L I L L I A N V E R N O N
To Our Shareholders,
The past fiscal year was a difficult period for our country and our Company. We began the year
in a recession. The terrorist attacks of September 11th further weakened the economy and eroded
consumer spending. Anthrax in the mail exacerbated the situation and had its greatest impact on
the direct marketing industry.
Revenues for fiscal 2002 were $259.6 million compared to $287.1 million last year. The net loss
for the fiscal year was ($9.1) million, or ($1.08) per share, compared to a net loss of ($1.4) million,
or ($.16) per share last year. The decrease in revenues and net income primarily resulted from a
reduction in catalog circulation and lower revenue per catalog mailed due to the state of the
economy. The Company implemented a cost reduction plan that streamlined its staff and cut
costs. The Board of Directors eliminated the quarterly cash dividend after the March 1, 2002
dividend payment.
During fiscal 2002, the Company remained financially strong and debt-free, with cash and
investments of $24.9 million. Stockholders' equity was $91.4 million, and inventory was
reduced significantly by $5.3 million, or 16.7%, compared to last year.
Lillian Vernon is the industry leader in personalization, our Company trademark for 51 years.
We are capitalizing on this unique niche by introducing more personalized gifts and utilizing
new personalization techniques.
We have a 51-year reputation for satisfying our customers' evolving needs. We conduct focus
groups and carefully analyze marketing and merchandising trends. We have reemphasized our
value-pricing strategy by offering even lower prices. We successfully launched a new catalog
title, Favorites Everything Under $20, perfectly suited to today's consumers seeking unique
products at great values. All of our catalog titles are being repositioned to achieve better response
rates through redesigns and the introduction of new logos. Most of our catalog photography
is shot digitally, saving time and money. We are launching a newly designed Christmas
Memories catalog to celebrate its 10th anniversary. It will reflect a return to a traditional
Christmas and features themed Christmas decorations.
Lilly's Kids is our most successful specialty catalog. We have extended this brand by offering
a broad assortment of room decor based on unique and popular themes that appeal to children.
Halloween is the second most important selling season for our Company, so we expanded our
variety of children's costumes.
The Internet, the most exciting component of our multi-channel business, continues to
show double-digit growth and is an integral part of the future of our Company. Our websites,
www.lillianvernon.com and www.ruedefrance.com are accelerating the growth of our customer
base. Despite cutbacks in consumer spending, web sales increased 33 percent in the fall of 2001,
with more customers enjoying the advantages and convenience of shopping online. Both sites
use state-of-the-art, customer-friendly technology that features all of our 6,000 products, real-time
inventory status and the ability to view the print catalogs online. E-mail campaigns offer a
focused and cost-effective way to reach our customers. Our new Lillian Vernon Online Affiliate
88916 Pages 6/3/02 4:49 PM Page 1
