1.
Summary of Significant Accounting Policies--(continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions, including those relating to deferred catalog costs, inventory allowance, and income
taxes, which affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the dates of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates.
Stock-Based Employee Compensation
The Company follows the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for stock-based compensation arrangements. Under the guidelines of
APB Opinion 25, compensation cost for stock-based employee compensation plans is
recognized based on the difference, if any, between the quoted market price of the stock on the
date of grant and the amount an employee must pay to acquire the stock.
Comprehensive Losses
Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was adopted and became effective for the Company
in Fiscal 2002, requires that all derivative financial instruments be recorded on the balance sheet
as either assets or liabilities at fair value. Changes in the fair value of derivatives are recorded
each period in earnings or accumulated other comprehensive earnings (losses), depending on
whether a derivative is designated and effective as part of a hedge transaction and, if it is, the
type of hedge transaction. Gains and losses on derivative instruments reported in accumulated
other comprehensive earnings (losses) are reclassified as earnings in the periods in which
earnings are affected by the hedged item. The collar hedge contract had been designated as and
was effective as a hedge through the third quarter of Fiscal 2002. In the fourth quarter, due to
the bankruptcy of the counterparty, Enron North America Corporation ("Enron"), the contract
was no longer deemed to be an effective hedge. The Company has recorded accumulated other
comprehensive losses of $1,500,000 (net of taxes) as of February 23, 2002 related to the collar
hedge contract for the period it was effective as a hedge.
Segment and Geographic Information
The Company operates primarily in one business segment. The Company derives all revenues
from customers in the United States, and no individual customer accounted for 10% or more of
revenues for any of the periods presented. Substantially all identifiable assets are located in the
United States.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
L I L L I A N V E R N O N
