Interest (Income) Expense, net. Interest income of $2,265 for  fiscal 2003 was attributable to interest earned on the invested cash. Interest expense of $480 for fiscal 2002 reflected borrowings from our credit facilities, which were repaid in early fiscal 2002. Class Action Settlement Costs. During fiscal 2002, we recorded $1,468 of class action settlement costs, which represents a settlement of $7,500 and related legal fees, net of $6,145 of insurance proceeds. Provision for Income Taxes. Income tax expense was $67,197 for fiscal 2003 as compared to $49,375 for fiscal 2002. The increase was primarily attributable to increased taxable income. The effective tax rate was 40.6% for fiscal 2003, as compared to an effective tax rate of 40.8% for fiscal 2002. The effective income tax rate differs from the statutory rate primarily as a result of non-taxable foreign income, non- deductible expenses, valuation allowances for deferred tax assets and the mix of foreign and domestic taxes as applied to the income. The valuation allowances relate to capital loss and state net operating loss carryforwards. At October 31, 2003 and October 31, 2002, we had capital loss carryforwards totaling approximately $21,000. The capital loss carry- forwards will expire in the periods fiscal 2006 through fiscal 2008. Failure to achieve sufficient levels of taxable income from capital transactions might affect the ultimate realization of the capital loss carryforwards. At October 31, 2002, management had a strategy of selling net appreciated assets of the company, to the extent required to generate sufficient taxable income prior to the expiration of these benefits. At October 31, 2003, based on management’s future plans, this strategy was no longer viable, and accordingly a valuation allowance has been recorded for this asset. At October 31, 2003,  we had foreign net operating losses of $9,800 expiring between  2005 and 2010, and state net operating losses of $41,700 expiring between 2021 and 2023. Limitations on the utilization of these losses may apply, and accordingly valuation allowances have been recorded for these assets. Net Income. Net income increased $26,555, or 37.1%, to $98,118 for fiscal 2003 from $71,563 for fiscal 2002, due to the changes referred to above. Diluted Net Income per Share. Diluted net income per share increased $0.46, or 25.4%, to $2.27 for fiscal 2003 from $1.81 for  fiscal 2002. The increase in net income was partly offset by the higher weighted average shares outstanding. The increase in weighted shares outstanding resulted from the issuance of shares underlying stock options and to the acquisitions of the  Max Payne intellectual property and the development studios. Fiscal Years Ended October 31, 2002 and 2001 Net Sales Years ended October 31, 2002 % 2001 % $ Increase % Inc Publishing $568,492 71.5 $244,071 54.1 $324,421 132.9 Distribution 226,184 28.5 207,325 45.9 18,859 9.1 Net sales $794,676 100.0 $451,396 100.0 $343,280 76.0 Net Sales. The increase in revenues was primarily attributable to growth in publishing operations. Included in net sales for fiscal 2001 was $23,846 attributable to the adoption of SAB 101. See Note 3 to Consolidated Financial Statements. The increase in publishing revenues was primarily attributable to the continued strong sales of  Grand Theft Auto 3 for PlayStation 2 and the release of  Grand Theft Auto: Vice City for the PlayStation 2, Max Payne for the PlayStation 2 and Xbox,  State of Emergency for the PlayStation 2 and  Grand Theft Auto 3 for the PC. Fiscal 2001 included $17,248 of net sales attributable to the adoption of  SAB 101. Products designed for video game console platforms accounted for 83.9% of fiscal 2002 publishing revenues as compared to 57.6% for fiscal 2001. The increase was primarily attributable to continued sales of  Grand Theft Auto 3 for PlayStation 2 and the release of Grand Theft Auto: Vice City for the PlayStation 2,  Max Payne for PlayStation 2 and Xbox and  State of Emergency for PlayStation 2. Products designed for the PC accounted for approximately 14.3%  of fiscal 2002 publishing net sales as compared to 35.6% for fiscal 2001. The decrease is a result of fewer PC titles released during  fiscal 2002. The increase in distribution revenues was primarily attributable to the commercial introduction of Xbox and GameCube and the contin- ued rollout of PlayStation 2 and the sale of software for these console platforms. Distribution revenue represented 28.5% and 45.9% of net sales for fiscal 2002 and 2001, respectively. Fiscal 2001 included $6,598 attributable to the adoption of SAB 101. International operations accounted for approximately $159,245, or 20.0% of net sales for fiscal 2002 compared to $106,565, or 23.6% for fiscal 2001. The increase in absolute dollars was primarily attributable to expanded publishing operations in Europe, including the release  of  Max Payne and  State of Emergency for PlayStation 2,  Grand Theft Auto 3 for the PC and continued sales of  Grand Theft Auto 3 for PlayStation 2. 17