<SEC-DOCUMENT>0001299933-12-001981.txt : 20120823
<SEC-HEADER>0001299933-12-001981.hdr.sgml : 20120823
<ACCEPTANCE-DATETIME>20120823102202
ACCESSION NUMBER:		0001299933-12-001981
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20120817
ITEM INFORMATION:		Results of Operations and Financial Condition
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20120823
DATE AS OF CHANGE:		20120823

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KIRKLAND'S, INC
		CENTRAL INDEX KEY:			0001056285
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-RETAIL STORES, NEC [5990]
		IRS NUMBER:				621287151
		FISCAL YEAR END:			0130

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-49885
		FILM NUMBER:		121051151

	BUSINESS ADDRESS:	
		STREET 1:		2501 MCGAVOCK PIKE
		STREET 2:		SUITE 1000
		CITY:			NASHVILLE
		STATE:			TN
		ZIP:			37214
		BUSINESS PHONE:		615-872-4800

	MAIL ADDRESS:	
		STREET 1:		2501 MCGAVOCK PIKE
		STREET 2:		SUITE 1000
		CITY:			NASHVILLE
		STATE:			TN
		ZIP:			37214

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KIRKLANDS INC
		DATE OF NAME CHANGE:	19980219
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>htm_45867.htm
<DESCRIPTION>LIVE FILING
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<TITLE> Kirkland's, Inc. (Form: 8-K) </TITLE>
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		UNITED STATES<BR>
	SECURITIES AND EXCHANGE COMMISSION
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	WASHINGTON, D.C. 20549
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	FORM 8-K
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	CURRENT REPORT
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	Pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
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	Date of Report (Date of Earliest Event Reported):
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	&nbsp;
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	August 17, 2012
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	Kirkland's, Inc.
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<BR>__________________________________________<BR>
	(Exact name of registrant as specified in its charter)
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	Tennessee
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	000-49885
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	621287151
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_____________________<BR>
	(State or other jurisdiction
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_____________<BR>
	(Commission
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______________<BR>
	(I.R.S. Employer
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	of incorporation)
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	File Number)
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	Identification No.)
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	2501 McGavock Pike, Suite 1000, Nashville, Tennessee
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	&nbsp;
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	37214
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_________________________________<BR>
	(Address of principal executive offices)
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	&nbsp;
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___________<BR>
	(Zip Code)
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	Registrant&#146;s telephone number, including area code:
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	615-872-4800
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	Not Applicable
<BR>______________________________________________<BR>
	Former name or former address, if changed since last report
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	&nbsp;
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:</FONT>
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<P><FONT SIZE="2">
[&nbsp;&nbsp;]&nbsp;&nbsp;Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))<br>
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<B>
	Item 2.02 Results of Operations and Financial Condition.
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On August 17, 2012, Kirkland's Inc. (the "Company") issued a press release and conducted a conference call regarding its sales and earnings results for its second fiscal quarter period ended July 28, 2012 (the "Press Release"). A copy of the Press Release and transcript of the conference call conducted by the Company are attached hereto as exhibit 99.1 and exhibit 99.2, respectively, and are being furnished, not filed, under item 2.02 of this Report on Form 8-K. <br><br>
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	Item 9.01 Financial Statements and Exhibits.
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(d) Exhibits<br><br>99.1 Press Release dated August 17, 2012 announcing the Company's second fiscal quarter financial results.<br><br>99.2 Transcript of the August 17, 2012 conference call conducted by the Company. <br><br>
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	SIGNATURES
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	Pursuant to the requirements of the Securities Exchange Act of 1934, the
	registrant has duly caused this report to be signed on its behalf by the
	undersigned hereunto duly authorized.
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	Kirkland's, Inc.
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	&nbsp;&nbsp;
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<I>
	August 23, 2012
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	&nbsp;
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<I>
	By:
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	&nbsp;
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<I>
	/s/ W. Michael Madden
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<BR>
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	&nbsp;
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	&nbsp;
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<I>
	Name: W. Michael Madden
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<I>
	Title: Senior Vice President and Chief Financial Officer
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	Exhibit&nbsp;Index
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	Exhibit No.
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	Description
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	99.1
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	&nbsp;
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<TD ALIGN="LEFT" VALIGN="TOP" WIDTH="77%">
<FONT SIZE="2">
Press Release dated August 17, 2012 announcing the Company's second fiscal quarter financial results.
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	99.2
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	&nbsp;
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Transcript of the August 17, 2012 conference call conducted by the Company
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<P align="left" style="font-size: 10pt"><FONT style="font-size: 12pt"><img src="e36846-122361014137705e55_1.jpg">
</FONT>

<P align="right" style="font-size: 12pt"><FONT style="font-size: 22pt">News Release</FONT>


<DIV align="center">
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    <TD width="13%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
</TR>

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    <TD align="left" valign="top"><FONT style="font-size: 11.5pt">Contact:</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT style="font-size: 11.5pt">W. Michael Madden<BR>
Senior Vice President &#038; CFO<BR>
(615)&nbsp;872-4800</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="font-size: 11.5pt">Tripp Sullivan<BR>
Corporate Communications, Inc.<BR>
(615)&nbsp;324-7335</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11.5pt"><FONT style="font-size: 12.5pt"><B>KIRKLAND&#146;S REPORTS SECOND QUARTER 2012 RESULTS</B></FONT>



<P align="left" style="font-size: 12.5pt"><FONT style="font-size: 11pt">NASHVILLE, Tenn. (August&nbsp;17, 2012) &#151; Kirkland&#146;s, Inc. (NASDAQ: KIRK) today reported financial
results for the 13-week and 26-week periods ended July&nbsp;28, 2012.
</FONT>

<P align="left" style="font-size: 11pt">Net sales for the 13&nbsp;weeks ended July&nbsp;28, 2012, increased 1.5% to $91.0&nbsp;million compared with
$89.7&nbsp;million for 13-week period ended July&nbsp;30, 2011. Comparable store sales, including e-commerce,
for the second quarter of fiscal 2012 decreased 3.6% compared with a decrease of 8.0% in the
prior-year quarter. Kirkland&#146;s opened 10 stores and closed 5 during the second quarter of 2012,
bringing the total number of stores to 302 at quarter end.


<P align="left" style="font-size: 11pt">Net sales for the 26-week period ended July&nbsp;28, 2012, increased 2.6% to $188.8&nbsp;million compared
with $184.1&nbsp;million for the 26-week period ended July&nbsp;30, 2011. Comparable store sales, including
e-commerce, for the 26&nbsp;weeks ended July&nbsp;28,&nbsp;2012, decreased 2.4% compared with a decrease of 8.2%
in the prior-year period. The Company opened 15 stores and closed 22 stores during the 26-week
period.


<P align="left" style="font-size: 11pt">The Company reported a net loss of $2.0&nbsp;million, or $0.11 per diluted share, for the second quarter
of fiscal 2012 compared with a net loss of $0.5&nbsp;million, or $0.02 per diluted share, for the second
quarter of fiscal 2011.


<P align="left" style="font-size: 11pt">For the 26-week period ended July&nbsp;28, 2012, the Company reported a net loss of $42,000, or $0.00
per diluted share, compared with net income of $2.7&nbsp;million, or $0.13 per diluted share, for the
26-week period ended July&nbsp;30, 2011.


<P align="left" style="font-size: 11pt">Commenting on the second quarter results, Robert Alderson, Kirkland&#146;s President and Chief Executive
Officer, said, &#147;The distinct change in consumer sentiment we noted a few months ago continued
throughout this quarter and pressured our results. While sales in the stores were below what we
expected and e-commerce better-than-anticipated, promotional activity was more extensive than
normal for the second quarter and impacted merchandise margins.


<P align="left" style="font-size: 11pt">&#147;We have yet to see the sustained demand necessary to drive the results we all expect from
Kirkland&#146;s, but we are aggressively addressing these trends to position us for improved performance
over the next several quarters. We are pursuing an expansion of our e-commerce business, a new
brand strategy, a major store layout redesign and leveraging the rollout of new information systems
to improve our merchandise buying and planning execution.&#148;


<P align="left" style="font-size: 11pt"><I>Stock Repurchase Plan</I>
<BR>
During the second quarter of fiscal 2012, the Company repurchased 1,142,464 shares of common stock
for a total of $13.4&nbsp;million, or an average price of $11.74 per share, which completed the
Company&#146;s repurchase plan. Since the inception of the plan in August&nbsp;2011, the Company repurchased
3,394,693 shares for a total of $40&nbsp;million, at an average price of $11.78.


<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="center" style="font-size: 11.5pt"><FONT style="font-size: 10pt">2501 McGavock Pike, Suite&nbsp;1000 &#166; Nashville, Tennessee 37214 &#166; (615)&nbsp;872-4800</FONT>



<P align="left" style="font-size: 10pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Fiscal 2012 Results
<BR>
Page 2
<BR>
August&nbsp;17, 2012
</FONT>

<P align="left" style="font-size: 11pt"><I>Updated Fiscal 2012 Performance Goals</I>


<P>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Store Growth: </B>For the 53-week period ending February&nbsp;2, 2013 (&#147;fiscal 2012&#148;), the Company expects
to open 40 to 44 new stores and close approximately 30 stores. This expected unit growth of
approximately 4% would represent an increase in company-wide square footage of approximately
9%.</TD>
</TR>

</TABLE>

<DIV align="center">
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    <TD align="left" valign="top"><B>Sales</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The Company expects total sales for fiscal 2012 to increase in the<BR>
range of 4% to 6% compared with fiscal 2011. This expectation for<BR>
total sales growth reflects the additional week in the retail<BR>
calendar for Fiscal 2012. This level of sales growth would imply<BR>
a comparable store sales decrease in the low single digit range,<BR>
excluding the impact of the additional week of sales.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD align="left" valign="top"><B>Margins:</B>
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Based on the current outlook, the Company expects operating margin<BR>
in fiscal 2012 to be 200 to 250 basis points below fiscal 2011 due<BR>
to expected increases in container rates in the second half of the<BR>
year combined with a continued promotional environment, as well as<BR>
investments in additional personnel in key areas of the business<BR>
to support the Company&#146;s growth plans and technology investments.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD align="left" valign="top"><B>Earnings</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Based on the above assumptions, the Company expects earnings per<BR>
share for fiscal 2012 to be in the range of $0.72 to $0.82. The<BR>
Company expects its effective tax rate for fiscal 2012 to range<BR>
between 38% and 38.5%.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD align="left" valign="top"><B>Cash Flow</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Excluding activity under the Company&#146;s share repurchase program,<BR>
the Company expects to again generate positive cash flow in fiscal<BR>
2012. Capital expenditures in fiscal 2012 are estimated to range<BR>
between $29&nbsp;million and $32&nbsp;million.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 11pt"><I>Third Quarter Fiscal 2012 Outlook</I>
<BR>
For the third quarter ending October&nbsp;27, 2012, the Company expects a net loss of $0.03 to $0.07 per
diluted share compared with net income of $0.06 per share in the prior-year quarter. Net sales are
expected to be $97&nbsp;million to $99&nbsp;million, with comparable store sales down 3% to 5%. The Company
expects to open approximately 14 to 16 stores and close approximately 4 stores during the quarter.


<P align="left" style="font-size: 11pt"><I>Investor Conference Call and Web Simulcast</I>
<BR>
Kirkland&#146;s will host a conference call at 11:00&nbsp;a.m.&nbsp;ET today to discuss the second quarter
results. The number to call for the interactive teleconference is (212)&nbsp;231-2919. A replay of the
conference call will be available through Friday, August&nbsp;24, 2012, by dialing (402)&nbsp;977-9140 and
entering the confirmation number, 21575899.


<P align="left" style="font-size: 11pt">A live broadcast of Kirkland&#146;s quarterly conference call will be available online at the Company&#146;s
website <U>www.kirklands.com</U> under Investor Relations or
<U>http://www.videonewswire.com/event.asp?id=88700</FONT><FONT style="font-size: 12pt"></U> </FONT><FONT style="font-size: 11pt">on August&nbsp;17, 2012, beginning at
11:00&nbsp;a.m.&nbsp;ET. The online replay will follow shortly after the call and continue for one year.
</FONT>

<P align="left" style="font-size: 11pt"><I>About Kirkland&#146;s, Inc.</I>
<BR>
Kirkland&#146;s, Inc. was founded in 1966 and is a specialty retailer of home d&#233;cor in the United
States. Although originally focused in the Southeast, the Company has grown beyond that region and
currently operates 300 stores in 30 states.&nbsp; The Company&#146;s stores present a broad selection of
distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent
rugs, garden accessories and artificial floral products.&nbsp; The Company&#146;s stores also offer an
extensive assortment of gifts, as well as seasonal merchandise.&nbsp; More information can be found at
<U>www.kirklands.com</U>.


<P align="center" style="font-size: 11pt">-MORE-



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Fiscal 2012 Results
<BR>
Page 3
<BR>
August&nbsp;17, 2012


<P align="left" style="font-size: 11pt"><FONT style="font-size: 9pt"><I>Forward-Looking Statements</I>
<BR>
<I>Except for historical information contained herein, the statements in this release are
forward-looking and made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and
uncertainties, which may cause Kirkland&#146;s actual results to differ materially from forecasted
results. Those risks and uncertainties include, among other things, the competitive environment in
the home d&#233;cor industry in general and in Kirkland&#146;s specific market areas, inflation, product
availability and growth opportunities, seasonal fluctuations, and economic conditions in general.
Those and other risks are more fully described in Kirkland&#146;s filings with the Securities and
Exchange Commission, including the Company&#146;s Annual Report on </I><I>Form 10-K</I><I> filed on April&nbsp;12, 2012.
Kirkland&#146;s disclaims any obligation to update any such factors or to publicly announce results of
any revisions to any of the forward-looking statements contained herein to reflect future events or
developments.</I>
</FONT>

<P align="center" style="font-size: 9pt"><FONT style="font-size: 11pt">-MORE-</FONT>



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 4
<BR>
August&nbsp;17, 2012


<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<BR>
(numbers in thousands, except per share amounts)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">13 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 28,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 30,</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2012</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2011</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">91,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">89,701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,856</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,845</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,752</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,952</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(640</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense (income), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Loss before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,974</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(598</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,977</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,997</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(480</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares used to calculate loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 5
<BR>
August&nbsp;17, 2012
</FONT>

<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<BR>
(numbers in thousands, except per share amounts)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">26 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 28,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 30,</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2012</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2011</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">188,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">184,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,933</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,433</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(782</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense (income), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Income (loss)&nbsp;before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,531</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(759</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,690</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Earnings (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares used to calculate earnings
(loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,645</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 6
<BR>
August&nbsp;17, 2012
</FONT>

<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<BR>
(dollars in thousands)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 28, 2012</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">January 28, 2012</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 30, 2011</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">83,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,106</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,880</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,274</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,283</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,199</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Non-current deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,394</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">847</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">186,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">202,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">193,380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,527</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,538</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred rent and other long-term
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,843</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">186,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">202,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">193,380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 7
<BR>
August&nbsp;17, 2012
</FONT>

<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<BR>
(dollars in thousands)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">26 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 28, 2012</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 30, 2011</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash provided by (used in):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,606</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,786</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,811</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,359</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net decrease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33,509</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,116</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,222</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">End of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,106</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-END-</FONT>




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<BODY style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><FONT style="font-size: 12pt"><B>KIRKLAND&#146;S, INC.</B></FONT>



<P align="center" style="font-size: 12pt"><B>Moderator: Robert Alderson<BR>
August&nbsp;17, 2012<BR>
11:00 am CT</B>


<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="79%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ladies and gentlemen, thank you for standing by. Welcome to<BR>
the Kirkland&#146;s, Inc. Second Quarter 2012 conference call.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">During the presentation, all participants will be in a<BR>
listen-only mode. Afterwards, we will conduct the<BR>
question-and-answer session. At that time, if you have a<BR>
question, please press the 1 followed by the 4 on your<BR>
telephone. If at anytime during the conference you need to<BR>
reach an operator, please press star 0. As a reminder, this<BR>
conference is being recorded, Friday, August&nbsp;17, 2012.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I will now like to turn the conference over to Tripp<BR>
Sullivan. Please go ahead, sir.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Tripp Sullivan:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. Good morning and welcome to this Kirkland&#146;s, Inc.<BR>
conference call to review the company&#146;s results for the<BR>
second quarter of fiscal 2012. On the call this morning are<BR>
Robert Alderson, President and Chief Executive Officer; and<BR>
Mike Madden, Senior Vice President and Chief Financial<BR>
Officer.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The results as well as notice of the accessibility of this<BR>
conference call on a listen-only basis over the Internet<BR>
were released earlier this morning in a press release that<BR>
has been covered by the financial media. Except for<BR>
historical information discussed during this conference<BR>
call, the statements made by company management are<BR>
forward-looking and made pursuant to the safe harbor<BR>
provisions of the Private Securities Litigation Reform Act<BR>
of 1995.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Forward-looking statements involve known and unknown risks,<BR>
and uncertainties which may cause Kirkland&#146;s actual results<BR>
and future periods to differ materially from forecasted<BR>
results. Those risks and uncertainties are more fully<BR>
described in Kirkland&#146;s filings with the Securities and<BR>
Exchange Commission, including the company&#146;s annual report<BR>
on Form&nbsp;10-K filed on April&nbsp;12, 2012.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With that said, I&#146;ll turn the call over to Mike for review<BR>
of the financials. Mike?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks, Tripp, and good morning. I&#146;ll begin with the review<BR>
of the second quarter financial statements and then finish<BR>
with financial guidance for the third quarter and our<BR>
updated performance goals for fiscal 2012.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the second quarter, net sales were $91&nbsp;million, a 1.5%<BR>
increase versus the prior year quarter. Comparable store<BR>
sales, including e-commerce, decreased 3.6%. E-commerce<BR>
sales were $3.5&nbsp;million for the quarter, a 111% increase<BR>
over the prior year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Comparable brick-and-mortar sales were down 5.8% with<BR>
average sales for brick-and-mortar store down 2%. For<BR>
brick-and-mortar stores, the comp sales decline was driven<BR>
by an 8% decrease in transactions, partially offset by 2%<BR>
increase in the average ticket.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The decrease in transactions resulted from a 6% decline in<BR>
the conversion rate, combined with a 2% decrease in traffic<BR>
count. The increase in the average ticket was the result of<BR>
an increase in items per transaction, offset partially by<BR>
slight decline in the average retail selling price.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sales performance by geographic area was relatively<BR>
consistent across the chain with slightly better results in<BR>
the Upper Midwest and Northeast, and weaker results in our<BR>
Southwestern border stores. Merchandise categories<BR>
contributing most to the comp decline were decorative<BR>
accessories, wall decor, textiles, and frames.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">In real estate, we opened 10 stores and closed five stores<BR>
during the quarter, bringing us to 302 stores at quarter&#146;s<BR>
end. Eighty-six percent of the total stores at quarter end<BR>
were off-mall, and 14% were located in malls. At the end of<BR>
the quarter, we had 2.1&nbsp;million square feet under lease, a<BR>
9% increase from the prior year. Average store size is up 6%<BR>
to just over 7,000 square feet.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gross profit margin for the second quarter decreased<BR>
approximately 140 basis points to 33% of sales from 34.4% in<BR>
the prior year. The components of gross profit margin were<BR>
as follows, first, merchandise margin decreased 70 basis<BR>
points as a percentage of sale, higher-than-expected<BR>
promotional activity undertaken during the quarter in<BR>
response to soft sales trends combined with additional<BR>
markdown pressure led to a lower-than-expected margin for<BR>
the quarter. Inbound freight costs were flat to the prior<BR>
year and had a little impact on the year-over-year<BR>
comparison.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Second, store occupancy costs increased approximately 20<BR>
basis points as a percentage of sales reflecting the<BR>
negative comparable store sales results. Third, outbound<BR>
freight costs increased 30 basis points, reflecting an<BR>
increase and e-commerce sales which carry higher shipping<BR>
cost. Excluding e-commerce, outbound freight costs were flat<BR>
to the prior year. And fourth, central distribution cost<BR>
increased 20 basis points versus the prior-year quarter<BR>
reflecting the comparable store sales decline combined with<BR>
the increased in e-commerce sales.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Operating expenses for the quarter were $30.7&nbsp;million, 33.8%<BR>
of sales as compared to $28.8&nbsp;million, or 32.1% of sales for<BR>
the prior year quarter. Sixty basis points of this increase<BR>
was due to a prior year bonus accrual reversal in the amount<BR>
of $500,000. The remainder of the increase as a percentage<BR>
of sales relates primarily to the decline in comparable<BR>
store sales, combined with the increases in healthcare,<BR>
marketing, and information technology expenses.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Depreciation and amortization increased 50 basis points as a<BR>
percentage of sales, reflecting an increase capital<BR>
expenditures combined with the slight increase in total<BR>
sales. Operating loss for the second quarter was $4&nbsp;million<BR>
or 4.3% of sales as compared to an operating loss of $0.6<BR>
million or 7.7% of sales for the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We reported an income tax benefit of $2&nbsp;million or 49.7% of<BR>
pretax loss versus a benefit of $0.1&nbsp;million, or 19.7% of<BR>
pretax loss for the prior year quarter. During this year&#146;s<BR>
quarter, a portion of the tax benefit amounting to<BR>
approximately $400,000 related to federal and state<BR>
employment tax credits received that were related to prior<BR>
year&#146;s in excess of our expectations.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Net loss for the quarter was approximately $2&nbsp;million or 11<BR>
cents per share, as compared to net loss of $0.5&nbsp;million, or<BR>
2 cents per share in the prior year quarter. At the end of<BR>
the quarter, there were 17,061,615 shares outstanding.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Turning to the balance sheet and the cash flow statement, at<BR>
the end of the second quarter, we had $49.6&nbsp;million in cash<BR>
on hand compared to $75.1&nbsp;million at the end of the prior<BR>
year quarter, and $83.1&nbsp;million at the end of 2011. During<BR>
the trailing 12-month period, we repurchased 3.4&nbsp;million<BR>
shares of our common stock for a total of 40&nbsp;million,<BR>
completing the repurchase authorization that was established<BR>
in August of 2011.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Despite the softness in our sales trends in planned heavy<BR>
capital expenditure budget this year, we still expect to<BR>
generate positive cash flow during 2012 excluding the impact<BR>
of previous share repurchase activity. Inventories at the<BR>
end of the quarter were $49.8&nbsp;million compared to $47.7<BR>
million in the prior year. Including e-commerce, this<BR>
represents a 4% increase in total inventory above our<BR>
expectations due in part to the shift to the sale shortfall.<BR>
However, e-commerce inventories have grown in support of<BR>
continued strong business expected for the back half.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">At the store level, we planned inventories conservatively<BR>
throughout the year. And on a per-store basis, we actually<BR>
ended the second quarter down 2% versus the prior year. On a<BR>
per-square-foot basis, we were down 7% year-over-year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consequently, we are comfortable with our level of inventory<BR>
entering the back half. And we expect to end the third<BR>
quarter with inventories in the range of $62&nbsp;million to $64<BR>
million, which represents our seasonal peak time frame.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We continue to operate the business without any long-term<BR>
debt and no borrowings were outstanding in our revolving<BR>
line of credit at the end of the quarter. Capital<BR>
expenditures were $10.7&nbsp;million for the quarter and included<BR>
the following: $4.7&nbsp;million for new store construction; $2.5<BR>
million for information technology projects including our<BR>
Oracle Merchandising System that is slated for go-live this<BR>
fall; $2.4&nbsp;million for store improvements including the<BR>
introduction of new more flexible fixtures that allow for<BR>
better clarity of presentation as well as the reset and<BR>
refreshing of many of our older, smaller locations; $600,000<BR>
was for improvements in our distribution center to support<BR>
better workflow and additional space for e-commerce<BR>
fulfillments; and lastly, the remaining $500,000 spent<BR>
during the quarter related to various routine maintenance<BR>
capital expenditures.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The final item I&#146;ll cover before turning the call over to<BR>
Robert is provide our guidance for the third quarter and our<BR>
updated outlook for the fiscal year. For the third quarter<BR>
ending October&nbsp;27, 2012, we expect total sales to be in the<BR>
range of $97&nbsp;million to $99&nbsp;million, reflecting a range of<BR>
comparable store sales results of down 3% to 5% compared<BR>
with sales of $89.7&nbsp;million and a comparable store sales<BR>
decrease of 3.6% in the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We expect gross profit margin to be down in the range of 150<BR>
to 200 basis points versus the prior year quarter,<BR>
reflecting a decrease in the merchandise margin and due to<BR>
higher inbound freight cost as well as unexpected<BR>
promotional sales environment combined with smaller<BR>
increases and outbound freight occupancy and central<BR>
distribution cost as a percentage of sales.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Operating expenses for the third quarter should be above<BR>
that of the second quarter by 6% to 8%, reflecting the<BR>
seasonality of the business and an increase in new store<BR>
activity. Based on these high level assumptions, we would<BR>
expect to report a loss of 3 cents to 7 cents per share for<BR>
the third quarter. We expect to open 14 to 16 stores during<BR>
the quarter and close four stores.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the full year fiscal year, we expect to open 40 to 44<BR>
new stores and close approximately 30 stores. This overall<BR>
store activity would equate to unit growth of approximately<BR>
4% and square footage growth of approximately 9%.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We expect totals sales for fiscal 2012 to increase 4.4% to<BR>
6% over the prior year. This expectation for total sales<BR>
growth reflects the additional week in the retail calendar<BR>
for fiscal 2012, which includes 53&nbsp;weeks. This level of<BR>
sales growth would imply comparable store sales in the low<BR>
single digit negative to territory excluding the impact of<BR>
the additional week.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Based on our current outlook, we would expect the operating<BR>
margin for fiscal 2012 to be below last year in the range of<BR>
200 to 250 basis points. Rising inbound freight costs will<BR>
make merchandise margin gains more difficult to achieve in<BR>
the back half than originally anticipated. And we are<BR>
assuming a continuation of the promotional environment we<BR>
saw on the first half of the year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Continuing investments in our technology infrastructure and<BR>
business processes as well as personnel additions and key<BR>
areas of the business will also provide operating margin<BR>
pressure inside fiscal 2012. With a tax rate assumption<BR>
ranging between 38% and 38.5% for the year, we would expect<BR>
earnings per share to be in the range of 72 cents to 82<BR>
cents for fiscal 2012.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">From a cash flow standpoint, we anticipate capital<BR>
expenditures totaling $29&nbsp;million to $32&nbsp;million before<BR>
landlord (and)&nbsp;construction allowances for new stores.<BR>
Approximately $16&nbsp;million to $18&nbsp;million of the total CAPEX<BR>
will relate to new store construction &#151; $7&nbsp;million to $8<BR>
million will relate to information technology and the<BR>
balance relating to distribution center improvements and<BR>
store merchandise fixture enhancements and other<BR>
refurbishments.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks. And I&#146;ll now turn the call over to Robert.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks. Second quarter was not what we hoped for, same areas<BR>
of concern from the first quarter continued to affect<BR>
business results. Gross sales were up slightly versus the<BR>
prior year quarter, but comparable sales decreased 3.6%<BR>
against the slight decline in traffic. Traffic was down 1%<BR>
in off-mall stores, but down 3% in mall-based stores.<BR>
Conversion negatively affected transactions and drove the<BR>
consequence.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Despite a stronger initial markup, merchandise margin for<BR>
the quarter declined 70 basis points as a result of heavier<BR>
than expected promotional activity prompted by the<BR>
conversion decline and our efforts to control inventory both<BR>
as to amount and composition as we prepare to enter the<BR>
second half of the year. Our store inventories are down 7%<BR>
on a square-foot basis and 2% per store versus the prior<BR>
year, as Mike said.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re up slightly in total, (the)&nbsp;store growth, but<BR>
importantly an increase in e-commerce inventories versus the<BR>
prior year to support our early stage business, which is<BR>
running ahead of plan. As to category, (in)&nbsp;large (class)<BR>
performance, our table lamps, candles, large mirrors,<BR>
pillows, garden, statuary &#151; gift and statuary had strong<BR>
sales increases during the second quarter. Furniture was<BR>
essentially flat. We continue to struggle in decorative<BR>
accessories, ornamental wall art, frames, and textiles<BR>
strongly influenced to comp sales decline for the quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As we reallocate our inventory spin for the back half of the<BR>
year, we will continue to see movement in down numbers in<BR>
dec frames and ornamental wall d&#233;cor, but our actions should<BR>
result in a healthier business in each in Q4 and beyond.<BR>
Considering first quarter results and conversion in the<BR>
prevailing economic climate, we planned a number of<BR>
promotional events with hot prices on event-specific<BR>
merchandise for the second quarter to drive traffic in<BR>
sales.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Some of the events were seasonally related like Mother&#146;s<BR>
Day, Fourth of July, Father&#146;s Day, and Memorial Day. Others<BR>
like our semi-annual big sale and numerous one-day and<BR>
weekend sales gave us an opportunity to highlight sale<BR>
opportunities in a smaller group items.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With the Saturday before Mother&#146;s Day in our history, in the<BR>
event, we generally performed well. We believe we can<BR>
improve results going forward with the last seasonal related<BR>
merchandise. Same lesson would apply in Memorial Day and<BR>
Fourth of July as the patriotic picnic and outdoor seasonal<BR>
merchandise was highly promoted and competitive throughout<BR>
the marketplace. Father&#146;s Day is a somewhat new target event<BR>
for us and was marginally successful since it&#146;s a very<BR>
limited holiday shopping period, and the merchandise is a<BR>
tough fit for our store.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We also plan some new introductions and refocus some others.<BR>
Early in the quarter, we presented a new to Kirkland&#146;s<BR>
outdoor patio group including outdoor and food related<BR>
furniture with mixed results in stores and better sales<BR>
consistency online where we see continued opportunity to<BR>
expand that business. Concurrently, to support the outdoor<BR>
group and our summer seasonal theme, we introduced Summer<BR>
Fun and a collected group of outdoor and entertaining and<BR>
gift merchandise with similar results, some very good and<BR>
some not so good.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Back to school runs through September. While we&#146;re still<BR>
learning, I haven&#146;t seen quite the results we (won)&nbsp;at a<BR>
relatively new to Kirkland&#146;s business. As with housewares<BR>
and wedding, we&#146;re optimistic that we can complement our<BR>
core business, bridge some seasonal periods, increased<BR>
visits, and provide our customer with a meaningful<BR>
assortment that has interest and provides support to our<BR>
year-round businesses.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our semi-annual big sale event is always focused on well<BR>
priced items with a great value in our prime categories and<BR>
continues to deliver outstanding results. Kirkland&#146;s has<BR>
always been item-focused featuring new products at great<BR>
prices. For spring, we aggregated dedicated fixtures, some<BR>
fun (unintelligible) (gift bowl), well priced in often<BR>
seasonally related merchandise. And a prime selling area in<BR>
our stores is an organized impulse area aimed at building<BR>
sales and ticket.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Early results have been favorable. We&#146;re still learning what<BR>
works best and we&#146;ll keep testing items, price points and<BR>
seasonality throughout the balance of the year. During the<BR>
first half, we executed multiple efforts to be seasonally<BR>
appropriate and to deliver event specific merchandise at<BR>
compelling prices.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the go, we build the traffic in sales yet we did not<BR>
meet or exceeded prior comparison period. It&#146;s hard to<BR>
discuss results from especially conversion without<BR>
referencing the protracted somewhat dismal say of consumer<BR>
sentiment which actually seem (gorge)&nbsp;today than what we<BR>
experienced in Q1.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We (sell)&nbsp;a lot of fun and a lot of value, but we don&#146;t sell<BR>
necessities. Our moderate income customers (unintelligible),<BR>
continued high employment weak job growth, and a poor<BR>
housing market. Our consumer faces the added specter of<BR>
yearend political gridlock which may not be totally<BR>
understood, but she knows it&#146;s not good news. Our customers&#146;<BR>
reaction since April has been to stay in the current job,<BR>
spend less, pay down debt when possible and save more.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As we&#146;ve previously said, we can&#146;t blame the environment.<BR>
Many retailers have done well. We all swim in the same<BR>
notion, so we must look for better performance from the<BR>
customer&#146;s we have.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As we take a high level look at the quarter results, we<BR>
probably overacted the questionable environment and planned<BR>
and tried to execute too many promotional activities (made)<BR>
too much event and seasonally related merchandise and<BR>
thereby pressured our merchandise margins unnecessarily,<BR>
which is correctable. Additionally, going forward, I think<BR>
we can and we&#146;ll also plan our second quarter inventory<BR>
levels much more precisely and lowered to help our<BR>
assortment in sales results.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our Oracle Retain Enterprise System is less than 45&nbsp;days<BR>
from the cutover absent any last-minute problems. We don&#146;t<BR>
expect instant rewards, but we&#146;re preparing well ahead of<BR>
time to utilize its richer information deliverables.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Just as we have augmented our corporate team for the oracle<BR>
implementation, we&#146;ve been adjusting our merchandise<BR>
planning and buying processes to take the earliest advantage<BR>
of the system and in order to use information more<BR>
effectively now with existing systems even before Oracle<BR>
goes live.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With this work over the past several months, we expect to<BR>
affect our Q3 and Q4 buys significantly with a much more<BR>
data driven process. Natural results should be more emphasis<BR>
on our core items, fewer SKUs, eventually lower running<BR>
inventories and a more consistent margin (rates)&nbsp;business.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We can accomplish this and still meet our customers&#146;<BR>
expectations on new and unique merchandising great prices<BR>
while also providing a better stock position on best selling<BR>
items. If we match our merchandising talent with better<BR>
information and better process, we&#146;re confident that we will<BR>
the merchandise consistency we see.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;ve noted in the past calls that we clearly recognize the<BR>
need to deliver to a more effective and compelling marketing<BR>
message through all mediums in order to build traffic in<BR>
customer accounts and maintain the sales and (patron)&nbsp;needs<BR>
of our existing (oil)&nbsp;customer base.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To that end, we&#146;ve been engaged with the national marketing<BR>
firm in a major branding project, provide the context for<BR>
delivering our value message. Also, we&#146;ve engaged and now<BR>
working with a new national PR advertising team to improve<BR>
our new store opening effectiveness in an effort to increase<BR>
and maintain exposure and awareness of our new stores in<BR>
both existing and new markets.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As an essential element of that effort, we are realigning<BR>
our in-store visual presentation scheme to maximize the<BR>
impact of our investment in (working)&nbsp;merchandising and<BR>
marketing. Also, we will complete within the third quarter a<BR>
store fixture rollout that effects three quarters of our<BR>
store base with retrofits and upgrades of additional or new<BR>
fixtures along with a position realignment designed to take<BR>
advantage of ten to 12 additional selling spaces created<BR>
thereby.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We hope to reassert our historic focus on transparency in<BR>
value pricing impact merchandising and visual acuity. We<BR>
continue to progress in our early stage e-commerce effort,<BR>
we&#146;re about to complete an expansion of this phase allocated<BR>
to e-commerce fulfillment in our distribution center.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our SKU count has grown to over 2,800 or about double one<BR>
year ago. We expect to at least double our year one business<BR>
within this fiscal year. We&#146;re preparing to test business<BR>
enhancements, so like quite a delivery and third-party<BR>
fulfillment (unintelligible)&nbsp;while continuing to emphasize<BR>
and grow in store pickup.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our original plan was for web exclusive merchandise to grow<BR>
to and maintain at about 20% to 25% of the SKU set. But we<BR>
have so far been able to maintain our 40%, a pleasant<BR>
surprise.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re continuing to test web-based promotions to find our<BR>
best and most effective opportunities and the timing<BR>
thereof. As we suggested would be the case for the first few<BR>
years, a strong majority of our online sales come from<BR>
geographic areas where we have stores, which presents<BR>
another branding opportunity.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our real estate plans for this year remain unchanged. In the<BR>
third quarter, we expect to open about 15 stores and close<BR>
four, so. And for the full fiscal year, it still appears<BR>
that we&#146;ll open at least 40 or so these stores and close<BR>
about 30 for about ten net new stores. We do expect the net<BR>
gain in new store openings to begin to stretch significantly<BR>
after 2013.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">It&#146;s too soon to opine much about the current (class), but<BR>
early results were good. Deals remain reasonable priced, and<BR>
space availability is adequate but not abundant for better<BR>
spaces in the most desirable strip centers.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We continue to be cautious in our outlook (unintelligible).<BR>
I&#146;ll ensure the timing we have done and are doing a lot of<BR>
foundational work and investment that will pay off<BR>
especially the fine-tuning of our merchandise mix and<BR>
reasserting our great price style and quality equals value<BR>
message.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As we move off-mall, I don&#146;t think our compelling price<BR>
story stands out so much. We can&#146;t fix the world economic<BR>
conditions but we can fix that and also (buy bearer). So<BR>
that&#146;s where we&#146;re concentrating.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With that said, while we&#146;re rightfully cautious and<BR>
conservative, we&#146;re also need to discourage<BR>
(unintelligible). We expect to return Kirkland&#146;s previous<BR>
levels of sales profitability and operating efficiency.<BR>
We&#146;ve completed our stock buyback well ahead of schedule and<BR>
still maintain &#151; expect to maintain a strong balance sheet<BR>
and cash position with no debt.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you for your time and your interest in Kirkland&#146;s.<BR>
And, operator, we&#146;re prepared to take questions.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. Ladies and gentlemen, if you&#146;d like to register<BR>
for a question, please press the 1 followed by the 4 on your<BR>
telephone. You will hear a three-tone prompt to acknowledge<BR>
a request. If your question has been answered and you would<BR>
like to withdraw your registration, please press the 1<BR>
followed by the 3. If you are using a speakerphone, please<BR>
lift your handset before entering your request. One moment,<BR>
please, for our first question.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And our first question comes from the line of Brad Thomas<BR>
from Keybanc Capital. Your line is open. Please go ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hey, good morning, Robert; good morning, Mike.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hey.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hey, Brad.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Let&#146;s see here, I wanted to just follow up a little bit, you<BR>
know, at a high level in terms of, you know, what you&#146;re<BR>
seeing out there. You know, it doesn&#146;t feel like comps<BR>
change a great deal from last quarter but, you know, did<BR>
continue to moderate down a little bit more.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, a lot of references (obvious)&nbsp;to the difficult<BR>
consumer landscape. But, you know, how much do you think the<BR>
consumer versus perhaps the merchandise on your part not<BR>
having the mark versus, you know, the competitive landscape<BR>
changing?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, I don&#146;t think &#151; as I&#146;ve said, I don&#146;t think you<BR>
can discount the moment that we&#146;re in and have been for<BR>
awhile with our customer. I think depending on what you sell<BR>
and dealing with a moderate income customers we do, you may<BR>
find a result different than ours. But we don&#146;t &#151; as I&#146;ve<BR>
said we don&#146;t sell anything that&#146;s needed for life.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I think the customer makes decisions based on how much<BR>
they have and what their expectations and fears are, and<BR>
what they feel like they can spend. And I think family and<BR>
all the things related to family come first.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I think we are affected. We obviously &#151; with the work<BR>
that we&#146;re doing and the systems that we&#146;re putting in,<BR>
specifically the work on process, we are aware that we can<BR>
and must by better and more precisely, and continue to make<BR>
gains and merchandise productivity, specifically sales and<BR>
margin.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And &#151; so that is a part of it and we recognize it, and<BR>
that&#146;s really the only thing we can affect. And we can also<BR>
market ourselves better. I think the change, as I said,<BR>
off-mall, I don&#146;t (our)&nbsp;message that we have the best prices<BR>
generally, spends out nearly as much in a group of large<BR>
boxes that whether they&#146;re really low price or not get some<BR>
credit for that based on the size of your box, what they<BR>
carry and what they&#146;re able to price some of the things<BR>
within their mix. So I think it&#146;s a combination of all of it<BR>
we&#146;re at.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:<BR>
Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. And then, you know, obviously, your guidance gives us<BR>
an outlook for store openings and, you know, you mentioned,<BR>
share repurchase. But, you know, in light of, you know, a<BR>
couple of quarters, the things have gotten a little bit<BR>
softer. Is there &#151; you know, has there been &#151; have there<BR>
been discussions about perhaps, you know, either slowing<BR>
down the openings or, you know, reigning in the share<BR>
repurchase just until we start to get some more<BR>
stabilization, you know, at the store level?<BR>
Well, Brad, on the store opening plan for this year, we&#146;re<BR>
pretty much settled. We have leases for the most part that<BR>
are final, and a lot of activity to come in Q3 and early Q4<BR>
with those openings.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We still are in a position to effect, you know, next year,<BR>
and we&#146;re constantly monitoring trends in the business. And<BR>
I think we&#146;ve historically been a pre-conservative<BR>
management team, and we&#146;ll continue to be so. So we will<BR>
look at that. But as far as this year goes, we&#146;re settled,<BR>
we&#146;ll open to 40 to 44 and close the 30, and keep monitoring<BR>
the business.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">On the buyback side, we did complete the 40&nbsp;million<BR>
authorization during the second quarter, and we will &#151; you<BR>
know, we will continually, as we always do, evaluate our<BR>
cash position in light of all these investments we just went<BR>
through the call and also have discussions that are<BR>
board-level about what to &#151; how to consider that. But we&#146;re<BR>
always watching the business, and that&#146;s first and foremost<BR>
in our minds as we make decisions about use of capital.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, Brad, also I would say, next year, we only have, I<BR>
think, five leases we&#146;re committed to at this moment. So,<BR>
you know, we like to get well ahead of a prior year, but I<BR>
think we &#151; you know, we constantly look at it as Mike said.<BR>
And we&#146;ll be &#151; I can tell you that we&#146;ll be very careful<BR>
about that.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. And then just a housekeeping item, Mike, you mentioned<BR>
the container rates being higher as we model the back half<BR>
of the year. What sort of, you know, drag should we model in<BR>
for gross margin associated with where container rates are<BR>
tracking now?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, obviously, it&#146;s a constantly moving target. But<BR>
right now, I would say, 50 to 100 basis points. A little bit<BR>
more in the fourth quarter than the third because the recent<BR>
increases won&#146;t really impact margins on that inventory<BR>
until it sells through in Q4.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Right. And I think we&#146;ve seen some moderation rates<BR>
recently, so hopefully that (continues).</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes. As I said, it&#146;s a moving target where you can (rest<BR>
your shared work), taking every effort to locate the best<BR>
rates and move our (goods across it) at the best price we<BR>
can.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Brad Thomas:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">All right. Well, thanks so much and best of luck.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And our next question comes from the line of Joan<BR>
Storms from Wedbush Capital. Your line is open. Please go<BR>
ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hi, guys. Good morning.</DIV></TD>
</TR>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Robert Alderson: (Unintelligible).</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I have a question, you know, just with regard to the consumer sentiment. I mean there have been some<BR>
other &#151; and maybe also just related to, I mean, to take a step back to your core customer, talk<BR>
about your core customer versus the Pier 1 or Williams-Sonoma or Cost Plus or Bed Bath. Is there a<BR>
real estate locations targeting sort of really more middle than to middle-upper? And that customer<BR>
you feel is being more negatively impacted than the others? Is that sort of.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, I think if you ask us, we &#151; to describe the demographics of our customer, they would fall in<BR>
the sort of 45,000 to 80,000, which would put us &#151; if you had a &#151; (if your land) a mainland through<BR>
that, you know, probably fine. Pier 1 on the upper side of that line and we probably would be in the<BR>
middle of below that.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So, you know, I think we do get a slightly more moderate customer. And I think we have some of all<BR>
of it. But the &#151; predominantly, we would see that customer, and I think they are more effective.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. And then, just as a follow-up, on the areas that have been weak on the Dec Acc and the Wall<BR>
Decor, and I know you had made some changes within the buying area. What are the lead times there?<BR>
And I think you had mentioned you would expect some improvement in those areas starting in the<BR>
fourth quarter and into next year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We do. We do expect some improvement in the back of this year and especially as we move in to the<BR>
first half of next year. We have made some changes. And the changes are more about process and more<BR>
about providing more focus to those categories and making sure that they have adequate resources to<BR>
do the best job that they can do.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">It takes six to nine months to change the world in a category. And that would be sort of the best<BR>
news when we were struggling with art back in the middle of 2010. I told everybody that we would fix<BR>
the category, but expect it to take six months to a year. And it took about eight to nine months to<BR>
really see the difference.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I think we will get that done, but it won&#146;t be apparent immediately. And as I said in the script,<BR>
I think we&#146;ll continue to see some down numbers in Dec and Ornamental Wall Decor in the fourth<BR>
quarter. And even into the fourth quarter and certainly in third is we reallocate the spend, and<BR>
some money will come out of those categories and be redirected to others. And that will promote some<BR>
of that now (in)&nbsp;result.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. That&#146;s helpful. And then lastly and I&#146;m going to let someone else ask questions, I&#146;m curious<BR>
about your &#151; sort of the redesign of the interior of the store. You know, traditionally, you&#146;ve had<BR>
it set in a certain ways with the category adjacencies. So what sort of changes should we look for<BR>
there?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, I think you&#146;ll find it to be more of a &#151; yes, a much more open arrangement. It&#146;ll be 90<BR>
degrees, instead of a 45-degree oblique set when you walk in the store. I think you&#146;ll see more -<BR>
you&#146;ll have more vision across store to the walls and to the back. And a lot of storage you&#146;ll see,<BR>
some of the old fixtures that date back eight to ten years or more, have been replaced.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And so, our store is having more &#151; will have a more uniform look and they will also be able to be<BR>
directed much better and much more precisely with one set of directions instead of two or three. So<BR>
we expect to get several things out of that.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And one of the things I mentioned is as with the set, we should generate, depending on the size of<BR>
the store, three or four to eight to ten or more new selling spaces. And some of those will be<BR>
directed to promotional opportunities and things that we need to reserve space for in order to<BR>
feature in our store, and others will take the overload that we have in other areas.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So we&#146;re actually going to benefit very nicely there by the way the set (has occurred). We&#146;ve also<BR>
taken some large art (chem)&nbsp;and (softer)&nbsp;floor that were very difficult to display and sell from as<BR>
well as to replenish. So it&#146;s not everything we&#146;re going to ever do in fixtures, but it&#146;s a great<BR>
start to making our stores much more uniform and a little bit easier to work with.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. And we&#146;ll.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And hopefully shop.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. What would be the timing for this to start and end?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;ll be finished with the reset by the end of the third quarter. We are already well end to it. I&#146;d<BR>
say we&#146;re 20%, 25% into it now.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Maybe a little more.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Joan Storms:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay, great. Look forward to checking that out. Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And our next question comes from the line of David Magee from Suntrust Robinson Humphrey.<BR>
Your line is open. Please go ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">David Magee:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. Hi, guys.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hey, David.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">David Magee:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Just a &#151; first, a related question, I guess, to Joan&#146;s. I&#146;m curious if you&#146;ve (counted)&nbsp;the exercise<BR>
of &#151; you know, for analyzing for stores with regard to maybe, you know, being the markets that are<BR>
number one, maybe where housing has turned a little more positive, or conversely those markets in<BR>
which, you know, you&#146;ve made the indefinite more moderate income areas. Are you seeing a role of<BR>
divergence, you know, in the chain from those kind of factors, do you think?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I think we are. And, you know, I think we&#146;ve noted some places where &#151; you know, California has<BR>
recently gotten a lot of press because they&#146;ve had some areas that are really booming and some that<BR>
haven&#146;t started going yet. And we&#146;ve had some really nice success out there in the past year with<BR>
store openings.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The market&#146;s a little better in Florida and has affected our results. Texas seems to be getting a<BR>
little better. The border &#151; we have a number of border stores, and they&#146;re a little bit of a drag<BR>
right now over what they&#146;ve been in the last two or three years due to the duty situation and I<BR>
think some violence and robbery on the border that discourages shopping and bringing things back<BR>
across.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Now, the border is always &#151; it&#146;s either really good or it&#146;s not so good. So I think that&#146;s affecting<BR>
our Texas stores. But we&#146;re seeing out especially in West Texas in some of the stores that are not<BR>
affected by over-the-border traffic. We&#146;re seeing really nice increases.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Houston is still affected and it is &#151; as well as San Antonio, and both of those are border affected.<BR>
Upper Midwest, we&#146;ve seen some nice increases. And so, we&#146;re encouraged by that. But I think the<BR>
thesis that some areas are recovering and when housing recovers, we do better, I think, is going to<BR>
prove to be true.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">David Magee:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks, Robert. And secondly, maybe for Mike, based on your guidance you&#146;ve given for EPS this<BR>
yearend, you know, the timing of store is in CAPEX and inventory, would you care to give a ballpark<BR>
figure on the cash balance at yearend?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes. I mean it&#146;ll base on the guidance. I think it&#146;d be around the $70&nbsp;million, $65&nbsp;million to $70<BR>
million range. It&#146;s early Q4. Obviously, as you know, what weighs a lot on our business and impacts,<BR>
you know, our results, but that&#146;s where I would say based on the guidance.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">David Magee:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great. Thanks, guys, and good luck.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you, David. Thank you, Dave.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And as a final reminder, ladies and gentlemen, to register for a question, please press<BR>
the 1 followed by the 4.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our next question comes from the line Anthony Lebiedzinski from Sidoti &#038; Company. Your line is open.<BR>
Please go ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">Anthony Lebiedzinski:Good morning. First, like, could you just comment on your overall comp sales in your mall stores versus your</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">off-mall locations?
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><BR></DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes. Malls are &#151; keep in mind first, you&#146;re only talking about 40 stores out of the chain at this<BR>
moment. But the mall stores are in the higher single digit negative range, and the off-mall stores<BR>
would be in the low single digit negatives.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Anthony Lebiedzinski:Okay.
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><BR></DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So, it&#146;s a small impact overall because it&#146;s only 40 stores, but they are underperforming.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">Anthony Lebiedzinski:Okay. And I was wondering if you could comment on how much of your e-commerce actual sales result in store</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">pickup?
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><BR></DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">It&#146;s around 45%, 40% to 45%.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">Anthony Lebiedzinski:Okay. And are you able to &#151; or what strategies do you have in place for the customers if she comes in to the</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">store pickup to merchandise to try to get them to purchase more products?</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, they&#146;re certainly notified, and the process is there to where &#151; the management team at the<BR>
store level knows when the customer is coming to pick it up, and they can be prepared on that front<BR>
with complementary items, you know, ways to entice them to buy more when they&#146;re getting to the<BR>
store. And that&#146;s obviously a crucial part of the link between e-commerce and our store business,<BR>
and one that we continue to get better at. There&#146;s a big opportunity.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">Anthony Lebiedzinski:Okay, all right. Thank you very much.</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And our next question comes from the line (Matt Dane) from (Titan Capital). Your line is<BR>
open. Please go ahead.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Matt Dane): Great. Thank you. I was curious, what&#146;s the &#151; what you believe is leading to
e-commerce running ahead of your plan?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, it&#146;s a rapidly maturing business. We launched it in<BR>
late 2012 without a lot of fanfare. We didn&#146;t put a lot of<BR>
marketing behind it. We had &#151; we started with a low SKU<BR>
count. We&#146;ve more than doubled the SKU account. We&#146;ve added<BR>
some marketing on Web sites with search engine optimization<BR>
and paid search ads, and we&#146;ve gone after that in a bigger<BR>
way. We&#146;ve improved the visual aspect of the site.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So there&#146;s a lot of things we&#146;ve incrementally, you know,<BR>
added on in this year and a half since we really went live.<BR>
And it&#146;s hard to predict exactly what you&#146;re going to get,<BR>
and we&#146;ve been pretty close but we&#146;ve happily been a little<BR>
bit over that plan.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I think the biggest change for us has been a dedicated team<BR>
to both manage and buy for it. You know we have, well, a lot<BR>
of people working to own it to make it grow and to maximize<BR>
its results. Whereas, the prior time that we tried it, we<BR>
were trying to do that as I guess an appendage of our<BR>
existing business. And I think that was a mistake and the<BR>
way we&#146;re going about it now gets a lot of good work done<BR>
that supports the business and helps it grow.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Matt Dane): Great. As a follow-up, I was curious, how would you compare the margin structure for
your e-commerce business versus your brick and mortar?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">On the merchandize side, it&#146;s pretty similar. But the<BR>
freight piece, I think, weighs on the e-commerce margin a<BR>
bit. And so, right now, at this level of volume, it is not<BR>
as profitable as a top-tier store but we&#146;re starting to hit<BR>
that point where that incremental revenue is dropping down<BR>
the bottom line at a good flow-through. We&#146;ll kind of pass<BR>
this base level of infrastructure we had to put in, so we<BR>
knew that was the way it would happen.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re profitable now on the site, which is a big positive<BR>
and we kind of cross that over several months ago. So from<BR>
this point forward, I think you can be more and more<BR>
profitable but the freight piece is the most difficult piece<BR>
as you hear and read about a lot and we&#146;re dealing with that<BR>
just like everybody else.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Matt Dane):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great, thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And our next question comes from the line of Alex<BR>
Fuhrman from Piper Jaffray. Your line is open. Please go<BR>
ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Alex Fuhrman:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great. Thanks, guys. I was wondering if you could touch a<BR>
little bit about the decline in conversion, you know, if you<BR>
feel that was driven by the product and then really how that<BR>
trended throughout the quarter and then obviously most of<BR>
your stores off-mall at this point. But, you know, was there<BR>
any difference in conversion between the two real estates<BR>
formats?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The conversion between two mall and off-mall was &#151; is<BR>
similar. I mean I said down six for the company. It was<BR>
basically down six for both mall and off-mall.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Alex Fuhrman:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. I mean was that pretty confident throughout the<BR>
quarter as you guys progress? Or did you notice that sort of<BR>
moving one direction or the other?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Michael Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I would say it has been pretty constant. When we run a good<BR>
strong promotion on that particular day you can see<BR>
conversion improve a bit. But it&#146;s &#151; you kind of lose some<BR>
of that when you move off that promotional cadence. So I<BR>
would say just generally speaking, it was constant<BR>
throughout the quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Alex Fuhrman:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay. That&#146;s helpful. Thanks, guys, and good luck.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. And we have no further questions at this time.<BR>
Mr.&nbsp;Alderson, I&#146;ll turn the call back over to you for your<BR>
closing remarks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you very much for your time and interest, and we look<BR>
forward to speaking with you later. Thanks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ladies and gentlemen, that does conclude the conference call<BR>
for today. We thank you for your participation and ask that<BR>
you please disconnect your lines.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 12pt">END




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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
