<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ......... to .........
Commission file number 1-9637.
LILLIAN VERNON CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2529859
-------- ----------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1 Theall Road, Rye, New York 10580
---------------------------- -----
(Address of principal executive offices) (Zip Code)
914-925-1200
----------------------------------------------
(Registrant's telephone number, including area code)
543 Main Street, New Rochelle, NY 10801
---------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common stock:
9,339,335 Shares of Common Stock, $.01 par value, as of July 1, 1998.
<PAGE>
LILLIAN VERNON CORPORATION
Form 10-Q
May 30, 1998
Part I. Financial Information Page #
Item 1.
Consolidated Balance Sheets as of
May 30, 1998, May 24, 1997
(unaudited) and February 28, 1998
(audited) 3
Consolidated Statements of Operations
for the quarters ended May 30, 1998
and May 24, 1997 (unaudited) 4
Consolidated Statements of Cash Flows
for the quarters ended May 30, 1998
and May 24, 1997 (unaudited) 5
Notes to Consolidated Financial
Statements 6-7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-9
Part II. Other Information 10
Signatures 11
Page 2 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 30, MAY 24, FEBRUARY 28,
ASSETS 1998 1997 1998
------ ----------- --------- ------------
(Unaudited) (Audited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 16,464 $ 22,979 $ 25,132
Accounts receivable, net 10,763 10,897 22,632
Merchandise inventories 39,961 31,361 36,935
Deferred income taxes 1,716 1,495 2,034
Prepayments and other current assets 14,502 12,969 10,173
--------- --------- ---------
Total current assets 83,406 79,701 96,906
Property, plant and equipment, net (Note 1) 37,877 39,938 37,633
Deferred catalog costs 5,805 5,872 5,922
Other assets 3,431 2,369 3,206
--------- --------- ---------
Total $ 130,519 $ 127,880 $ 143,667
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable and accrued expenses $ 11,662 $ 10,207 $ 16,331
Customer deposits 109 102 147
Current portion of long-term debt and lease obligations 699 1,499 1,394
Income taxes payable -- -- 4,581
Deferred income taxes -- -- --
--------- --------- ---------
Total current liabilities 12,470 11,808 22,453
Long-term debt, less current portion -- 635 --
Capital lease obligations, less current portion -- 64 --
Deferred compensation 3,407 3,482 3,426
Deferred income taxes 1,355 575 1,075
--------- --------- ---------
Total liabilities 17,232 16,564 26,954
--------- --------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding -- -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; issued - 10,389,674 shares, 10,364,224
shares and 10,389,674 shares 104 104 104
Additional paid-in capital 31,166 30,793 31,160
Retained earnings 97,316 91,509 100,757
Unearned compensation -- (62) (6)
Treasury stock, at cost - 1,012,339 shares,
754,058 shares and 1,016,491 shares (15,299) (11,028) (15,302)
--------- --------- ---------
Total stockholders' equity 113,287 111,316 116,713
--------- --------- ---------
Total $ 130,519 $ 127,880 $ 143,667
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 11
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
MAY 30, MAY 24,
1998 1997
-------- --------
<S> <C> <C>
Revenues $ 32,012 $ 27,748
Costs and expenses:
Product and delivery costs 15,512 14,297
Selling, general and administrative expenses 20,798 17,264
-------- --------
36,310 31,561
-------- --------
Operating loss (4,298) (3,813)
Interest income 356 353
Interest expense (73) (93)
-------- --------
Loss before income taxes (4,015) (3,553)
Provision for (benefit from) income taxes:
Current (1,963) (1,455)
Deferred 598 247
-------- --------
(1,365) (1,208)
-------- --------
Net loss ($ 2,650) ($ 2,345)
-------- --------
Net loss per common share - Basic ($.28) ($.24)
-------- --------
Net loss per common share - Diluted ($.28) ($.24)
-------- --------
Weighted average number of common
shares - Basic 9,368 9,610
-------- --------
Weighted average number of common and
common share equivalents - Diluted 9,552 9,653
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 11
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------
MAY 30, MAY 24,
1998 1997
---------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 2,650) ($ 2,345)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 549 619
Amortization 49 65
(Increase) decrease in accounts receivable 11,869 13,579
(Increase) decrease in merchandise inventories (3,026) (881)
(Increase) decrease in prepayments and other current assets (4,329) (2,531)
(Increase) decrease in deferred catalog costs 117 268
(Increase) decrease in other assets (268) --
Increase (decrease) in trade accounts payable and accrued expenses (4,669) (4,278)
Increase (decrease) in customer deposits (38) (158)
Increase (decrease) in income taxes payable (4,581) (2,715)
Increase (decrease) in deferred compensation (19) (18)
Increase (decrease) in deferred income taxes 598 248
-------- --------
Net cash provided by (used in) operating activities (6,398) 1,853
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (793) (238)
-------- --------
Net cash used in investing activities (793) (238)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease obligations (695) (685)
Proceeds from issuance of common stock -- 10
Dividends paid (792) (700)
Payments to acquire treasury stock (549) (8)
Reissuance of treasury stock 552 --
Other 7 1
-------- --------
Net cash used in financing activities (1,477) (1,382)
-------- --------
Net increase (decrease) in cash and cash equivalents (8,668) 233
-------- --------
Cash and cash equivalents at beginning of period 25,132 22,746
-------- --------
Cash and cash equivalents at end of period $ 16,464 $ 22,979
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 74 $ 144
Income taxes 4,630 2,845
</TABLE>
See Notes to Consolidated Financial Statements
Page 5 of 11
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The interim financial
statements furnished with this report reflect all adjustments, consisting only
of items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair statement of the consolidated financial condition and
consolidated results of operations for the interim periods presented. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended February 28, 1998.
1. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
May 30, May 24, February 28,
1998 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Land and buildings $31,840 $31,743 $31,778
Machinery and equipment 29,687 26,658 29,035
Furniture and fixtures 3,583 3,318 3,561
Leasehold improvements 966 3,776 909
Capital leases 1,262 1,262 1,262
------- ------- -------
Total property, plant &
equipment, at cost 67,338 66,757 66,545
Less, accumulated depreciation
and amortization 29,461 26,819 28,912
------- ------- -------
Property, plant and equipment - net $37,877 $39,938 $37,633
------- ------- -------
</TABLE>
Page 6 of 11
<PAGE>
2. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated in accordance with
Statement of Financial Accounting Standards No. 128 as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Fiscal Quarters Ended
---------------------
May 30, May 24,
1998 1997
------- -------
<S> <C> <C>
Net Loss-Basic and Diluted $(2,650) $(2,345)
------- -------
Weighted average shares for
Basic EPS 9,368 9,610
Add: incremental shares from
stock option exercises 184 43
------- -------
Weighted average shares for
Diluted EPS 9,552 9,653
------- -------
</TABLE>
In the fiscal quarters ended May 30, 1998 and May 24, 1997, options on
177,000 and 181,500 shares of common stock, respectively, were not included in
the calculation of weighted average shares for Diluted EPS because their
effects were antidilutive.
Page 7 of 11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended May 30, 1998
Revenues for the quarter ended May 30, 1998 of $32.0 million increased by
$4.3 million, or 15.4%, as compared to the same period last year. The major
reason for the rise in revenues was a 16.6% increase in pages circulated in the
first quarter, as compared to the first quarter last year. A large portion of
the increased circulation was due to the introduction of a new catalog title,
Lillian Vernon Gardening, in March 1998, and the mailing of new Spring editions
of the Personalized Gifts and Lilly's Kids catalogs in the current quarter.
Average order size increased by 2% to $50.33 for the first quarter. The new
catalog launch and additional mailings, while contributing to revenues, also
increased first quarter expenses. While the costs to startup the Gardening
catalog, the costs of additional mailings and higher overhead costs did not
allow for a reduction in the first quarter loss compared to last year, it is
anticipated that the new initiatives will improve results in the future.
Product and delivery costs increased by $1.2 million, or 8.5%, in the quarter
ended May 30, 1998, as compared to the same period last year. The increase was
principally due to a 13.7% higher order volume. As a percentage of revenues,
these costs decreased from 51.5% to 48.5% in the current quarter. Product and
delivery costs include the cost of merchandise sold, and the cost of receiving,
filling and shipping the Company's orders, reduced by shipping and handling
fees charged to customers. The improvement in this ratio was primarily due to
a higher gross margin on merchandise sold. Higher margin was driven
principally by the mix of the merchandise, which included more full-priced and
higher margin product lines as compared to the first quarter last year.
Selling, general and administrative (SG&A) expenses, the largest component of
which is the cost of producing, printing and mailing the Company's catalogs,
increased $3.5 million, or 20.5%, in the current quarter. As a percentage of
revenues, SG&A costs rose from 62.2% to 65.0%. The increase in SG&A expenses
is largely due to higher catalog circulation, as well as a higher average
cost per catalog produced, compared to the first quarter last year. The
increase as a percentage of revenues is principally due to the higher
catalog costs and lower revenue per catalog of the new catalog mailings.
Labor costs of outside consultants working on the Year 2000 project also
increased SG&A costs in the first quarter of fiscal 1999, compared to the
same period last year.
The Special Markets division also experienced reduced sales and profits in the
first quarter, due to ongoing lower sales volume for a major customer.
Interest income for the quarter ended May 30, 1998 of $.4 million was
approximately the same as the first quarter of the prior year. Interest
expense for the current quarter was slightly lower than the same period last
year, due to debt repayments.
The effective income tax rate was 34% in the current quarter, the same as in
the first quarter of fiscal 1998.
Financial Condition
The Company's current ratio at May 30, 1998 was 6.69 to 1, compared to 4.32 to
1 at February 28, 1998 and 6.75 to 1 at May 24, 1997. The Company's working
capital needs have been met with funds generated from operations.
The Company used $8.9 million more cash during the current first quarter,
compared to the same period last year, principally because of increases in
inventory, prepaid catalog costs and higher income tax payments due for the
prior fiscal year. Inventory levels are higher as of the end of the first
quarter of fiscal 1999 compared to the same point last year, partially due to
higher anticipated sales in fiscal 1999 compared to fiscal 1998, but also due
to a higher inventory level as of the end of fiscal 1998. Management expects
to be able to sell this inventory without significant overall gross margin
reduction.
The Company paid dividends totaling $.8 million ($.08 per share), compared to
$.7 million ($.07 per share) in the first quarter last year.
Page 8 of 11
<PAGE>
On October 10, 1995, the Board of Directors authorized the Company to purchase
up to 1 million shares of its common stock in the open market from time to
time, subject to market conditions. During the fiscal quarter ended May 30,
1998, the Company purchased 32,500 shares at a total cost of $548,500. Shares
repurchased under the plan from inception through May 30, 1998 total 687,700 at
a cost of $10.0 million.
Year 2000 Compliance
As previously reported in Form 10-K for the fiscal year ended February 28,
1998, the Company is in the process of modifying its computer software
applications and systems to properly function with respect to dates in the
year 2000 and thereafter. To date, the Year 2000 conversion project is on
schedule, and no major problems have been encountered.
Forward Looking Statements
Except for historical information contained herein, this Report on Form 10-Q
contains forward-looking statements which are based on the Company's current
expectations and assumptions. Various factors could cause actual results to
differ materially from those set forth in such statements. These factors
include, but are not limited to, the potential for changes in consumer
spending, consumer preferences and general economic conditions, increasing
competition in the direct mail industry, changes in government regulations,
dependence on foreign suppliers, and possible future increases in operating
costs, including postage and paper costs. For further information, see Part I
of Form 10-K for the fiscal year ended February 28, 1998.
Page 9 of 11
<PAGE>
PART II.
OTHER INFORMATION
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.1: Agreement between Lillian Vernon Corporation and
Robert S. Mednick dated June 11, 1998.
Reports on Form 8-K: None
Page 10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lillian Vernon Corporation
Date: July 13, 1998 By: /s/ Robert S. Mednick
--------------------------------
Robert S. Mednick
Vice President,
Chief Financial Officer
Page 11 of 11
<PAGE>
[LILLIAN VERNON LOGO]
June 11, 1998
Mr. Robert S. Mednick
543 Main Street
New Rochelle, New York 10801
RE: EMPLOYMENT AGREEMENT DATED MAY 30,
1996 AS AMENDED BY LETTER DATED
JULY 1, 1997 (THE "EMPLOYMENT
AGREEMENT") AND CHANGE OF CONTROL
AGREEMENT DATED JULY 1, 1997 (THE
"CHANGE OF CONTROL AGREEMENT")
----------------------------------
Dear Bob:
We are writing to confirm our understanding that we have extended the
term of your Employment Agreement until December 31, 1998 (the "Expiration
Date") at which time your employment with the Company will terminate without
further action by either you or the Company.
From and after the date hereof you shall continue to perform the
functions of CFO, except for involvement in investor relations and mergers and
acquisitions. You agree to focus your efforts on various internal projects
during normal business hours as are assigned to you by written memo from the
Company.
The Company may terminate this Agreement at any time after the date
hereof upon thirty (30) days prior written notice to you ("Notice Period").
During the Notice Period the Company agrees that you may commence a search for
new employment and in connection therewith the Company shall allow you
reasonable time off to search for new employment. If the Company so terminates
this Agreement and you continue working through the expiration of the Notice
Period (unless requested not to do so by the Company) or if you remain employed
by the Company through the Expiration Date, then in either event you shall be
entitled to the following benefits ("Termination Benefits"):
(i) six (6) months severance payable over the six month
period commencing on the Expiration Date or the expiration of the
Notice Period, as the case may be (the "Severance Period") in
accordance with the Company's normal payroll practices;
<PAGE>
Mr. Robert Mednick
June 11, 1998
Page 2
(ii) Four (4) weeks vacation less any vacation taken by you
after the date hereof in excess of eleven days of vacation currently
accrued;
(iii) Fifteen thousand ($15,000) dollars as reimbursement for
various expenses to be incurred by you in connection with your search
for new employment;
(iv) Continued participation in those Company fringe benefits
now provided to you (as the same may be amended or terminated by the
Company for executives of your classification generally) at the
contribution rates in effect for all employees of your classification
level during the Severance Period;
(v) An acceleration of the vesting of the balance of the
25,000 non-qualified stock option grant issued to you pursuant to
Section 3 of your Employment Agreement; and
(vi) All other stock option grants issued to you shall
continue to vest in accordance with their respective terms until the
Expiration Date or the expiration of the Notice Period, as the case
may be.
If you resign prior to the Expiration Date or if your employment with
the Company is terminated for cause (as that term is defined in the Employment
Agreement) prior to the Expiration Date or prior to the expiration of the
Notice Period, then in either of such events you shall not be entitled to any
of the Termination Benefits outlined in this Agreement or any other benefit
from the Company.
In consideration of the extension of the term of your employment
agreement and the other terms and conditions set forth herein you hereby, for
yourself and your heirs, executors, administrators and assigns (collectively
the "Releasor") forever waive, release and discharge the Company and its
affiliates, successors and assigns, past and present officers, directors,
employees and agents, and any fiduciaries of any employee benefit plan or
policy of the company (collectively, "Releasees"), from any and all claims,
demands, causes of action, fees and liabilities and expenses (inclusive of
attorneys' fees) of any kind whatsoever, whether known or unknown, which you
ever had or now have against Releasees by reason of any actual or alleged act,
omission, transaction, practice, conduct, occurrence, or other matter up to and
including the date of this Agreement, including but not limited to, any claims
under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights
Act of 1991, the Equal Pay Act, as amended, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act,
<PAGE>
Mr. Robert Mednick
June 11, 1998
Page 3
the Fair Labor Standard Act, the Employee Retirement Income Security Act, the
Family and Medical Leave Act, and/or any other Federal, state or local law
(statutory or decisional), regulation or ordinance and/or any claims under your
Employment Agreement and/or claims with respect to severance pay, vacation pay,
holiday pay, bonus payments, sick leave, life insurance, group medical
insurance or workmen's compensation or disability claims. You also agree that
the Change of Control Agreement between you and the Company is terminated
effective as of the date hereof, except, that in the event a Change of Control,
as that term is defined in the Change of Control Agreement, occurs, while you
are employed by the Company, all stock option grants issued to you will vest
and become exercisable in accordance with the provisions of Section 2(c) of the
Change of Control Agreement.
In consideration of the extension of the term of your employment
agreement and the other terms and conditions set forth herein the Company
hereby, for itself and its successors and assigns forever waive, release and
discharge you from any and all claims, demands, causes of action, fees and
liabilities and expenses (inclusive of attorneys' fees) of any kind whatsoever,
whether known or unknown, which the Company ever had or now has against you by
reason of any actual or alleged act, omission, transaction, practice, conduct,
occurrence, or other matter up to and including the date of this Agreement.
The foregoing mutual releases shall not be deemed to terminate the
Indemnification Agreement between you and the Company dated June 27, 1996 and
our respective obligations thereunder shall survive the execution and delivery
of this Agreement.
You acknowledge that you have been advised by the Company to consult
an attorney and your financial advisor before signing this Agreement and that
you have executed this Agreement with the waiver and release set forth above
after having the opportunity to consult with an attorney and your financial
advisor and to consider the terms of this Agreement for at least twenty-one
(21) days. You further acknowledge that you have read this Agreement in its
entirety, that you understand all of its terms, and that you knowingly and
voluntarily assent to all of the terms and conditions contained herein
including, without limitation, the waiver and release of your right to claims
arising under the Age Discrimination in Employment Act, as amended.
This Agreement shall not become effective until the eighth day
following your execution of this Agreement and you may at any time prior to the
effective date revoke this Agreement by giving written notice of such
revocation to the Company attention:
<PAGE>
Mr. Robert Mednick
June 11, 1998
Page 4
William L. Sharkey, Vice President, Human Resources, 543 Main
Street, New Rochelle, New York 10801.
We agree not to disparage you and you agree not to disparage the
Company, its officers and directors. If asked for a reference, the Company will
reply substantially as set forth in Exhibit A or in such other manner as is
reasonably acceptable to you.
Except as herein amended, the Employment Agreement is ratified and
confirmed.
This Agreement shall be binding upon and inure to the benefit of the
heirs, trustees, executors, administrators, successors and assigns of the
respective parties. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute the
same instrument. This Agreement shall be governed by and subject to the laws of
the State of New York without giving effect to its conflict of laws rules.
In the event any provision of this Agreement is determined to be
invalid by a court of competent jurisdiction, such determination shall in no
way affect the validity or enforceability of any other provisions herein.
You understand that the Company's obligations to make payments
hereunder are unfunded and that claims for payments by you or any beneficiary
shall be those of a general, unsecured creditor. All payments and benefits
contemplated hereunder shall be subject to withholding in accordance with
applicable Federal, state, or local law, and if any such withholding payment
would be due at any time that insufficient cash is being transferred to you
from which it could be withheld, you agree promptly upon request to pay to the
Company any amount due to be withheld by the Company.
This Agreement contains a complete statement of all the arrangements
between you and the Company with respect to your employment and the termination
of your employment with the Company, and except as set forth herein, supersedes
all existing agreements, whether written or oral, between you and the Company
concerning your employment or such termination.
The Company expressly denies any violation of its prior agreements
with you, or any of its policies, procedures, Federal, state or local laws or
regulations. Accordingly, while this Agreement resolves all issues between the
Company and you relating to any alleged violation of its prior agreements with
you, Company policies or procedures or any Federal, state or local law or
regulation, this Agreement does not constitute an
<PAGE>
Mr. Robert Mednick
June 11, 1998
Page 5
adjudication or finding on the merits and it is not, and shall not be construed
as, an admission by the Company of any violation of its policies, procedures,
Federal, state or local laws or regulations. Moreover, neither this Agreement
nor anything in this Agreement shall be construed to be or shall be admissible
in any proceeding as evidence of or an admission by the Company of any
violation of its policies, procedures, Federal, state or local laws or
regulations. This Agreement may be introduced, however, in any proceeding to
enforce this Agreement. Such introduction shall be pursuant to an order
protecting its confidentiality.
The parties agree that the prevailing party in any litigation
regarding the enforcement of the terms and conditions of this Agreement shall
be entitled to be reimbursed for the costs incurred by such party in connection
therewith including, without limitation, attorneys fees.
Please acknowledge your agreement with the foregoing by countersigning
the enclosed duplicate copy of this letter.
Sincerely,
LILLIAN VERNON CORPORATION
By: /s/ Lillian Vernon
--------------------------------
Lillian Vernon, CEO
Accepted and Agreed:
/s/ Robert S. Mednick
- --------------------------------
Robert S. Mednick
<PAGE>
Exhibit A
To Whom it May Concern:
Robert Mednick joined the Lillian Vernon Corporation on June 28, 1996 as Chief
Financial Officer. In this position he was responsible for the areas of
Corporate Finance, Investor Relations, Budgeting and Forecasting, Inventory
Control/Merchandise Rebuy, Paper Purchasing, and Operations' Finance for the
National Distribution Center, which included Finance, Traffic, Purchasing,
Payroll and Security. He also had administrative responsibility for Internal
Audit.
Mr. Mednick has been an important factor in the financial management of the
Company during his time here. He was instrumental in the improvement of various
internal controls and procedures throughout the Company. He was a member of the
Management Committee, and actively participated in the strategic management and
direction of the Company. He was well liked by the members of the management
team and his staff.
I appreciate Mr. Mednick's contributions to the Lillian Vernon Corporation and
wish him success in the future.
Sincerely,
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> MAY-30-1998
<CASH> 16,464
<SECURITIES> 0
<RECEIVABLES> 10,763
<ALLOWANCES> 0
<INVENTORY> 39,961
<CURRENT-ASSETS> 83,406
<PP&E> 67,338
<DEPRECIATION> 29,461
<TOTAL-ASSETS> 130,519
<CURRENT-LIABILITIES> 12,470
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 113,183
<TOTAL-LIABILITY-AND-EQUITY> 130,519
<SALES> 32,012
<TOTAL-REVENUES> 32,012
<CGS> 15,512
<TOTAL-COSTS> 36,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> (4,015)
<INCOME-TAX> (1,365)
<INCOME-CONTINUING> (2,650)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,650)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>