In the fourth quarter of fiscal 2001, effective February 27, 2000, the Company adopted the
provisions of SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), and recorded a one-time charge to earnings of $.6 million, net of
income taxes of $.4 million, ($.07 per share), to reflect the accounting change.
After all charges, the net loss for the fiscal year was ($1.4) million, or ($.16) per share, compared
to net income of $6.3 million, or $.69 per share, the prior year. 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, the Company would have had net income of $1.4 million or
$.15 per share, compared to $6.3 million or $.69 per share last year.
Seasonality
The Company's business is seasonal. Historically, approximately 65% - 75% of the Company's
revenue and substantially all of its net income has been realized during the third and fourth
fiscal quarters, which encompass the period September through February. Lower revenue and
net losses are typically incurred during the first and second fiscal quarters, comprising the period
March through August. The Company believes this is the general pattern associated with other
mail order and retail gift businesses.
Liquidity and Capital Resources
The Company's balance sheet and liquidity are strong. Cash and cash equivalents totaled $24.9
million as of February 23, 2002; the current ratio was 3.3:1 at February 23, 2002 compared to
3.2:1 at February 24, 2001. The increase in the current ratio was due principally to higher
prepayments and other current assets (specifically, higher refundable income taxes), and lower
accounts payable and accrued expenses as of February 23, 2002.
In fiscal 2002, the Company's operating activities generated funds of $1.5 million, compared to
$10.3 million in fiscal 2001. The principal reason for the reduction in cash generated was the
increase in the net loss from ($1.4) million in fiscal 2001 to ($9.1) million in fiscal 2002. The
Company carefully monitored and controlled inventory during fiscal 2002, and reduced year-end
inventory by $5.3 million (16.7%). The Company did not borrow money in fiscal 2002; its
working capital needs were met with funds on hand and cash generated from operations.
In fiscal 2002, the Company's use of funds for investing activities totaled $5.0 million. Capital
spending in fiscal 2002 was $1.1 million. These expenditures were made principally to upgrade
the Company's computer equipment and distribution machinery and equipment. In addition, the
Company completed the development of its new website for a cost of $4.0 million ($3.9 million
related to software). The website project was funded from cash on hand. For fiscal 2003, the
Company is not planning any major capital projects and will continue to implement tight
controls on capital expenditures and make commitments for items that have a positive return on
investment.
The Company has commitments under non-cancelable operating leases for real estate and
equipment that total $9.5 million for the five fiscal years ending 2003 through 2007.
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