 10.125% New Senior Secured Notes due in 2009 is highly speculative. At October 30, 2004, the Company estimates the fair value of these instruments was approximately $58,500 based on the last known transaction in the notes prior to that date. NOTE 10 -- CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its temporary cash investments with highly-rated financial institutions in investment grade short-term debt instruments. NOTE 11 -- CONTINGENCIES At October 30, 2004, the Company was party to a number of legal proceedings involving claims for money damages arising in the ordinary course of conducting its business which are either covered by insurance or are within the Company's self-insurance program, and in a number of other proceedings which are not deemed material. It is not possible to determine the ultimate outcome of these matters; however, management is of the opinion that the final resolution of any threatened or pending litigation at such date is not likely to have a material adverse effect on the financial position or results of operations of the Company. F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 12 -- GAIN ON INSURANCE SETTLEMENT Hurricane Georges struck all of the Company's operating facilities on September 20 and 21, 1998. All of the Company's stores, with the exception of two, were reopened. During fiscal year 2000, the Company settled the property portion of its hurricane insurance claims for approximately $42,000. The Company's insurance also includes business interruption coverage which provides for reimbursement for lost profits as a result of the storm. On December 1, 2000, the Company submitted to its insurance carriers an approximately $69,400 proof of loss for business interruption losses to its grocery stores and in-home movie and game entertainment outlets in Puerto Rico and the U.S. Virgin Islands (the "claim") as a result of Hurricane Georges. The claim was based on the Company's management's estimate of the impact the storm had on its business from the time the storm occurred through September 9, 2000, which was, in management's opinion, the end of the applicable indemnity period. The claim was settled in July of 2002 for approximately $18,200 after a prolonged appraisal process (similar to an arbitration process). The settlement resulted in recording a gain, during Fiscal 2002, of $14,693, net of claim and appraisal expenses of approximately $3,500. NOTE 13 -- DISCLOSURE ON OPERATING SEGMENTS The Company has two primary operating segments: retail food sales and in-home movie and game rentals and sales. The Company's retail food division consists of 46 supermarkets, 41 of which are in Puerto Rico and 5 of which are in the U.S. Virgin Islands. The Company also has the exclusive franchise rights to Blockbuster in-home movie and game entertainment stores for Puerto Rico and the U.S. Virgin Islands operated through 41 in-home movie and game entertainment stores, 39 of which are in Puerto Rico and 2 of which are in the U. S. Virgin Islands. Most of the in-home movie and game entertainment stores are adjacent to, or a separate section within, a retail food supermarket. Administrative support functions are located in Florida. Although the Company maintains data by geographic location, its segment decision making process is based on its two product lines. F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Dollars in thousands) NOTE 13 -- DISCLOSURE ON OPERATING SEGMENTS (Continued) Reportable operating segment financial information is as follows:

Because the Retail Food and In-Home Movie and Game Entertainment Divisions are not segregated by corporate entity structure, the operating segment amounts shown above do not represent totals for any subsidiary of the Company. All overhead expenses, including depreciation on assets of administrative departments, are allocated to operations. Amounts shown in the total column above correspond to amounts in the consolidated financial statements. F-34 Schedule I NUTRITIONAL SOURCING CORPORATION BALANCE SHEETS-PARENT COMPANY ONLY (Dollars in thousands)

(Continued) S-1 NUTRITIONAL SOURCING CORPORATION STATEMENTS OF OPERATIONS-PARENT COMPANY ONLY (Dollars in thousands)

S-2 NUTRITIONAL SOURCING CORPORATION STATEMENTS OF CASH FLOWS-PARENT COMPANY ONLY (Dollars in thousands)

S-3 Schedule II NUTRITIONAL SOURCING CORPORATION Valuation and Qualifying Accounts For the 52 Weeks Ended October 30, 2004, November 1, 2003 and November 2, 2002 (Dollars in thousands)

(1) Amounts consist primarily of payments on claims and related expenses. (2) Amounts represent both the current and long-term portions. S-4

NUTRITIONAL SOURCING CORP 10-K