5.
Property, Plant and Equipment
Property, plant and equipment consists of the following (dollars in thousands):
Fiscal Years Ended
February 23,
2002
February 24,
2001
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32,975
$
32,884
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,284
32,685
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,162
4,093
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
977
1,130
Total property, plant & equipment, at cost . . . . . . . . . . . . . . . . .
68,398
70,792
Less: accumulated depreciation & amortization . . . . . . . . . . . . . . .
37,600
36,951
Property, plant & equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . .
$
30,798
$
33,841
6.
Paper Hedge Contract
The Company's earnings are impacted by fluctuating paper prices. In order to partially mitigate
this risk, the Company entered into a collar hedge contract. This contract covers certain grades
of paper used by the Company, among other grades, to produce its catalogs. There is a floor
and ceiling on paper prices within the contract. If paper prices remain within the range of the
contract, there would be no payment to either party to the contract. If paper prices exceed the
established ceiling, the Company is entitled to be reimbursed by the counterparty for the excess.
Conversely, if paper prices fall below the established floor, the Company must pay the
counterparty. The Company did not pay a premium at the inception of the contract. The
contract has an expiration date of August 2005.
FAS No. 133 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 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 other comprehensive
earnings (losses) are reclassified to 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 November 2001. During the nine months ended November 24, 2001, the ineffectiveness
related to the collar hedge contract was not significant.
In view of the financial situation of Enron, the counterparty, the Company discontinued hedge
accounting during the fourth quarter. As a result, amounts previously recorded in accumulated
other comprehensive losses under hedge accounting of $1,736,000 (net of taxes of $1,064,000)
through November 24, 2001 will continue to be reclassified to earnings in the period in which
earnings are affected by the paper costs. Further, any changes in the fair value of the contract
subsequent to November 24, 2001, will be recorded in earnings. The fair value of the contract at
February 23, 2002 was $2,820,000, which is included in other liabilities in the
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
L I L L I A N V E R N O N
