6.
Paper Hedge Contract--(continued)
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 twelve
months.
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.
Hedging activity affected accumulated other comprehensive losses, net of income taxes, during
the year ended February 23, 2002 as follows (dollars in thousands):
Balance as of February 25, 2001 . . . . . . . . . . . . . . . . . . . . .
$
--
Change in fair value through November 24, 2001 . . . . . . .
(1,736)*
Derivative losses transferred to earnings . . . . . . . . . . . . . . .
236
Balance as of February 23, 2002 . . . . . . . . . . . . . . . . . . . . .
$ (1,500)
*
Represents a non-cash charge to accumulated other comprehensive losses of $1,736 (net of
taxes of $1,064) through November 24, 2001.
7. Leases
The Company's corporate headquarters and administrative offices are located in a 65,000 square
foot building in Rye, New York. This facility is leased under a sublease agreement expiring on
January 30, 2005. The sublease provides that the Company, in addition to base rent, is
responsible for increases in real estate taxes and operating costs over the initial lease year base
costs. The Company has the right to renew the lease, for two five-year periods, with the building
owner, upon expiration of the sublease.
The Company has operating lease agreements for certain computer and other equipment used
in its operations, for its outlet store locations, and for its call centers, with existing lease terms
ranging from fiscal 2003 through fiscal 2007, and various renewal options through fiscal 2011.
Most of the store leases also provide for payment of common charges such as maintenance and
real estate taxes. Ten stores require the payment of additional rent based upon a percentage of
sales.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
L I L L I A N V E R N O N
