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Summary of Significant Accounting Policies
General
Lillian Vernon Corporation is a direct mail specialty catalog and online company, concentrating
on the marketing of gift, household, gardening, kitchen, Christmas and children's products.
The consolidated financial statements include the accounts of Lillian Vernon Corporation and its
wholly-owned subsidiaries, Lillian Vernon Fulfillment Services, Inc., Lillian Vernon International,
Ltd., Rue de France, Inc. (since date of acquisition on April 1, 2000) and LVC Retail Corporation
(collectively, the "Company"). All material intercompany balances and transactions have been
eliminated.
The Company has a fiscal year consisting of 52 or 53 weeks ending on the last Saturday in
February. Under this policy, fiscal 2002, fiscal 2001 and fiscal 2000 each consisted of 52 weeks.
Cash Equivalents
Cash equivalents consist principally of commercial paper with remaining maturities at
acquisition of less than three months. Under Statement of Financial Accounting Standards No.
115 -- "Accounting for Certain Investments in Debt and Equity Securities", the Company's
investments, totaling $24.3 million and $33.4 million as of February 23, 2002 and February 24,
2001, respectively, are classified as held-to-maturity securities, and as such, are stated at cost
plus accrued interest, which approximates fair value.
Revenue Recognition
Effective February 27, 2000, the Company adopted the provisions of SEC Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). As a result of
adopting SAB 101, the Company records revenue at the time of delivery for catalog and online
sales, and at the point of sale in its retail stores. The Company recorded a charge to earnings of
$640,000, net of income taxes of $360,000, to reflect the cumulative effect of the accounting
change. The use of the revised method reduced the fiscal 2001 loss before cumulative effect by
$79,000, net of income taxes.
In the fourth quarter of fiscal 2001, the Company adopted the provisions of Emerging Issues
Task Force ("EITF") No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which
requires that amounts billed to customers for shipping and handling fees be classified as
revenue and the related costs classified as cost of goods sold (product and delivery costs).
Previously, the Company recorded shipping and handling fees as a reduction of the related
expenses in the "product and delivery costs" line on the statement of operations. All periods
shown have been reclassified to reflect the provisions of EITF No. 00-10.
There was no effect on net income as a result of adopting EITF No. 00-10.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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