Company is subject to the risks of doing business abroad, but has experienced no material
disruptions to date.
Marketing
The Company maintains a proprietary customer data base containing information with respect to
over 26 million customers, gift recipients and people who have requested its catalogs. In
addition, the Company rents from, and exchanges mailing lists or specific portions of lists with
direct marketers and other organizations to gain new customers. Approximately 162,100,000
catalogs were mailed in fiscal 2002, of which approximately 80% were mailed to people whose
names were in the Company's proprietary data base and approximately 20% were mailed to
prospects derived from rented lists.
The Company offers customers special promotions such as gifts with purchase, free shipping
and handling, and a deferred billing option, in order to increase sales.
The Company believes that the size of its computerized data base and its ability to analyze it, as
well as rented lists, and to select recipients for a particular mailing are important factors in its
success. The Company analyzes various factors (e.g., frequency of order, date of last order,
order size, type of products purchased and demographic data) to rank its customer and prospect
groups in order to target its catalog mailings to those most likely to purchase its merchandise.
The Company updates its data base to include new customers and eliminate non-responders.
The Company periodically conducts focus groups and participates in customer surveys to
enhance its marketing efforts.
Third-Party Sales Programs
The Company operates a telemarketing program in which inbound order callers are offered the
opportunity to subscribe to a magazine of their choice at the guaranteed lowest subscription
price. A third party marketer of magazine subscriptions provides revenue to the Company for
every magazine sold and upon the completion of the billing cycles of the magazine
subscriptions. The Company recently began a similar program, selling a third-party membership
program. The program offers its members discounts at restaurants, movies and other national
chains.
List Rental
The Company derives a small portion of its revenue from the rental of its data base to direct mail
marketers and other organizations, and from the placement of advertisements for other
companies' products in its outgoing packages.
Order Fulfillment and Distribution
Orders for merchandise are received by telephone, mail, fax, and over the Internet. Orders are
received and processed at the Company's National Distribution Center in Virginia Beach,
Virginia. Customer Service operations are also conducted at this facility. The Company also
4
L I L L I A N V E R N O N
