ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the results of operations as a percentage
of revenues.
Fiscal Years Ended
February 23,
February 24,
February 26,
2002
2001
2000
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
100.0%
Costs and expenses:
Product and delivery costs . . . . . . . . . . . . . . . . . .
(59.4)
(56.7)
(55.7)
Selling, general and administrative expenses . . .
(45.8)
(43.0)
(41.2)
Restructuring and other charges . . . . . . . . . . . . .
--
(0.7)
--
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
--
--
0.3
Operating income (loss) . . . . . . . . . . . . . . . .
(5.2)
(0.3)
3.3
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3
0.5
0.4
Financing expense . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)
(0.1)
--
Income (loss) before taxes . . . . . . . . . . . . . . . . . .
(5.2)
0.1
3.7
(Provision for) benefit from income tax . . . . . . . . .
1.7
(0.3)
(1.5)
Cumulative effect of accounting change . . . . . . . . .
--
(0.2)
--
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
(3.5)%
(0.5)%
2.2%
Fiscal 2002 Compared to Fiscal 2001
Revenues for fiscal 2002 were $259.6 million compared to $287.1 million last year, a decrease of
$27.5 million, or 9.6%. Revenues decreased primarily because of a 6% reduction in catalog
circulation, and 5% lower revenue per catalog mailed, as a result of the recession, the effects of
September 11th and consumer concerns about anthrax in the mail. While the overall number of
orders received by the Company during fiscal 2002 declined 9.2%, orders received through the
Company's website increased 33% from the prior year, and represent 13% of total orders in fiscal
2002 as compared to 9% last year. The Company believes most of this increase is due to
customers now ordering from its website as opposed to ordering by telephone.
Product and delivery costs include the cost of merchandise sold, the cost of receiving,
personalizing and filling orders for the Company's customers. Product and delivery costs in fiscal
2002 were $154.3 million, a decrease of $8.3 million, or 5.1% compared to $162.6 million for
fiscal 2001. This decrease was primarily a result of the decline in the number of orders received
by the Company in fiscal 2002. As a percentage of revenue, product and delivery costs increased
from 56.7% in fiscal 2001 to 59.4% in fiscal 2002. This increase was due primarily to postal rate
increases on packages shipped to customers, effective in both January 2001 and July 2001, and
reduced order volume, which resulted in less productivity and lower absorption of fixed costs in
the Company's National Distribution Center. Another postal rate increase will be effective in
12
L I L L I A N V E R N O N
