of the contract subsequent to November 24, 2001 will be recorded in earnings. The fair value of
the contract at February 23, 2002 was $2.820 million, which is included in other liabilities in the
accompanying balance sheet. Total amounts recorded in earnings for the year ended February
23, 2002 approximated $700,000. The Company is hedging transactions through August 2005. As
of February 23, 2002, the Company estimates derivative losses of approximately $1 million (net
of taxes) reported in accumulated other comprehensive losses will be reclassified to earnings
within the next 12 months. The counterparty, Enron, has filed for bankruptcy in the fourth
quarter of fiscal 2002. To date, the Company has not been entitled to receive any payments from
Enron under the hedge agreement. Presently, the Company does not know what effect Enron's
bankruptcy will have upon the collar hedge contract. The Company's management and legal
counsel are currently exploring the status of the contract.
During fiscal 2001, the Company recorded pretax restructuring and other charges aggregating
$2.1 million, which included severance pay for a former officer ($.4 million) and costs of a
restructuring plan ($1.7 million). The restructuring plan (the "Plan") was approved in February
2001 to streamline operations and reduce costs in light of decreased consumer spending and an
uncertain economy. Under the Plan, the Company eliminated approximately 12% of its salaried
workforce and closed its Las Vegas, Nevada Call Center, consolidating its operations into the
National Distribution Center located in Virginia Beach. The costs of the Plan included $.7 million
for employee-related costs (mostly severance pay), $.3 million of asset write-offs from the call
center closure, $.7 million of projected future lease payments and sublease costs for the call
center. The restructuring and other charges reduced fiscal 2001 net income by $1.3 million net-
of-tax ($.15 per share), and had no material impact on fiscal 2002. As of the end of fiscal 2002,
all employee-related costs and asset write-offs have been recorded. The Company has attempted
to sublease the Las Vegas facility, but has been unable to do so. On April 24, 2002, the Company
decided to reactivate the facility as a seasonal call center for its upcoming peak holiday selling
season.
Interest income in fiscal 2002 was $.7 million compared to $1.5 million in fiscal 2001. The
decrease of $.8 million was due primarily to lower interest rates on the Company's cash
investments as well as lower amounts invested. Financing expense was $.8 million in fiscal 2002,
compared to $.3 million in fiscal 2001, principally because a $.5 million financing expense was
recorded in the fourth quarter of fiscal 2002 to reflect the valuation of the paper hedge contract.
There were no short-term borrowings during fiscal year 2002, 2001 or 2000.
The Company's effective income tax benefit rate of 33.2% in fiscal 2002 is primarily due to the
ability of the Company to carry back its fiscal 2002 loss to obtain a refund of prior years' taxes.
As of February 23, 2002, the Company has recorded a net deferred tax asset of $1.4 million. The
ultimate realization of the Company's net deferred tax asset is dependent upon the generation of
sufficient amounts of future taxable income during the years in which the related net expenses
become deductible. The Company's ability to generate sufficient taxable income in future
periods is contingent upon a number of factors, including general economic conditions and the
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