Company's sales levels in future periods. Although management has developed plans which
should enable the Company to achieve sufficient income levels in the future, there can be no
assurance that the plans will be successful in enabling the Company to generate sufficient
taxable income in the periods in which the net expenses become deductible. However, the
Company has developed certain tax planning strategies relating to the sale and leaseback of
certain of its facilities, which could be employed, if necessary, to generate taxable income in
amounts sufficient enough to offset the impact of the net deductible expenses. Accordingly, the
Company has not recorded a valuation allowance with respect to the net deferred tax asset as of
February 23, 2002. The Company's unusually high effective income tax rate in fiscal 2001 was
primarily due to recognizing the expiration of charitable contribution tax carryforwards. The
Company recorded additional tax expense of $.8 million in fiscal 2001 related to the expiration
of these credits, which reduced earnings per share by $.09.
Fiscal 2001 results included a cumulative effect of an accounting change (after-tax) of $.6
million, or $.07 per share, as a result of the adoption of SEC Staff Accounting Bulletin No. 101,
relating to revenue recognition (see Note 1).
The net loss for fiscal year 2002 was ($9.1) million, or ($1.08) per share, compared to the net
loss of ($1.4) million, or ($.16) per share, in fiscal 2001, which, before the cumulative effect of
adopting SAB 101 in Fiscal 2001, and excluding the restructuring charge and the effect of the
expiration of tax carryforwards, would have had net income of $1.4 million or $.15 per share.
Fiscal 2001 Compared to Fiscal 2000
Revenues for fiscal 2001 were $287.1 million, an increase of $6.1 million, or 2.2% compared to
fiscal 2000. Revenues rose primarily because of the acquisition in April 2000 of Rue de France,
Inc., an upscale catalog and website of home furnishings and accessories. Catalog revenues
excluding Rue de France declined slightly, although catalog circulation was 2% higher in fiscal
2001. Response to the Company's catalogs was negatively impacted by the economic downturn
and decreased consumer spending during the Company's peak holiday selling season, and the
balance of the fiscal year. While the overall number of orders received by the Company during
fiscal 2001 declined by 4.5%, orders received through the Company's website almost doubled
compared to fiscal 2000, and amounted to approximately 9% of incoming orders in fiscal 2001.
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
2001 were $162.6 million, an increase of $6.0 million, or 3.8% compared to $156.6 million for
fiscal 2000. These costs increased primarily due to the addition of the Rue de France business.
As a percentage of revenue, product and delivery costs increased from 55.7% in fiscal 2000 to
56.7% in fiscal 2001 due to the mix of the Company's merchandise and services. Specifically,
more of the Company's revenues were generated from lower margin sources in fiscal 2001, such
as Rue de France and providing incoming order processing services to another catalog retailer.
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