UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 2009
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-26841
1-800-FLOWERS.COM, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3117311
--------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Old Country Road, Carle Place, New York 11514
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (516) 237-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
Class A common stock, par value The Nasdaq Stock Market, Inc.
$0.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes | | No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15 (d) of the Act. Yes | | No |X|
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 for 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 | |
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes | | No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | | Accelerated filer |X|
Non-accelerated filer | |(Do not check if a smaller reporting company)
Smaller reporting company | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes | | No | |
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price as of the last business
day of the registrant's most recently completed second fiscal quarter, December
26, 2008, was approximately $90,588,000. The registrant has no non-voting
common stock.
26,616,835
(Number of shares of class A common stock outstanding as of September 4, 2009)
36,858,465
(Number of shares of class B common stock outstanding as of September 4, 2009)
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders (the Definitive Proxy Statement) are incorporated by
reference into Part III of this Report.
1-800-FLOWERS.COM, INC.
FORM 10-K
For the fiscal year ended June 28, 2009
INDEX
PART I
Item 1. Business 1
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 42
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 42
Item 9A. Controls and Procedures 42
Item 9B. Other Information 45
PART III
Item 10. Directors, Executive Officers and Corporate Governance 46
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 46
Item 13. Certain Relationships and Related Transactions, and
Director Independence 46
Item 14. Principal Accounting Fees and Services 46
Part IV
Item 15. Exhibits, Financial Statement Schedules 47
Signatures 49
PART I
Item 1. BUSINESS
The Company
For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing customers
with fresh flowers and the finest selection of plants, gift baskets, gourmet
foods, confections, balloons and plush stuffed animals perfect for every
occasion. 1-800-FLOWERS.COM(R) offers the best of both worlds: exquisite
arrangements individually created by some of the nation's top floral artists and
hand-delivered the same day, and spectacular flowers shipped overnight under our
Fresh From Our Growers(R) program. As always, 100 percent satisfaction and
freshness are guaranteed. The Company's BloomNet(R) (www.mybloomnet.net)
international floral wire service provides a broad range of quality products and
value-added services designed to help professional florists to grow their
businesses profitably. The 1-800-FLOWERS.COM, Inc. "Gift Shop" also includes
gourmet gifts such as popcorn and specialty treats from The Popcorn Factory(R)
(1-800-541-2676 or www.thepopcornfactory.com); exceptional cookies and baked
gifts from Cheryl&Co.(R) (1-800-443-8124 or www.cherylandco.com); premium
chocolates and confections from Fannie May Confections Brands (www.fanniemay.com
and www.harrylondon.com); gourmet foods from Greatfood.com(R)
(www.greatfood.com); wine gifts from Ambrosia(R) (www.ambrosia.com or
www.winetasting.com or www.Geerwade.com); and gift baskets from
1-800-BASKETS.COM(R) (www.1800baskets.com) and DesignPac Giftssm
(www.designpac.com).
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. The Company has classified the results of operations of its Home &
Children's Gifts segment, which includes Home Decor and Children's Gifts from
Plow & Hearth(R) (1-800-627-1712 or www.plowandhearth.com), Wind & Weather(R)
(www.windandweather.com), HearthSong(R) (www.hearthsong.com) and Magic Cabin(R)
(www.magiccabin.com), as discontinued operations for all periods presented.
1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ Global Select Market under
ticker symbol FLWS.
References in this Annual Report on Form 10-K to "1-800-FLOWERS.COM" and the
"Company" refer to 1-800-FLOWERS.COM, Inc. and its subsidiaries. The Company's
principal offices are located at One Old Country Road, Suite 500, Carle Place,
NY 11514 and its telephone number at that location is (516) 237-6000.
The Origins of 1-800-FLOWERS.COM
The Company's operations began in 1976 when James F. McCann, its Chairman and
Chief Executive Officer, acquired a single retail florist in New York City,
which he subsequently expanded to a 14-store chain. Thereafter, the Company
modified its business strategy to take advantage of the rapid emergence of
toll-free calling. The Company acquired the right to use the toll-free telephone
number 1-800-FLOWERS, adopted it as its corporate identity and began to
aggressively build a national brand around it. The Company believes it was one
of the first companies to embrace this new way of conducting business.
In order to support the growth of its toll-free business and to provide superior
customer service, the Company developed an operating infrastructure that
incorporated the best available technologies. Over time, the Company implemented
a sophisticated transaction processing system that facilitated rapid order entry
and fulfillment, an advanced telecommunications system and multiple customer
service centers to handle increasing call volume.
To enable the Company to deliver products reliably nationwide on a same-day or
next-day basis and to market pre-selected, high-quality floral products, the
Company created BloomNet(R), a nationwide network including independent local
florists selected for their high-quality products, superior customer service and
order fulfillment and delivery capabilities.
The Company's online presence has enabled it to expand the number and types of
products it can effectively offer to its customers. As a result, the Company has
developed relationships with customers who purchase products for both a broad
range of celebratory gifting occasions as well as for everyday personal use. The
Company has broadened its product offering to include products that a customer
could expect to find in a high-end florist shop, including a wide assortment of
cut flowers and plants, candy, balloons, plush toys, giftware and gourmet gift
baskets. The Company has also significantly expanded its presence in the gourmet
food and gift baskets category through a combination of organic initiatives and
strategic acquisitions beginning with the purchase of GreatFood.com, Inc. in
1
November 1999, followed by the purchase of certain assets of The Popcorn
Factory, Inc. in May 2002, the addition of wine gifts through the acquisition of
The WineTasting Network in November 2004, the addition of cookies and other
bakery gift items through the purchase of Cheryl & Co. in March 2005, premium
chocolates and confections with the acquisition of Fannie May Confections
Brands, Inc., in May 2006 and, most recently, gourmet gift baskets, food towers
and gift sets through the acquisition of DesignPac Gifts LLC in April 2008.
The Company's Strategy
1-800-FLOWERS.COM's objective is to become the leading authority on thoughtful
gifting, to serve an expanding range of our customers' celebratory needs,
thereby helping our customers express themselves and connect with the important
people in their lives. The Company will continue to build on the trusted
relationships with our customers by providing them with ease of access, tasteful
and appropriate gifts, and superior service.
The Company believes that 1-800-FLOWERS.COM is one of the most recognized brands
in the floral and gift industry. The strength of its brand has enabled the
Company to extend its product offerings beyond the floral category into
complementary products, which include gourmet popcorn, cookies and related baked
and snack food products, premium chocolate and confections, wine gifts and
gourmet gift baskets. This extension of gift offerings helps our customers in
all of their celebratory occasions, and has enabled the Company to increase the
number of purchases and the average order value by existing customers who have
come to trust the 1-800-FLOWERS.COM brand, as well as continue to attract new
customers.
The Company believes its brands are characterized by:
o Convenience. All of the Company's product offerings can be purchased
either via the web and wireless devices, or via the Company's
toll-free telephone numbers, 24 hours a day, seven days a week, for
those customers who prefer a personal gift advisor to assist them. The
Company offers a variety of delivery options, including same-day or
next-day service throughout the world.
o Quality. High-quality products are critical to the Company's continued
brand strength and are integral to the brand loyalty that it has built
over the years. The Company offers its customers a 100% satisfaction
guarantee on all of its products.
o Delivery. The Company has developed a market-proven fulfillment
infrastructure that allows delivery on a same-day, next-day and
any-day basis. Key to the Company's fulfillment capability is an
innovative "hybrid" model which combines BloomNet (comprised of
independent florists operating retail flower shops and Local
Fulfillment or Design Centers ("LFC's"), Company-owned stores, LFC's,
and franchise stores), with its nine distribution centers located in
California, Illinois, New York, Ohio and Florida, and third-party
vendors who ship directly to the Company's customers. These
fulfillment points are connected by the Company's proprietary
"BloomLink(R)" communication system, a secure internet-based system
through which orders and related information are transmitted.
o Selection. Over the course of a year, the Company offers more than
2,600 varieties of fresh-cut flowers, floral arrangements and plants,
and more than 7,000 SKUs of gifts, gourmet foods and gift baskets,
cookies, chocolates and wines.
o Customer Service. The Company strives to ensure that customer service,
whether online, wireless, via the telephone, or in one of its retail
stores is of the highest caliber. The Company operates three customer
service facilities, and employs a network of home agents to provide
helpful assistance on everything from advice on product selection to
the monitoring of the fulfillment and delivery process.
As a result of the dramatic decline in the consumer economy, the Company has
intensified its focus on the three principals that it believes will enable the
Company to drive long-term profitable growth. These are:
o Know and take care of our customer by providing the right products and
the best services to help them express themselves and connect to the
important people in their lives. Although the Company believes it is
the leader in our industry at this, it knows it can and must get even
better.
o Maintain and enhance our financial strength and flexibility by
aggressively reducing our operating costs while strengthening our
balance sheet and adding flexibility to our capital structure.
o Continue to innovate and invest for the future - in new technology
opportunities such as mobile ecommerce and social networking where the
Company launched pioneering applications during fiscal 2009; and in
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our brands and business areas that offer the highest returns and best
growth opportunities, such as BloomNet, where the Company continued to
grow our market share despite the weak economy, and our Gourmet Food
and Gift Baskets business with our upcoming launch of the new
1-800-Baskets.com brand.
As part of the Company's continuing effort to serve the thoughtful gifting needs
of its customers, and leverage its business platform, where appropriate, the
Company intends to expand the breadth of the 1-800-Flowers.com brand. The
Company intends to accomplish this through organic growth, and where
appropriate, through acquisition of complementary businesses. In keeping with
this strategy, in March 2009, the Company purchased selected assets of Geerlings
& Wade, Inc., a retailer of wine and related products. In July 2008, the Company
acquired selected assets of Napco Marketing Corp., a wholesale merchandiser and
marketer of products designed primarily for the floral industry, and will
complement the product line already offered by BloomNet. In April 2008, the
Company acquired DesignPac Gifts, LLC, a designer, assembler and distributor of
gourmet gift baskets, gourmet food towers and gift sets, including a broad range
of branded and private label components. In May 2006, the Company acquired
Fannie May Confections Brands, Inc., a manufacturer and direct retailer of
premium chocolates and confections, through its Fannie May(R), Harry London(R)
and Fanny Farmer(R) brands. In March 2005, the Company acquired Cheryl & Co., a
manufacturer and direct marketer of premium cookies and related baked gift
items, and, in November 2004, The Winetasting Network, a distributor and
direct-to-consumer marketer of wine and the acquisition of Geerlings & Wade, a
marketer of wine. These acquisitions have enabled the Company to more fully
develop its gourmet food and gift baskets product line, which the Company has
identified as having significant revenue and earnings growth potential. As a
complement to the Company's own brands and product lines, the Company has formed
strategic relationships, including Martha Stewart for 1-800-FLOWERS.COM, a
co-branded line of fresh, seasonal flower arrangements and plants which was
launched during the latter part of fiscal 2008, as well as with Lenox(R),
Waterford(R), Godiva(R) and Junior's Cheesecake(R). The Company also continues
to develop signature products with renowned floral artisans and celebrity chefs
in order to provide its customers with differentiated products and further its
position as a destination for all of their gifting needs.
Business Category Reorganization
The Company has segmented its organization to improve execution and customer
focus and to align its resources to meet the demands of the markets it serves.
Management reviews the results of the Company's operations by evaluating the
following three business categories: Consumer Floral, Gourmet Food and Gift
Baskets, and BloomNet Wire Service business. The Consumer Floral business
category includes the operations of the Company's flagship brand,
1-800-Flowers.com, while the Gourmet Food and Gift Baskets category includes the
operations of Fannie May Confections Brands, Cheryl & Co., The Popcorn Factory,
The Winetasting Network, Geerlings & Wade and DesignPac. The BloomNet Wire
Service includes the operations of BloomNet, BloomNet Technologies, and
Napco.(Refer to Note 14, Business Segments included within Part II, Item 8:
Financial Statements and Supplementary Data.)
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. Consequently, the Company has classified the results of operations
of its Home & Children's Gifts segment, which includes home decor and children's
gifts from Plow & Hearth, Wind & Weather, HearthSong and Magic Cabin as
discontinued operations for all periods presented.
The Company's Products and Service Offerings
The Company offers a wide range of products including fresh-cut flowers, floral
arrangements and plants, gifts, popcorn, gourmet foods and gift baskets,
cookies, candy and wine. In order to maximize sales opportunities, products are
not exclusive to certain brands, and may be sold across business categories. In
addition to selecting its core products, the Company's merchandising team works
closely with manufacturers and suppliers to select and design products that meet
the seasonal, holiday and other special needs of its customers.
The Company's differentiated and value-added product offerings create the
opportunity to have a relationship with customers who purchase items not only
for gift-giving occasions but also for everyday consumption. The Company's
merchandising team works closely with manufacturers and suppliers to select and
design its floral, gourmet foods and gift baskets, as well as other gift-related
products that accommodate our customers' needs to celebrate a special occasion,
convey a sentiment or cater to a casual lifestyle. As part of this continuing
effort, the Company intends to continue to develop differentiated products and
signature collections that our customers have embraced and come to expect from
us, while we eliminate marginal performers from our product offerings.
3
The Company's product selection consists of:
Flowers & Plants. The Company offers fresh-cut flowers and floral arrangements
for all occasions and holidays, available for same-day delivery. The Company
provides its customers with a choice of florist designed products, flowers
delivered through its Fresh From Our Growers(R) program, and unique floral
creations from Julie McCann Mulligan or a variety of specially designed products
from the Company's exclusive Martha Stewart for 1-800-Flowers.com(TM)
collection. The Company also offers a wide variety of popular plants to brighten
the home and/or office, and accent gardens and landscapes.
Gourmet Foods and Gift Baskets. The Company manufactures premium cookies and
baked gift items from Cheryl & Co., which are delivered in beautiful and
innovative gift baskets and containers, providing customers with a variety of
assortments to choose from. The Popcorn Factory brand pops premium popcorn and
specialty snack products, while Fannie May Confections Brands manufactures
premium chocolate and candy under the Fannie May, Harry London and various
private label brand names. Additionally, through The Winetasting Network, the
Company offers its customers an array of different wines from around the world.
Currently, restrictions exist in many states regarding interstate shipment of
wine. As such, these items are only available in selected states. Many of the
Company's gourmet products are packaged in seasonal, occasion specific or
decorative tins, fitting the "giftable" requirement of our individual customers,
while also adding the capability to customize the tins with corporate logos and
other personalized features for the Company's corporate customers' gifting
needs. In fiscal 2010, the Company expects to launch its 1-800-Baskets brand
featuring gourmet and gift baskets confected by the Company's DesignPac brand.
BloomNet Products and Services
The Company's BloomNet business provides its members with products and services,
including: (i) clearinghouse services, consisting of the settlement of orders
between sending florists (including the 1-800-Flowers.com brand) and receiving
florists, (ii) advertising, in the form of member directories, including the
industry's first on-line directory, (iii) communication services, by which
BloomNet florists are able to send and receive orders and communicate between
members, using Bloomlink(R), the Company's proprietary electronic communication
system, (iv) other services including web hosting and point of sale, and (v)
wholesale products, which consist of branded and non-branded floral supplies,
enabling member florists to reduce their costs through 1-800-Flowers purchasing
leverage, while also ensuring that member florists will be able to fulfill
1-800-Flowers.com brand orders based on recipe specifications. In order to
further enhance the wholesale capability of BloomNet, in July 2008, the Company
acquired selected assets of Napco Marketing Corp., a wholesale merchandiser and
marketer of products designed primarily for the floral industry. While
maintaining industry-high quality standards for its 1-800-Flowers.com brand
customers, the Company offers florists a compelling value proposition, offering
products and services that its florists need to grow their business and to
enhance profitability.
Marketing and Promotion
The Company's marketing and promotion strategy is designed to strengthen the
1-800-FLOWERS.COM brands, increase customer acquisition, build customer loyalty,
and encourage repeat purchases. The Company's goal is to make its brands
synonymous with thoughtful gifting. To do this, the Company intends to invest in
its brands and acquisition of new customers through the use of selective on and
off-line media, direct marketing, public relations and strategic internet
relationships, while cost-effectively capitalizing on the Company's large and
loyal customer base.
Enhance its Customer Relationships. The Company intends to deepen its
relationship with its customers and be their trusted resource to fulfill their
need for quality, tasteful gifts. We plan to encourage more frequent and
extensive use of our branded web sites, by continuing to provide product-related
content and interactive features which will enable the Company to reach its
customers during non-holiday periods, thereby increasing everyday purchases for
birthdays, anniversaries, weddings, and sympathy. Through customer panel
research, the 1-800-Flowers.com brand recently introduced a number of new
signature products designed to increase everyday purchases. From its exclusive
Martha Stewart for 1-800-FLOWERS.COM(TM) collection, a co-branded line of unique
and sophisticated seasonal flower arrangements and plants which was launched
during the latter part of fiscal 2008, to the successful introduction of
"Cupcake in Bloom(TM)", a non-edible, cupcake-shaped arrangement of fresh
carnations through the 1-800-Flowers Brand, modeled after our delicious
signature buttercream cupcakes offered by Cheryl & Co., the Company's marketing
and product offerings continue to evolve to meet consumer needs. As of June 28,
2009, the Company's total database of unique customers numbered approximately
31.1 million (11.8 million of which have transacted business with the Company
within the past 36 months).
In order to attract new customers and to increase purchase frequency and average
order value of existing customers, the Company markets and promotes its brands
and products as follows:
4
Strategic Online Relationships. The Company promotes its products through
strategic relationships with leading internet portals, search engines and online
networks. The Company's online relationships include, among others, AOL, Yahoo!,
Microsoft, and Google.
Affiliate and Co-Marketing Promotions. In addition to securing alliances with
frequently visited web sites, the Company developed an affiliate network that
includes thousands of web sites operated by third parties. Affiliate
participation may be terminated by them or by the Company at any time. These web
sites earn commissions on purchases made by customers referred from their sites
to the Company's web site. In order to expand the reach of its marketing
programs and stretch its marketing dollars, the Company has established a number
of co-marketing relationships and promotions to advertise its products.
E-mails. The Company is able to capitalize on its customer database of
approximately 31.1 million unique customers (11.8 million of which have
transacted business with the Company within the past 36 months), 19.2 million of
which have transacted business with the Company on-line (8.5 million of which
have transacted business with the Company online within the past 36 months), by
utilizing cost-effective, targeted e-mails to notify customers of product
promotions, remind them of upcoming gifting occasions and convey other marketing
messages.
Direct Mail and Catalogs. The Company uses its direct mail promotions and
catalogs to increase the number of new customers and to increase purchase
frequency of its existing customers. Through the use of catalogs, the Company
can utilize its extensive customer database to effectively cross-promote its
products. In addition to providing a direct sale mechanism, these catalogs drive
on-line sales and will attract additional customers to the Company's web sites.
For the year ended June 28, 2009, the Company mailed in excess of 33 million
branded catalogs (excluding catalogs from the Home & Childens' Gifts brands).
Off-line Media. The Company utilizes off-line media, including television, radio
and print to market its brands and products. Off-line media allows the Company
to reach a large number of customers and to target particular market segments.
The Company's Web Sites
The Company offers floral, plant, gift baskets, gourmet foods, chocolate and
candies, plush and specialty gift products through its 1-800-FLOWERS.COM web
site (www.1800flowers.com). Customers can come to the web site directly or be
linked by one of the Company's portal providers, search engine, or affiliate
relationships. These include AOL (keyword:flowers), Yahoo!, Microsoft and
Google, as well as thousands of its online affiliate program members. The
Company also offers premium chocolates and confections from Fannie May
Confections Brands, (www.fanniemay.com and www.harrylondon.com), gourmet food
products through 1-800-BASKETS.COM(R) (www.1800baskets.com), premium popcorn and
specialty food products through The Popcorn Factory (www.thepopcornfactory.com),
exceptional baked cookies and baked gifts from Cheryl&Co. (www.cherylandco.com),
and wine gifts from The Winetasting Network (www.ambrosiawine.com,
www.winetasting.com and www.geerwade.com) web sites. Greater than 71% of online
revenues are derived from traffic coming directly to one of the Company's
Universal Resource Locators ("URL's").
The Company's web sites allow customers to easily browse and purchase its
products, promote brand loyalty and encourage repeat purchases by providing an
inviting customer experience. The Company's web sites offer customers detailed
product information, complete with photographs, personalized shopping services,
including search and order tracking, contests, sweepstakes, gift-giving
suggestions and reminder programs, home decorating and how-to-tips and
information about special events and offers. The Company has designed its web
sites to be fast, secure and easy to use and allows customers to order products
with minimal effort. The Company's web sites include the following key features
in addition to the variety of delivery and shipping options (same day/next day)
and 24 hour/7 day customer service that are available to all its customers:
Technology Infrastructure
The Company believes it has been and continues to be a leader in implementing
new technologies and systems to give its customers the best possible shopping
experience, whether online or over the telephone. Through the use of customized
software applications, the Company is able to retrieve, sort and analyze
customer information to enable it to better serve its customers and target its
product offerings. The Company's online and telephonic orders are fed directly
from the Company's secure web sites, or with the assistance of a gift advisor,
into a transaction processing system which captures the required customer and
recipient information. The system then routes the order to the appropriate
Company warehouse, or for florist fulfilled or drop-shipped items, selects a
5
vendor to fulfill the customer's order and electronically transmits the
necessary information using BloomLink(R), the Company's proprietary
communication system, assuring timely delivery. In addition, the Company's gift
advisors have electronic access to this system, enabling them to assist in order
fulfillment and subsequently track other customer and/or order information.
The Company's technology infrastructure, primarily consisting of the Company's
web sites, transaction processing, manufacturing and warehouse management,
customer databases and telecommunications systems, is built and maintained for
reliability, security, scalability and flexibility. To minimize the risk of
service interruptions from unexpected component or telecommunications failure,
maintenance and upgrades, the Company has built full back-up and system
redundancies into those components of its systems that have been identified as
critical.
Fulfillment and Manufacturing Operations
The Company's customers primarily place their orders either online or over the
telephone. The Company's development of a hybrid fulfillment system which
enables the Company to offer same-day, next-day and any-day delivery, combines
the use of BloomNet (comprised of independent florists operating retail flower
shops and LFC's, Company-owned stores, LFC's, and franchise stores), with the
Company-owned distribution centers and brand-name vendors who ship directly to
the Company's customers. While providing a significant competitive advantage in
terms of delivery options, the Company's fulfillment system also has the added
benefit of reducing the Company's capital investments in inventory and
infrastructure. All of the Company's products are backed by a 100% satisfaction
guarantee, and the Company's business is not dependent on any single third-party
supplier.
To ensure reliable and efficient communication of online and telephonic orders
to its BloomNet members and third party gift vendors, the Company developed
BloomLink(R), a proprietary and secure internet-based communications system
which is available to all BloomNet members and third-party gift vendors. The
Company also has the ability to arrange for international delivery of floral
products through independent wire services and direct relationships.
Fulfillment and manufacturing of products is as follows:
Flowers and Plants. A majority of the Company's floral orders are fulfilled by
one of the Company's BloomNet members, allowing the Company to deliver its
floral products on a same-day or next-day basis to ensure freshness and to meet
its customers' need for immediate gifting. In addition, the Company is better
positioned to ensure consistent product quality and presentation and offer a
greater variety of arrangements, which creates a better experience for its
customers and gift recipients. The Company selects retail florists for BloomNet
based upon the florist's design staff, facilities, quality of floral processing,
and delivery capabilities and allocates orders to members within a geographical
area based on historical performance of the florist in fulfilling orders, and
the number of BloomNet florists currently serving the area. The Company
regularly monitors BloomNet florists' performance and adherence to the Company's
quality standards to ensure proper fulfillment.
The Company's relationships with its BloomNet members are non-exclusive. Many
florists, including many BloomNet florists, also are members of other floral
fulfillment organizations. The BloomNet agreements generally are cancelable by
either party with ten days notification and do not guarantee any orders, dollar
amounts or exclusive territories from the Company to the florist. In certain
instances, the Company is required to fulfill orders through non-BloomNet
members, and transmits these orders to the fulfilling florist using the
communication system of an independent wire service or via telephone.
In addition to its florist designed product, the Company offers its customers an
alternative to florist designed products through its Fresh From Our Growers(R)
program, and by providing for a full array of products from bouquets to unique
floral arrangements designed by in-house expert Julie McCann Mulligan or from
its exclusive Martha Stewart for 1-800-FLOWERS.COM(TM) collection.
As of June 28, 2009, the Company operates 2 floral retail stores located in New
York and 1 fulfillment center. In addition, the Company has 104 franchised
stores, located primarily in California, Colorado, Florida, New Jersey, New York
and Texas. Company-owned stores serve as local points of fulfillment and enable
the Company to test new products and marketing programs.
Gourmet Foods and Gift Baskets. In order to take advantage of improved margins,
better control quality and to offer premium branded signature products in the
Gourmet Food and Gift Baskets product category, the Company has acquired several
gourmet food retailers with manufacturing operations. The Company's premium
chocolates are manufactured and distributed from its 200,000 square foot
6
production facility in Akron, Ohio, and the Company's cookie and baked gifts are
fulfilled from its 176,000 square foot baking and distribution center in Obetz,
Ohio, while its premium popcorn and related snack products are shipped from the
Company's 148,000 square foot manufacturing and distribution center located in
Lake Forest, Illinois. The Company's wine gift and fulfillment services are
provided through the Company's 52,000 square foot fulfillment center in Napa,
California and 42,000 square foot fulfillment center in Albany, New York. Gift
basket confection and fulfillment for both wholesale and 1-800-Baskets is
handled by DesignPac Gifts LLC, through its 249,000 square foot distribution
center located in Melrose Park, IL.
Seasonality
The Company's quarterly results may experience seasonal fluctuations. Due to the
Company's expansion into non-floral products, the Thanksgiving through Christmas
holiday season, which falls within the Company's second fiscal quarter,
generates the highest proportion of the Company's annual revenues. In addition,
as the result of a number of major floral gifting occasions, including Mother's
Day and Administrative Professionals Week, revenues also rise during the
Company's fiscal fourth quarter. Finally, results during the Company's fiscal
first quarter are negatively impacted by the lack of major gift-giving holidays,
and the disproportionate amount of overhead incurred during this slow period.
The Company's fiscal second quarter, its largest in terms of revenues, is
expected to account for approximately 34-36% of sales, followed by its fiscal
fourth quarter, which is expected to account for 25-27% of sales. The Company's
fiscal third quarter is expected to account for approximately 23-25% of sales,
while the Company's fiscal first quarter is expected to account for
approximately 15-17% of sales.
Accordingly, a disproportionate amount of operating cash flows are generated in
the Company's fiscal second and fourth quarters. In preparation for the
Company's second quarter holiday season, the Company significantly increases its
inventories, and therefore, corresponding cash requirements, which traditionally
have been financed by cash flows from operations and bank lines of credit, are
highest during the latter part of the Company's fiscal first quarter, peaking
within its second fiscal quarter. The Company has historically repaid all
revolving bank lines of credit with cash generated from operations, prior to the
end of the Company's fiscal second quarter.
Competition
The growing popularity and convenience of e-commerce has continued to give rise
to established businesses on the Internet. In addition to selling their products
over the Internet, many of these retailers sell their products through a
combination of channels by maintaining a web site, a toll-free phone number and
physical locations. Additionally, several of these merchants offer an expanding
variety of products and some are attracting an increasing number of customers.
Certain mass merchants have expanded their offerings to include competing
products and may continue to do so in the future. These mass merchants, as well
as other potential competitors, may be able to:
o undertake more extensive marketing campaigns for their brands and
services;
o adopt more aggressive pricing policies; and
o make more attractive offers to potential employees, distributors and
retailers.
In addition, the Company faces intense competition in each of its individual
product categories. In the floral industry, there are various providers of
floral products, none of which is dominant in the industry. The Company's
competitors include:
o retail floral shops, some of which maintain toll-free telephone
numbers and web sites;
o online floral retailers;
o catalog companies that offer floral products;
o floral telemarketers and wire services; and
o supermarkets, mass merchants and specialty retailers with floral
departments.
Similarly, the plant, gift basket, gourmet foods and wine categories are highly
competitive. Each of these categories encompasses a wide range of products, is
highly fragmented and is served by a large number of companies, none of which is
dominant. Products in these categories may be purchased from a number of
outlets, including mass merchants, telemarketers, retail specialty shops, online
retailers and mail-order catalogs.
7
The Company believes the strength of its brands, product selection, customer
relationships, technology infrastructure and fulfillment capabilities position
it to compete effectively against its current and potential competitors in each
of its product categories. However, increased competition could result in:
o price reductions, decreased revenues and lower profit margins;
o loss of market share; and
o increased marketing expenditures.
These and other competitive factors may adversely impact the Company's business
and results of operations.
Government Regulation and Legal Uncertainties
The Internet continues to evolve and there are laws and regulations directly
applicable to e-commerce. Legislatures are also considering an increasing number
of laws and regulations pertaining to the Internet, including laws and
regulations addressing:
o user privacy;
o pricing;
o content;
o connectivity;
o intellectual property;
o distribution;
o taxation;
o liabilities;
o antitrust; and
o characteristics and quality of products and services.
Further, the growth and development of the market for online services may prompt
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business online. The adoption of any additional laws
or regulations may impair the growth of the Internet or commercial online
services. This could decrease the demand for the Company's services and increase
its cost of doing business. Moreover, the applicability to the Internet of
existing laws regarding issues like property ownership, taxes, libel and
personal privacy is uncertain. Any new legislation or regulation that has an
adverse impact on the Internet or the application of existing laws and
regulations to the Internet could have a material adverse effect on the
Company's business, financial condition and results of operations.
States or foreign countries might attempt to regulate the Company's business or
levy additional sales or other taxes relating to its activities. Because the
Company's products and services are available over the Internet anywhere in the
world, multiple jurisdictions may claim that the Company is required to do
business as a foreign corporation in one or more of those jurisdictions. Failure
to qualify as a foreign corporation in a jurisdiction where the Company is
required to do so could subject it to taxes and penalties. States or foreign
governments may charge the Company with violations of local laws.
Intellectual Property and Proprietary Rights
The Company regards its service marks, trademarks, trade secrets, domain names
and similar intellectual property as critical to its success. The Company has
applied for or received trademark and/or service mark registration for, among
others, "1-800-FLOWERS.COM", "1-800-FLOWERS", "1-800-Baskets", "Plow & Hearth",
"Wind & Weather", "GreatFood.com", "The Popcorn Factory", "TheGift.com",
"HearthSong", "Magic Cabin", "Winetasting Network", "Geerlings & Wade",
"Cheryl&Co.", "Celebrations", "DesignPac", "Napco", "Fannie May" and "Harry
London". The Company also has rights to numerous domain names, including
www.1800flowers.com, www.800flowers.com, www.1800baskets.com, www.flowers.com,
www.plowandhearth.com, www.windandweather.com, www.greatfood.com,
www.thepopcornfactory.com, www.hearthsong.com, www.magiccabin.com,
www.ambrosiawine.com, www.winetasting.com, www.cherylandco.com,
www.fanniemay.com, www.harrylondon.com, www.geerwade.com, www.celebrations.com,
and www.designpac.com. In addition, the Company has developed transaction
processing and operating systems as well as marketing data, and customer and
recipient information databases.
The Company relies on trademark, unfair competition and copyright law, trade
secret protection and contracts such as confidentiality and license agreements
with its employees, customers, vendors and others to protect its proprietary
rights. Despite the Company's precautions, it may be possible for competitors to
obtain and/or use the Company's proprietary information without authorization or
to develop technologies similar to the Company's and independently create a
similarly functioning infrastructure. Furthermore, the protection of proprietary
8
rights in Internet-related industries is uncertain and still evolving. The laws
of some foreign countries do not protect proprietary rights to the same extent
as do the laws of the United States. The Company's means of protecting its
proprietary rights in the United States or abroad may not be adequate.
The Company intends to continue to license technology from third parties,
including Oracle, Microsoft, IBM, Verizon and AT&T, for its communications
technology and the software that underlies its business systems. The market is
evolving and the Company may need to license additional technologies to remain
competitive. The Company may not be able to license these technologies on
commercially reasonable terms or at all.
Third parties have in the past infringed or misappropriated the Company's
intellectual property or similar proprietary rights. The Company believes
infringements and misappropriations will continue to occur in the future. The
Company intends to police against infringement and misappropriation. However,
the Company cannot guarantee it will be able to enforce its rights and enjoin
the alleged infringers from their use of confusingly similar trademarks, service
marks, telephone numbers and domain names.
In addition, third parties may assert infringement claims against the Company.
The Company cannot be certain that its technologies or its products and services
do not infringe valid patents, trademarks, copyrights or other proprietary
rights held by third parties. The Company may be subject to legal proceedings
and claims from time to time relating to its intellectual property and the
intellectual property of others in the ordinary course of its business.
Intellectual property litigation is expensive and time-consuming and could
divert management resources away from running the Company's business.
Employees
As of June 28, 2009, the Company had a total of approximately 2,300 full and
part-time employees. During peak periods, the Company substantially increases
the number of customer service, manufacturing and retail and fulfillment
personnel. The Company's personnel are not represented under collective
bargaining agreements and the Company considers its relations with its employees
to be good.
Item 1A. Risk Factors
Cautionary Statements Under the Private Securities Litigation Reform Act of 1995
Our disclosures and analysis in this Form 10-K contain some forward-looking
statements that set forth anticipated results based on management's plans and
assumptions. From time to time, we also provide forward-looking statements in
other statements we release to the public as well as oral forward-looking
statements. Such statements give our current expectations or forecasts of future
events; they do not relate strictly to historical or current facts. We have
tried, wherever possible, to identify such statements by using words such as
"anticipate," "estimate," "expect," "project," "intend," "plan, "believe" and
similar expressions in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to
future actions; the effectiveness of our marketing programs; the performance of
our existing products and services; our ability to attract and retain customers
and expand our customer base; our ability to enter into or renew online
marketing agreements; our ability to respond to competitive pressures; expenses,
including shipping costs and the costs of marketing our current and future
products and services; the outcome of contingencies, including legal proceedings
in the normal course of business; and our ability to integrate acquisitions.
We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risk, uncertainties and potentially
inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results
could differ materially from past results and those anticipated, estimated or
projected. You should bear this in mind as you consider forward looking
statements.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our 10-Q and 8-K reports to the SEC. Also note we provide the following
cautionary discussion of risks, uncertainties and possibly inaccurate
assumptions relevant to our business. These are factors that, individually or in
the aggregate, we think could cause our actual results to differ materially from
9
expected and historical results. We note these factors for investors as
permitted by the Private Securities Litigation Reform Act of 1995. You should
understand that it is not possible to predict or identify all such factors.
Consequently, you should not consider the following to be a complete discussion
of all potential risks and uncertainties.
The financial and credit markets have been and continue to experience
unprecedented disruption, which may have an adverse effect on our customers'
spending patterns and in turn our business, financial condition and results of
operations. Consumer spending patterns are difficult to predict and are
sensitive to the general economic climate, the consumer's level of disposable
income, consumer debt, and overall consumer confidence. The ongoing global
financial crisis affecting the banking system and financial markets has resulted
in a low level of consumer confidence. During fiscal 2009, the volatility and
disruption in the financial markets have reached unprecedented levels. This
financial crisis has impacted and may continue to impact our business in a
number of ways. Included among these current and potential future negative
impacts are reduced demand and lower prices for our products and services.
Declines in consumer spending has reduced, during our fiscal 2009, and may
continue to reduce our revenues, gross margins and earnings. We are currently
operating in challenging macroeconomic conditions, which may continue during
fiscal 2010.
The Company's operating results may fluctuate, and this fluctuation could cause
financial results to be below expectations. The Company's operating results may
fluctuate from period to period for a number of reasons. In budgeting the
Company's operating expenses for the foreseeable future, the Company makes
assumptions regarding revenue trends; however, some of the Company's operating
expenses are fixed in the short term. Sales of the Company's products are
seasonal, concentrated in the fourth calendar quarter, due to the Thanksgiving
and Christmas-time holidays, and the second calendar quarter, due to Mother's
Day and Administrative Professionals' Week. In anticipation of increased sales
activity during these periods, the Company hires a significant number of
temporary employees to supplement its permanent staff and the Company increases
its inventory levels. If revenues during these periods do not meet the Company's
expectations, it may not generate sufficient revenue to offset these increased
costs and its operating results may suffer.
The Company's quarterly operating results may significantly fluctuate and you
should not rely on them as an indication of its future results. The Company's
future revenues and results of operations may significantly fluctuate due to a
combination of factors, many of which are outside of management's control. The
most important of these factors include:
o seasonality;
o the retail economy;
o the timing and effectiveness of marketing programs;
o the timing of the introduction of new products and services;
o the Company's ability to find and maintain reliable sources for
certain of its products;
o the timing and effectiveness of capital expenditures;
o the Company's ability to enter into or renew online marketing
agreements; and
o competition.
The Company may be unable to reduce operating expenses quickly enough to offset
any unexpected revenue shortfall. If the Company has a shortfall in revenue
without a corresponding reduction to its expenses, operating results may suffer.
The Company's operating results for any particular quarter may not be indicative
of future operating results. You should not rely on quarter-to-quarter
comparisons of results of operations as an indication of the Company's future
performance. It is possible that results of operations may be below the
expectations of public market analysts and investors, which could cause the
trading price of the Company's Class A common stock to fall.
Consumer spending on flowers, gifts and other products sold by the Company may
vary with general economic conditions. If general economic conditions continue
to deteriorate and the Company's customers have less disposable income,
consumers may spend less on its products and its quarterly operating results may
suffer.
During peak periods, the Company utilizes temporary employees and outsourced
staff, who may not be as well-trained or committed to its customers as its
permanent employees, and if they fail to provide the Company's customers with
high quality customer service the customers may not return, which could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows. The Company depends on its customer service
department to respond to its customers should they have questions or problems
with their orders. During peak periods, the Company relies on its permanent
employees, as well as temporary employees and outsourced staff to respond to
customer inquiries. These temporary employees and outsourced staff may not have
the same level of commitment to the Company's customers or be as well trained as
its permanent employees. If the Company's customers are dissatisfied with the
quality of the customer service they receive, they may not shop with the Company
again, which could have a material adverse effect on its business, financial
condition, results of operations and cash flows.
10
If the Company's customers do not find its expanded product lines appealing,
revenues may not grow and net income may decrease. The Company's business
historically has focused on offering floral and floral-related gift products.
Although the Company has been successful in its expanded product lines including
plants, gift baskets, popcorn, gourmet food and wine and unique or specialty
gifts, it expects to continue to incur significant costs in marketing these
products. If the Company's customers do not continue to find its product lines
appealing, the Company may not generate sufficient revenue to offset its related
costs and its results of operations may be negatively impacted.
If the Company fails to develop and maintain its brands, it may not increase or
maintain its customer base or its revenues. The Company must continue to develop
and maintain the 1-800-FLOWERS.COM brands to expand its customer base and its
revenues. In addition, the Company has introduced and acquired other brands in
the past, and may continue to do so in the future. The Company believes that the
importance of brand recognition will increase as it expands its product
offerings. Many of the Company's customers may not be aware of the Company's
non-floral products. If the Company fails to advertise and market its products
effectively, it may not succeed in establishing its brands and may lose
customers leading to a reduction of revenues.
The Company's success in promoting and enhancing the 1-800-FLOWERS.COM brands
will also depend on its success in providing its customers high-quality products
and a high level of customer service. If the Company's customers do not perceive
its products and services to be of high quality, the value of the
1-800-FLOWERS.COM brands would be diminished and the Company may lose customers
and its revenues may decline.
A failure to establish and maintain strategic online relationships that generate
a significant amount of traffic could limit the growth of the Company's
business. Although the Company expects a significant portion of its online
customers will continue to come directly to its website, it will also rely on
third party web sites, search engines and affililates with which the Company has
strategic relationships for traffic. If these third-parties do not attract a
significant number of visitors, the Company may not receive a significant number
of online customers from these relationships and its revenues from these
relationships may decrease or remain flat. There continues to be strong
competition to establish or maintain relationships with leading Internet
companies, and the Company may not successfully enter into additional
relationships, or renew existing ones beyond their current terms. The Company
may also be required to pay significant fees to maintain and expand existing
relationships. The Company's online revenues may suffer if it does not enter
into new relationships or maintain existing relationships or if these
relationships do not result in traffic sufficient to justify their costs.
If local florists and other third-party vendors do not fulfill orders to the
Company's customers' satisfaction, customers may not shop with the Company
again. In many cases, floral orders placed by the Company's customers are
fulfilled by local independent florists, a majority of which are members of
BloomNet. The Company does not directly control any of these florists. In
addition, many of the non-floral products sold by the Company are manufactured
and delivered to its customers by independent third-party vendors. If customers
are dissatisfied with the performance of the local florist or other third-party
vendors, they may not utilize the Company's services when placing future orders
and its revenues may decrease.
If a florist discontinues its relationship with the Company, the Company's
customers may experience delays in service or declines in quality and may not
shop with the Company again. Many of the Company's arrangements with local
florists for order fulfillment may be terminated by either party with 10 days
notice. If a florist discontinues its relationship with the Company, the Company
will be required to obtain a suitable replacement located in the same geographic
area, which may cause delays in delivery or a decline in quality, leading to
customer dissatisfaction and loss of customers.
If a significant number of customers are not satisfied with their purchase, the
Company will be required to incur substantial costs to issue refunds, credits or
replacement products. The Company offers its customers a 100% satisfaction
guarantee on its products. If customers are not satisfied with the products they
receive, the Company will either replace the product for the customer or issue
the customer a refund or credit. The Company's net income would decrease if a
significant number of customers request replacement products, refunds or credits
and the Company is unable to pass such costs onto the supplier.
Increased shipping costs and labor stoppages may adversely affect sales of the
Company's products. Many of the Company's products are delivered to customers
either directly from the manufacturer or from the Company's fulfillment centers
located in California, Illinois, New York, Ohio and Florida. The Company has
established relationships with Federal Express, UPS and other common carriers
for the delivery of these products. If these carriers were to increase the
prices they charge to ship the Company's goods, and the Company passes these
increases on to its customers, its customers might choose to buy comparable
products locally to avoid shipping charges. In addition, these carriers may
experience labor stoppages, which could impact the Company's ability to deliver
products on a timely basis to our customers and adversely affect its customer
relationships.
11
If the Company fails to continuously improve its web site, it may not attract or
retain customers. If potential or existing customers do not find the Company's
web site a convenient place to shop, the Company may not attract or retain
customers and its sales may suffer. To encourage the use of the Company's web
site, it must continuously improve its accessibility, content and ease of use.
Customer traffic and the Company's business would be adversely affected if
competitors' web sites are perceived as easier to use or better able to satisfy
customer needs.
Competition in the floral, plant, gift basket, gourmet food and wine, and
specialty gift industries is intense and a failure to respond to competitive
pressure could result in lost revenues. There are many companies that offer
products in these categories. In the floral category, the Company's competitors
include:
o retail floral shops, some of which maintain toll-free telephone
numbers, and web sites;
o online floral retailers;
o catalog companies that offer floral products;
o floral telemarketers and wire services; and
o supermarkets, mass merchants and specialty gift retailers with floral
departments.
Similarly, the plant, gift basket, gourmet food, cookie, candy, wine, and
specialty gift categories are highly competitive. Each of these categories
encompasses a wide range of products and is highly fragmented. Products in these
categories may be purchased from a number of outlets, including mass merchants,
retail shops, online retailers and mail-order catalogs.
Competition is intense and the Company expects it to increase. Increased
competition could result in:
o price reductions, decreased revenue and lower profit margins;
o loss of market share; and
o increased marketing expenditures.
These and other competitive factors could materially and adversely affect the
Company's results of operations.
If the Company does not accurately predict customer demand for its products, it
may lose customers or experience increased costs. In the past, the Company did
not need to maintain a significant inventory of products. However, as the
Company expands the volume of non-floral products offered to its customers, the
Company will be required to increase inventory levels and the number of products
maintained in its warehouses. If the Company overestimates customer demand for
its products, excess inventory and outdated merchandise could accumulate, tying
up working capital and potentially resulting in reduced warehouse capacity and
inventory losses due to damage, theft and obsolescence. If the Company
underestimates customer demand, it may disappoint customers who may turn to its
competitors. Moreover, the strength of the 1-800-FLOWERS.COM brands could be
diminished due to misjudgments in merchandise selection.
If the supply of flowers for sale becomes limited, the price of flowers could
rise or flowers may be unavailable and the Company's revenues and gross margins
could decline. A variety of factors affect the supply of flowers in the United
States and the price of the Company's floral products. If the supply of flowers
available for sale is limited due to weather conditions, farm closures, economic
conditions, or other factors, prices for flowers could rise and customer demand
for the Company's floral products may be reduced, causing revenues and gross
margins to decline. Alternatively, the Company may not be able to obtain high
quality flowers in an amount sufficient to meet customer demand. Even if
available, flowers from alternative sources may be of lesser quality and/or may
be more expensive than those currently offered by the Company.
Most of the flowers sold in the United States are grown by farmers located
abroad, primarily in Colombia, Ecuador and Holland, and the Company expects that
this will continue in the future. The availability and price of flowers could be
affected by a number of factors affecting these regions, including:
o import duties and quotas;
o agricultural limitations and restrictions to manage pests and disease;
o changes in trading status;
o economic uncertainties and currency fluctuations;
o severe weather;
o work stoppages;
12
o foreign government regulations and political unrest; and
o trade restrictions, including United States retaliation against
foreign trade practices.
The Company's franchisees may damage its brands or increase its costs by failing
to comply with its franchise agreements or its operating standards. The
Company's franchise business is governed by its Uniform Franchise Offering
Circulars, franchise agreements and applicable franchise law. If the Company's
franchisees do not comply with its established operating standards or the terms
of the franchise agreements, the 1-800-FLOWERS.COM brands may be damaged. The
Company may incur significant additional costs, including time-consuming and
expensive litigation, to enforce its rights under the franchise agreements.
Additionally, the Company is the primary tenant on certain leases, which the
franchisees sublease from the Company. If a franchisee fails to meet its
obligations as subtenant, the Company could incur significant costs to avoid
default under the primary lease. Furthermore, as a franchiser, the Company has
obligations to its franchisees. Franchisees may challenge the performance of the
Company's obligations under the franchise agreements and subject it to costs in
defending these claims and, if the claims are successful, costs in connection
with their compliance.
If third parties acquire rights to use similar domain names or phone numbers or
if the Company loses the right to use its phone numbers, its brands may be
damaged and it may lose sales. The Company's Internet domain names are an
important aspect of its brand recognition. The Company cannot practically
acquire rights to all domain names similar to www.1800flowers.com, or its other
brands, whether under existing top level domains or those issued in the future.
If third parties obtain rights to similar domain names, these third parties may
confuse the Company's customers and cause its customers to inadvertently place
orders with these third parties, which could result in lost sales and could
damage its brands.
Likewise, the phone number that spells 1-800-FLOWERS is important to the
Company's brand and its business. While the Company has obtained the right to
use the phone numbers 1-800-FLOWERS, 1-888-FLOWERS and 1-877-FLOWERS, as well as
common toll-free "FLOWERS" misdials, it may not be able to obtain rights to use
the FLOWERS phone number as new toll-free prefixes are issued, or the rights to
all similar and potentially confusing numbers. If third parties obtain the phone
number which spells "FLOWERS" with a different prefix or a toll-free number
similar to FLOWERS, these parties may also confuse the Company's customers and
cause lost sales and potential damage to its brands. In addition, under
applicable FCC rules, ownership rights to phone numbers cannot be acquired.
Accordingly, the FCC may rescind the Company's right to use any of its phone
numbers, including 1-800-FLOWERS (1-800-356-9377).
A lack of security over the Internet may cause Internet usage to decline and
cause the Company to expend capital and resources to protect against security
breaches. A significant barrier to electronic commerce over the Internet has
been the need for secure transmission of confidential information and
transaction information. Internet usage could decline if any well-publicized
compromise of security occurred. Additionally, computer "viruses" may cause the
Company's systems to incur delays or experience other service interruptions.
Such interruptions may materially impact the Company's ability to operate its
business. If a computer virus affecting the Internet in general is highly
publicized or particularly damaging, the Company's customers may not use the
Internet or may be prevented from using the Internet, which would have an
adverse effect on its revenues. As a result, the Company may be required to
expend capital and resources to protect against or to alleviate these problems.
The Company's business could be injured by significant credit card, debit card
and gift card fraud. Customers typically pay for their on-line or telephone
orders with debit or credit cards as well as a portion of their orders using
gift cards. The Company's revenues and gross margins could decrease if it
experienced significant credit card, debit card and gift card fraud. Failure to
adequately detect and avoid fraudulent credit card, debit card and gift card
transactions could cause the Company to lose its ability to accept credit cards
or debit cards as forms of payment and/or result in charge-backs of the
fraudulently charged amounts and/or significantly decrease revenues.
Furthermore, widespread credit card, debit card and gift card fraud may lessen
the Company's customers' willingness to purchase products through the Company's
web sites or toll-free telephone numbers. For this reason, such failure could
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
Unexpected system interruptions caused by system failures may result in reduced
revenues and harm to the Company's brand. In the past, particularly during peak
holiday periods, the Company has experienced significant increases in traffic on
its web site and in its toll-free customer service centers. The Company's
operations are dependent on its ability to maintain its computer and
telecommunications systems in effective working order and to protect its systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. The Company's systems have in the past, and may in
the future, experience:
13
o system interruptions;
o long response times; and
o degradation in service.
The Company's business depends on customers making purchases on its systems. Its
revenues may decrease and its reputation could be harmed if it experiences
frequent or long system delays or interruptions or if a disruption occurs during
a peak holiday season.
If AT&T and Verizon do not adequately maintain the Company's telephone service,
the Company may experience system failures and its revenues may decrease. The
Company is dependent on AT&T and Verizon to provide telephone services to its
customer service centers. Although the Company maintains redundant
telecommunications systems, if AT&T and Verizon experience system failures or
fail to adequately maintain the Company's systems, the Company may experience
interruptions and its customers might not continue to utilize its services. If
the Company loses its telephone service, it will be unable to generate revenue.
The Company's future success depends upon these third-party relationships
because it does not have the resources to maintain its telephone service without
these or other third parties. Failure to maintain these relationships or replace
them on financially attractive terms may disrupt the Company's operations or
require it to incur significant unanticipated costs.
Interruptions in Teleflora's Dove System or a reduction in the Company's access
to this system may disrupt order fulfillment and create customer
dissatisfaction. A minimal portion of the Company's customers' orders are
communicated to the fulfilling florist through a third party system. This system
is an order processing and messaging network used to facilitate the transmission
of floral orders between florists. If this system experiences interruptions in
the future, the Company could experience difficulties in fulfilling some of its
customers' orders and those customers might not continue to shop with the
Company.
The Company's operating results may suffer due to economic, political and social
unrest or disturbances. Like other American businesses, the Company is unable to
predict what long-term effect acts of terrorism, war, or similar unforeseen
events may have on its business. The Company's results of operations and
financial condition could be adversely impacted if such events cause an economic
slowdown in the United States, or other negative effects that cannot now be
anticipated.
If the Company is unable to hire and retain key personnel, its business may
suffer. The Company's success is dependent on its ability to hire, retain and
motivate highly qualified personnel. In particular, the Company's success
depends on the continued efforts of its Chairman and Chief Executive Officer,
James F. McCann, and its President, Christopher G. McCann, as well as its senior
management team which help manage its business. The loss of the services of any
of the Company's executive management or key personnel or its inability to
attract qualified additional personnel could cause its business to suffer and
force it to expend time and resources in locating and training additional
personnel.
Many governmental regulations may impact the Internet, which could affect the
Company's ability to conduct business. Any new law or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet or the Company's web site. The Company expects there will be
an increasing number of laws and regulations pertaining to the Internet in the
United States and throughout the world. These laws or regulations may relate to
liability for information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and services
sold over the Internet. Moreover, the applicability to the Internet of existing
laws governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal privacy and
other issues is uncertain and developing. This could decrease the demand for the
Company's products, increase its costs or otherwise adversely affect its
business.
Regulations imposed by the Federal Trade Commission may adversely affect the
growth of the Company's Internet business or its marketing efforts. The Federal
Trade Commission has proposed regulations regarding the collection and use of
personal identifying information obtained from individuals when accessing web
sites, with particular emphasis on access by minors. These regulations may
include requirements that the Company establish procedures to disclose and
notify users of privacy and security policies, obtain consent from users for
collection and use of information and provide users with the ability to access,
correct and delete personal information stored by the Company. These regulations
may also include enforcement and redress provisions. Moreover, even in the
absence of those regulations, the Federal Trade Commission has begun
investigations into the privacy practices of other companies that collect
information on the Internet. One investigation resulted in a consent decree
under which an Internet company agreed to establish programs to implement the
principles noted above. The Company may become a party to a similar
investigation, or the Federal Trade Commission's regulatory and enforcement
efforts, or those of other governmental bodies, may adversely affect its ability
to collect demographic and personal information from users, which could
adversely affect its marketing efforts.
14
Unauthorized use of the Company's intellectual property by third parties may
damage its brands. Unauthorized use of the Company's intellectual property by
third parties may damage its brands and its reputation and may likely result in
a loss of customers. It may be possible for third parties to obtain and use the
Company's intellectual property without authorization. Third parties have in the
past infringed or misappropriated the Company's intellectual property or similar
proprietary rights. The Company believes infringements and misappropriations
will continue to occur in the future. Furthermore, the validity, enforceability
and scope of protection of intellectual property in Internet-related industries
is uncertain and still evolving. The Company has been unable to register certain
of its intellectual property in some foreign countries and furthermore, the laws
of some foreign countries are uncertain or do not protect intellectual property
rights to the same extent as do the laws of the United States.
Defending against intellectual property infringement claims could be expensive
and, if the Company is not successful, could disrupt its ability to conduct
business. The Company has been unable to register certain of its intellectual
properties in some foreign countries, including, "1-800-Flowers.com",
"1-800-Flowers" and "800-Flowers". The Company cannot be certain that the
products it sells, or services it offers, do not or will not infringe valid
patents, trademarks, copyrights or other intellectual property rights held by
third parties. The Company may be a party to legal proceedings and claims
relating to the intellectual property of others from time to time in the
ordinary course of its business. The Company may incur substantial expense in
defending against these third-party infringement claims, regardless of their
merit. Successful infringement claims against the Company may result in
substantial monetary liability or may materially disrupt its ability to conduct
business.
The Company may lose sales or incur significant expenses should states be
successful in imposing broader guidelines to state sales and use taxes. In
addition to the Company's retail store operations, the Company collects sales or
other similar taxes in states where the Company's ecommerce channel has
applicable nexus. Our customer service and fulfillment networks, and any further
expansion of those networks, along with other aspects of our evolving business,
may result in additional sales and use tax obligations. A successful assertion
by one or more states that we should collect sales or other taxes on the sale of
merchandise could result in substantial tax liabilities for past sales, decrease
our ability to compete with traditional retailers, and otherwise harm our
business.
Currently, decisions of the U.S. Supreme Court restrict the imposition of
obligations to collect state and local sales and use taxes with respect to sales
made over the Internet. However, a number of states, as well as the U.S.
Congress, have been considering and/or implementing various initiatives that
could limit or supersede the Supreme Court's position regarding sales and use
taxes on Internet sales. If any of these initiatives addressed the Supreme
Court's constitutional concerns and resulted in a reversal of its current
position, we could be required to collect additional sales and use taxes. The
imposition by state and local governments of various taxes upon Internet
commerce could create administrative burdens for us and could decrease our
future sales.
A failure to integrate our acquisitions may cause the results of the acquired
company, as well as the results of the Company to suffer. The Company has
opportunistically acquired a number of companies over the past several years.
Additionally the Company may look to acquire additional companies in the future.
As part of the acquisition process, the Company embarks upon a project
management effort to integrate the acquisition onto our information technology
systems and management processes. If we are unsuccessful in integrating our
acquisitions, the results of our acquisitions may suffer, management may have to
divert valuable resources to oversee and manage the acquisitions, the Company
may have to expend additional investments in the acquired company to upgrade
personnel and/or information technology systems and the results of the Company
may suffer.
Product liability claims may subject the Company to increased costs. Several of
the products the Company sells, including perishable food and alcoholic beverage
products may expose it to product liability claims in the event that the use or
consumption of these products results in personal injury or property damage.
Although the Company has not experienced any material losses due to product
liability claims to date, it may be a party to product liability claims in the
future and incur significant costs in their defense. Product liability claims
often create negative publicity, which could materially damage the Company's
reputation and its brands. Although the Company maintains insurance against
product liability claims, its coverage may be inadequate to cover any
liabilities it may incur.
The wine industry is subject to governmental regulation. The alcoholic beverage
industry is subject to extensive specialized regulation under state and federal
laws and regulations, including the following matters: licensing; the payment of
excise taxes; advertising, trade and pricing practices; product labeling; sales
to minors and intoxicated persons; changes in officers, directors, ownership or
15
control; and, relationships among product producers, importers, wholesalers and
retailers. While the Company believes that it is in material compliance with all
applicable laws and regulations, in the event that it should be determined that
the Company is not in compliance with any applicable laws or regulations, the
Company could become subject to cease and desist orders, injunctive proceedings,
civil fines, license revocations and other penalties which could have a material
adverse effect on the Company's business and its results of operations.
In addition, the alcoholic beverage industry is subject to potential legislation
and regulation on a continuous basis including in such areas as direct and
Internet sales of alcohol. Certain states still prohibit the sale of alcohol
into their jurisdictions from out of state wineries and/or retailers. There can
be no assurance that new or revised laws or regulations, increased licensing
fees, specialized taxes or other regulatory requirements will not have a
material adverse effect on the Company's business and its results of operations.
While, to date, the Company has been able to obtain and retain licenses
necessary to sell wine at retail, the failure to obtain renewals or otherwise
retain such licenses in one or more of the states in which the Company operates
would have a material adverse effect on the Company's business and its results
of operations. The Company's growth strategy for its wine business includes
expansion into additional states; however, there can be no assurance that the
Company will be successful in obtaining the required permits or licenses in any
additional states. From time to time, the Company may introduce new marketing
initiatives, which may be expected to undergo regulatory scrutiny. There can be
no assurance that such initiatives will not be stymied by regulatory criticism.
The Company is dependent on common carriers to deliver its wine shipments. The
company uses UPS and FedEx to deliver its wine shipments. If UPS or FedEx were
to terminate delivery services for alcoholic beverages in certain states, as it
did in 1999 in Florida, Nevada and Connecticut, the Company would likely incur
significantly higher shipping rates that would have a material adverse effect on
the Company's business and its results of operations. If any state prohibits or
limits intrastate shipping of alcoholic beverages by third party couriers, the
Company would likely incur significantly higher shipping rates that would have a
material adverse effect on the Company's business and its results of operations.
There are various health issues regarding wine consumption. Since 1989, federal
law has required health-warning labels on all alcoholic beverages. Although an
increasing number of research studies suggest that health benefits may result
from the moderate consumption of wine, these suggestions have been widely
challenged and a number of groups advocate increased governmental action to
restrict consumption of alcoholic beverages. Restrictions on the sale and
consumption of wine or increases in the taxes imposed on wine in response to
concerns regarding health issues may have a material adverse effect on the
Company's business and operating results. There can be no assurance that there
will not be legal or regulatory challenges to the industry as a whole, and any
such legal or regulatory challenge may have a material adverse effect on the
Company's business and results of operations.
The price at which the Company's Class A common stock will trade may be highly
volatile and may fluctuate substantially. The stock market has from time to time
experienced price and volume fluctuations that have affected the market prices
of securities, particularly securities of companies with Internet operations. As
a result, investors may experience a material decline in the market price of the
Company's Class A common stock, regardless of the Company's operating
performance. In the past, following periods of volatility in the market price of
a particular company's securities, securities class action litigation has often
been brought against that company. The Company may become involved in this type
of litigation in the future. Litigation of this type is often expensive and
diverts management's attention and resources and could have a material adverse
effect on the Company's business and its results of operations.
Additional Information
The Company's internet address is www.1800flowers.com. We make available,
through the investor relations tab located on our website at
www.1800flowers.com, access to our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission. All such
filings on our investor relations website are available free of charge. (The
information posted on the Company's website is not incorporated into this Annual
Report of Form 10-K.)
A copy of this annual report on Form 10-K is available without charge upon
written request to: Investor Relations, 1-800-FLOWERS.COM, Inc., One Old Country
Road, Suite 500, Carle Place, NY 11514. In addition, the SEC maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
16
Item 1B. Unresolved Staff Comments
We have received no written comments regarding our current or periodic reports
from the staff of the SEC that were issued 180 days or more preceding the end of
our fiscal year ended June 28, 2009 that remain unresolved.
17
Item 2. PROPERTIES
Square
Location Type Principal Use Footage Ownership
------------------------ -------------------- ---------------------------------------------- ------------------ -----------------
Burbank, CA Office Administrative 2,500 leased
Office and
Napa, CA warehouse Distribution, administrative and customer 68,000 leased
service
Jacksonville, FL Office and Distribution and administrative 180,000 leased
warehouse
Chicago, IL Office Administrative and customer service 18,000 leased
Lake Forest, IL Office, plant and Manufacturing, distribution and administrative
warehouse 148,000 leased
Office and
Melrose Park, IL warehouse Distribution, administrative and customer 249,000 leased
service
Alamogordo, NM (*) Office Customer service 23,000 owned
Reno, NV Warehouse Distribution 140,000 leased
Albany, NY Warehouse Distribution 42,000 leased
Carle Place, NY Office Headquarters and customer service 92,000 leased
Bethpage, NY Warehouse Distribution 44,000 leased
Akron, OH Office, plant and Manufacturing, distribution and administrative
warehouse 200,000 leased
Obetz, OH Warehouse Distribution 176,000 leased
Westerville, OH Office, plant and Manufacturing, distribution and administrative
warehouse 44,000 owned
Ardmore, OK (**) Office Customer service 24,000 leased
Vandalia, OH (***) Warehouse Distribution 200,000 leased
Madison, VA (***) Warehouse Distribution, administrative and customer 300,000 leased
service
(*) Facility was closed during August 2009.
(**) Facility was closed during August 2008.
(***) Facilities occupied by Home & Children's Gift segment - classified as
discontinued operations.
In addition to the above properties, the Company leases approximately 207,000
square feet for owned or franchised retail stores and local fulfillment centers
with lease terms typically ranging from 5 to 20 years. Some of its leases
provide for a minimum rent plus a percentage rent based upon sales after certain
minimum thresholds are achieved. The leases generally require the Company to pay
insurance, utilities, real estate taxes and repair and maintenance expenses. In
general, our properties are well maintained, adequate and suitable for their
purposes.
Item 3. LEGAL PROCEEDINGS
There are various claims, lawsuits, and pending actions against the Company and
its subsidiaries incident to the operations of its businesses. It is the opinion
of management, after consultation with counsel, that the ultimate resolution of
such claims, lawsuits and pending actions will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the last
quarter of our fiscal year ended June 28, 2009.
18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals were serving as executive officers of the Company and
certain of its subsidiaries on September 11, 2009:
Name Age Position with the Company
------------------------------------------------ ------ ----------------------------------------------------------
James F. McCann........................... 58 Chairman of the Board and Chief Executive Officer
Christopher G. McCann..................... 48 Director and President
Stephen J. Bozzo.......................... 54 Senior Vice President and Chief Information Officer
Gerard M. Gallagher....................... 56 Senior Vice President of Business Affairs, General
Counsel, and Corporate Secretary
Timothy J. Hopkins........................ 55 President of Madison Brands
Jan L. Murley............................. 58 Interim President, Consumer Floral
Mark L. Nance............................. 59 President, BloomNet Wire Service
William E. Shea........................... 50 Senior Vice President, Treasurer, and Chief Financial Officer
David Taiclet............................. 46 President of Gourmet Foods and Gift Baskets
James F. McCann has served as the Company's Chairman of the Board and Chief
Executive Officer since inception. Mr. McCann has been in the floral industry
since 1976 when he began a retail chain of flower shops in the New York
metropolitan area. Mr. McCann is a member of the board of directors of
Lottomatica S.p.A and Willis Holdings Group. James F. McCann is the brother of
Christopher G. McCann, a Director and the President of the Company.
Christopher G. McCann has been the Company's President since September 2000 and
prior to that had served as the Company's Senior Vice President. Mr. McCann has
been a Director of the Company since inception. Mr. McCann is a member of the
Board of Trustees of Marist College. Christopher G. McCann is the brother of
James F. McCann, the Company's Chairman of the Board and Chief Executive
Officer.
Stephen J. Bozzo has been our Chief Information Officer since May 2007. Prior to
joining the Company, Mr. Bozzo served as Chief Information Officer for the
International Division of MetLife Insurance Company since 2001. Mr. Bozzo's
business background includes senior executive positions at Bear Stearns Inc. as
Managing Director-Principle, AIG as Senior Vice President, Telecommunications
and Technical Services and Chase Manhattan Bank, where he was Senior Vice
President, Global Telecommunications.
Gerard M. Gallagher has been our Senior Vice President, General Counsel and
Corporate Secretary since August 1999 and has been providing legal services to
the Company since its inception. Mr. Gallagher is the founder and a managing
partner in the law firm Gallagher, Walker, Bianco and Plastaras, based in
Mineola, New York, specializing in corporate, litigation and intellectual
property matters since 1993. Mr. Gallagher is duly admitted to practice before
the New York State Courts and the United States District Courts of both the
Eastern District and Southern District of New York.
Timothy J. Hopkins has been President of the Madison Brands division since
January 2007 and prior to that served as President of Specialty Brands since
joining the Company in March 2005. Immediately before joining the Company, Mr.
Hopkins consulted for various retail companies after serving as Chief Executive
Officer and Director of Sur La Table, Inc., a multi-channel upscale specialty
retailer of gourmet culinary and serveware products where he was employed from
2001-2004. From 2000-2001 he was the CEO at LeGourmet Chef, a specialty retailer
of housewares and from 1995-2000, Mr. Hopkins was President, Corporate
Merchandising and Logistics Worldwide for BORDERS Group, Inc, a multi-channel
retailer of books and multi-media. Before this position Mr. Hopkins held other
senior level positions in the multi-channel retailing sector.
19
Jan L. Murley has been Interim President of the Consumer Floral brand since
September 2008 and has been a Director of the Company since February 2007. From
June 30, 2008 to September 15, 2008, Ms. Murley rendered marketing consulting
services to the Company. Ms. Murley has served as a consultant to Kohlberg
Kravis Roberts & Co. (KKR) (a private equity firm) from November 2006 to January
2009. From October 2003 to July 2006, Ms. Murley was Chief Executive Officer and
a Director of The Boyds Collection, Ltd. (a publicly traded designer and
manufacturer of gifts and collectibles), which was majority-owned by KKR. Boyds
filed for bankruptcy under Chapter 11 of the US Bankruptcy Code in October 2005
and emerged from Chapter 11 in June 2006 as a private company. Prior to October
2003, she was group Vice President - Marketing of Hallmark Cards, Inc. (a
publisher of greeting cards and related gifts) from 1999 to 2002. Previously,
Ms. Murley was employed by Procter & Gamble for more than 20 years, with her
last position being Vice President for skin care and personal cleansing
products. Ms. Murley has been a Director of The Clorox Company since November
2001 and a Director of Qwest Communications International, Inc. from December
2007.
Mark L. Nance has been President of the BloomNet Wire Service division since
August 2006. Before holding his current position, Mr. Nance was our Vice
President, Marketing and Sales for Bloomnet after joining us in December 2004.
From 1987 until joining us Mr. Nance functioned in a variety of roles at
Teleflora, Inc. and American Floral Services (AFS), having held positions in
sales, marketing, technology, international development and senior management,
and ultimately becoming Chief Marketing Officer.
William E. Shea has been our Senior Vice President of Finance and Administration
and Chief Financial Officer since September 2000. Before holding his current
position, Mr. Shea was our Vice President of Finance and Corporate Controller
after joining us in April 1996. From 1980 until joining us, Mr. Shea was a
certified public accountant with Ernst & Young LLP.
David Taiclet has been our President of Gourmet Foods and Gift Baskets since
June 2009. Prior to June 2009, Mr. Taiclet served as Chief Executive Officer of
the Fannie May Confections Brands since April 2006, upon our acquisition of the
company. Prior thereto and commencing in January 1995, Mr. Taiclet was a
Co-Founder of a business that ultimately became known as Fannie May Confections
Brands, Inc. (formerly Alpine Confections, Inc.), a multi-branded and
multi-channel retailer, manufacturer, and distributor of confectionery and
specialty food products. From May 1991 to January 1995, Mr. Taiclet served in a
variety of management positions with Cargill, Inc, , including the Strategy and
Business Development Group. Cargill, Inc. is an international marketer,
processor and distributor of food, financial and industrial products. Mr.
Taiclet also served four years of active duty in the U.S. Army, attaining the
rank of Captain.
20
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
1-800-FLOWERS.COM's Class A common stock trades on The Nasdaq Stock Market under
the ticker symbol "FLWS." There is no established public trading market for the
Company's Class B common stock. The following table sets forth the reported high
and low sales prices for the Company's Class A common stock for each of the
fiscal quarters during the fiscal years ended June 28, 2009 and June 29, 2008.
High Low
-------------- --------------
Year ended June 28, 2009
June 30, 2008 - September 28, 2008 $ 7.26 $ 4.77
September 29, 2008 - December 28, 2008 $ 6.18 $ 2.50
December 29, 2008 - March 29, 2009 $ 4.18 $ 0.85
March 30, 2009 - June 28, 2009 $ 3.99 $ 1.80
Year ended June 29, 2008
July 2, 2007 - September 30, 2007 $ 12.38 $ 8.47
October 1, 2007 - December 30, 2007 $ 13.42 $ 8.66
December 31, 2007 - March 30, 2008 $ 9.00 $ 6.35
March 31, 2008 - June 29, 2008 $ 9.26 $ 6.51
Rights of Common Stock
Holders of Class A common stock generally have the same rights as the holders of
Class B common stock, except that holders of Class A common stock have one vote
per share and holders of Class B common stock have 10 votes per share on all
matters submitted to the vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a single class on all
matters presented to the stockholders for their vote or approval, except as may
be required by Delaware law. Class B common stock may be converted into Class A
common stock at any time on a one-for-one share basis. Each share of Class B
common stock will automatically convert into one share of Class A common stock
upon its transfer, with limited exceptions.
Holders
As of September 4, 2009, there were approximately 273 stockholders of record of
the Company's Class A common stock, although the Company believes that there is
a significantly larger number of beneficial owners. As of September 4, 2009,
there were approximately 20 stockholders of record of the Company's Class B
common stock.
Dividend Policy
Although the Company has never declared or paid any cash dividends on its Class
A or Class B common stock, the Company anticipates that it will generate
increasing free cash flow in excess of its capital investment requirements.
Although the Company has no current intent to do so, the Company may choose, at
some future date, to use some portion of its cash for the purpose of cash
dividends.
Resales of Securities
36,922,990 shares of Class A and Class B common stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market from time to time only if
registered or if they qualify for an exemption from registration under Rule 144
or 701 under the Securities Act. As of September 4, 2009, all of such shares of
the Company's common stock could be sold in the public market pursuant to and
subject to the limits set forth in Rule 144. Sales of a large number of these
shares could have an adverse effect on the market price of the Company's Class A
common stock by increasing the number of shares available on the public market.
21
Purchases of Equity Securities by the Issuer
On January 21, 2008, the Company's Board of Directors authorized an increase to
its stock repurchase plan which, when added to the $8.7 million remaining on its
earlier authorization, increased the amount available for repurchase to $15.0
million. Any such purchases could be made from time to time in the open market
and through privately negotiated transactions, subject to general market
conditions. The repurchase program will be financed utilizing available cash. As
of June 28, 2009, $13.2 million remains authorized but unused.
Under this program, as of June 28, 2009, the Company had repurchased 2,058,685
shares of common stock for $13.1 million, of which $0.8 million (397,899
shares), $1.1 million (133,609 shares) and $0.2 million (24,627 shares) were
repurchased during the fiscal years ending June 28, 2009, June 29, 2008 and
July 1, 2007, respectively. In a separate transaction, during fiscal 2007, the
Company's Board of Directors authorized the repurchase of 3,010,740 shares from
an affiliate. The purchase price was $15,689,000 or $5.21 per share. The
repurchase was approved by the disinterested members of the Company's Board of
Directors and was in addition to the Company's existing stock repurchase
authorization.
Item 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended June
28, 2009, June 29, 2008 and July 1, 2007 and the consolidated balance sheet data
as of June 28, 2009 and June 29, 2008, have been derived from the Company's
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. The selected consolidated statement of operations data for
the years ended July 2, 2006 and July 3, 2005, and the selected consolidated
balance sheet data as of July 1, 2007, July 2, 2006 and July 3, 2005, are
derived from the Company's audited consolidated financial statements which are
not included in this Annual Report on Form 10-K.
22
The following tables summarize the Company's consolidated statement of
operations and balance sheet data. The Company acquired selected assets of
Geerlings & Wade, Inc. in March 2009 and Napco Marketing Corp. in July 2008,
DesignPac Gifts, LLC in April 2008, Fannie May Confections Brands, Inc. in May
2006, Cheryl & Co. in March 2005 and The Winetasting Network in November 2004.
The following financial data reflects the results of operations of these
subsidiaries since their respective dates of acquisition. During the fourth
quarter of fiscal 2009, the Company made the strategic decision to divest its
Home & Children's Gifts business segment to focus on its core Consumer Floral,
BloomNet Wire Service and Gourmet Foods & Gift Baskets categories. The Company
has classified the results of operations of its Home & Children's Gifts segment
as discontinued operations for all periods presented. This information should be
read together with the discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes to those statements included elsewhere in this
Annual Report on Form 10-K.
Years ended (1),(2)
----------------------------------------------------------------------
June 28, June 29, July 1, July 2, July 3,
2009 2008 2007 2006 2005
------------- -------------- ------------- ------------ --------------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues:
E-commerce $ 498,519 $ 584,174 $ 576,627 $ 521,161 $ 461,305
Other 215,431 155,037 149,023 63,661 37,057
------------- -------------- ------------- ------------ --------------
Total net revenues 713,950 739,211 725,650 584,822 498,362
Cost of revenues 432,744 426,916 419,083 350,733 302,439
------------- -------------- ------------- ------------ --------------
Gross profit 281,206 312,295 306,567 234,089 195,923
Operating expenses:
Marketing and sales 175,839 183,430 180,238 160,932 131,431
Technology and development 21,000 19,611 18,871 17,689 13,273
General and administrative 50,451 52,107 50,236 37,373 29,481
Depreciation and amortization 21,010 17,822 15,353 13,595 12,587
Goodwill and intangible impairment 85,438 - - - -
------------- -------------- ------------- ------------ --------------
Total operating expenses 353,738 272,970 264,698 229,589 186,772
------------- -------------- ------------- ------------ --------------
Operating income (loss) (72,532) 39,325 41,869 4,500 9,151
Other income (expense), net (3) (9,295) (4,170) (6,133) (47) 2,174
------------- -------------- ------------- ------------ --------------
Income (loss) from continuing operations
before income taxes (81,827) 35,155 35,736 4,453 11,325
Income tax expense (benefit) from
continuing operations (15,326) 13,126 14,755 2,382 4,606
------------- -------------- ------------- ------------ --------------
Income (loss) from continuing operations (66,501) 22,029 20,981 2,071 6,719
------------- -------------- ------------- ------------ --------------
Income (loss) from discontinued operations,
before income taxes (4,996) (1,785) (6,727) 1,915 1,922
Impairment of discontinued business (34,758) - - - -
Income tax expense (benefit) from discontinued
operations (7,838) (810) (2,864) 799 792
------------- -------------- ------------- ------------ --------------
Income (loss) from discontinued operations (31,916) (975) (3,863) 1,116 1,130
------------- -------------- ------------- ------------ --------------
Net income (loss) ($ 98,417) $ 21,054 $ 17,118 $ 3,187 $ 7,849
============= ============== ============= ============ ==============
Net income (loss) per common share (basic):
From continuing operations ($1.05) $0.35 $0.33 $0.03 $0.10
From discontinued operations (0.50) (0.02) (0.06) 0.02 0.02
============= ============== ============= ============ ==============
Net income (loss) per common share (basic) ($1.55) $0.33 $0.27 $0.05 $0.12
============= ============== ============= ============ ==============
Net income (loss) per common share (diluted):
From continuing operations ($1.05) $0.34 $0.32 $0.03 $0.10
From discontinued operations (0.50) (0.01) (0.06) 0.02 0.02
============= ============== ============= ============ ==============
Net income (loss) per common share (diluted) ($1.55) $0.32 $0.26 $0.05 $0.12
============= ============== ============= ============ ==============
Weighted average shares used in the
calculation of net income (loss) per
common share:
Basic 63,565 63,074 63,786 65,100 66,038
============= ============== ============= ============ ==============
Diluted 63,565 65,458 65,526 66,429 67,402
============= ============== ============= ============ ==============
23
Note (1): The Company's fiscal year is a 52- or 53-week period ending on the
Sunday nearest to June 30. Fiscal years ended June 28, 2009, June 29, 2008,
July 1, 2007 and July 2, 2006 consisted of 52 weeks, while the fiscal year
ended July 3, 2005 consisted of 53 weeks.
Note (2): Effective July 4, 2005, the Company adopted the fair value recognition
provisions of SFAS No. 123(R) using the modified prospective application
method.
Note (3): Other income (expense), net during the fiscal year ended June 28, 2009
includes the write-off of deferred financing costs of approximately $3.2
million related to the April 14, 2009 modification of the Company's 2008
Credit Facility.
As of
------------- ------------- ------------ ------------ ------------
June 28, 2009 June 29, 2008 July 1, 2007 July 2, 2006 July 3,2005
------------- ------------- ------------ ------------ ------------
(in thousands)
Consolidated Balance Sheet Data:
Cash and equivalents and short-term
investments $29,562 $12,124 $16,087 $ 24,599 $46,608
Working capital 43,679 33,416 51,419 44,250 44,739
Total assets 286,127 371,338 352,507 346,634 251,952
Long-term liabilities 73,945 63,739 78,911 79,221 5,281
Total stockholders' equity 133,783 231,465 201,031 193,183 186,334
24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" (MD&A) is intended to provide an understanding of our financial
condition, change in financial condition, cash flow, liquidity and results of
operations. The following MD&A discussion should be read in conjunction with the
consolidated financial statements and notes to those statements that appear
elsewhere in this Form 10-K. The following discussion contains forward-looking
statements that reflect the Company's plans, estimates and beliefs. The
Company's actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to any
differences include, but are not limited to, those discussed under the caption
"Forward-Looking Information" and under Item 1A -- "Risk Factors."
Description of Business
For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing customers
with fresh flowers and the finest selection of plants, gift baskets, gourmet
foods, confections, balloons and plush stuffed animals perfect for every
occasion. 1-800-FLOWERS.COM(R) offers the best of both worlds: exquisite
arrangements individually created by some of the nation's top floral artists and
hand-delivered the same day, and spectacular flowers shipped overnight under our
Fresh From Our Growers(R) program. As always, 100 percent satisfaction and
freshness are guaranteed. The Company's BloomNet(R) (www.mybloomnet.net)
international floral wire service provides a broad range of quality products and
value-added services designed to help professional florists to grow their
businesses profitably. The 1-800-FLOWERS.COM, Inc. "Gift Shop" also includes
gourmet gifts such as popcorn and specialty treats from The Popcorn Factory(R)
(1-800-541-2676 or www.thepopcornfactory.com); exceptional cookies and baked
gifts from Cheryl&Co.(R) (1-800-443-8124 or www.cherylandco.com); premium
chocolates and confections from Fannie May Confections Brands (www.fanniemay.com
and www.harrylondon.com); gourmet foods from Greatfood.com(R)
(www.greatfood.com); wine gifts from Ambrosia(R) (www.ambrosia.com or
www.winetasting.com or www.Geerwade.com); and gift baskets from
1-800-BASKETS.COM(R) (www.1800baskets.com) and DesignPac Giftssm
(www.designpac.com).
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. The Company has classified the results of operations of its Home &
Children's Gifts segment, which includes Home Decor and Children's Gifts from
Plow & Hearth(R) (1-800-627-1712 or www.plowandhearth.com), Wind & Weather(R)
(www.windandweather.com), HearthSong(R) (www.hearthsong.com) and Magic Cabin(R)
(www.magiccabin.com), as discontinued operations for all periods presented.
1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ Global Select Market under
ticker symbol FLWS.
As a provider of gifts to consumers and wholesalers for resale to consumers, the
Company is subject to changes in consumer confidence and the economic conditions
that impact our customers. The demand for the Company's products is affected by
the financial health of our customers, which is influenced by macro economic
issues such as unemployment, fuel and energy costs, weakness in the housing
market and unavailability of consumer credit. During the recent economic
downturn, the demand for our products has been adversely affected by the
reduction in consumer spending, and the Company's results for the fiscal year
ended June 28, 2009 reflect the impact of the global economic downturn.
However, during fiscal 2009, the Company took significant steps to reduce its
operating cost structure to improve its results in the near-term, including:
o During the fourth quarter the Company made the strategic decision to
divest its Home & Children's Gifts segment in order to focus its
efforts and investments on its key Consumer Floral, BloomNet
Wire Service and Gourmet Foods & Gift Baskets categories which better
leverage the Company's business platform and offer the greatest
opportunity for revenue and earnings growth.
o The Company implemented enterprise-wide cost reduction programs
including a 15% reduction in its salaried, full-time labor force, as
well as reductions in variable labor commensurate with lower order
volumes.
o The IT infrastructure was reduced through consolidation of hosting
sites, reducing footprints and rationalizing maintenance and support
applications.
25
o Marketing programs across the enterprise were evaluated and spending
on such programs has been scaled to levels appropriate to current
consumer demand in order to achieve desired returns on these
investments.
o Brick-and-mortar customer service centers were closed, reducing fixed
costs, as the Company further virtualized its customer service
platform, utilizing technology to expand its home agent network.
o Product assortments have been evaluated and reformulated to meet
reduced price points, providing for better product margins and
alleviating the reliance on discounting and markdowns in order to
improve demand.
We continue to evaluate further cost-reduction activities as well as the need to
adjust our operations in the event that economic conditions deteriorate further.
The Company believes that its cost reduction initiatives, combined with its
ability to be innovative and execute quickly, will enable it to strengthen its
relative competitive position in this difficult economic environment and to take
advantage of long-term growth opportunities when favorable business conditions
return.
The following tables set forth some of the Company's key financial information:
Category Information
The Company has segmented its organization to improve execution and customer
focus and to align its resources to meet the demands of the markets it serves.
The following table presents the contribution of net revenues, gross profit and
category contribution margin or category "Adjusted EBITDA" (earnings before
interest (including write-off of deferred financing costs, taxes, depreciation
and amortization, goodwill and intangible impairment and severance and other
restructuring costs) from each of the Company's business categories. (As noted
previously, the Company's Home & Children's Gifts segment has been classified as
discontinued operations and therefore excluded from category information below).
Years Ended
----------------------------------------------------------------------
June 28, June 29, July 1,
Net revenues 2009 % Change 2008 % Change 2007
------------ --------------- ------------- ------------- -------------
(in thousands)
Net revenues:
1-800-Flowers.com Consumer Floral $414,897 (15.6%) $491,696 0.1% $491,404
BloomNet Wire Service 63,933 19.5% 53,488 20.5% 44,379
Gourmet Food & Gift Baskets 240,200 22.4% 196,298 1.9% 192,698
Corporate (*) 1,119 (54.0%) 2,431 47.2% 1,652
Intercompany eliminations (6,199) (31.8%) (4,702) (4.9%) (4,483)
------------ ------------- -------------
Total net revenues from continuing
operations $713,950 (3.4%) $739,211 1.9% $725,650
============ ============= =============
Years Ended
----------------------------------------------------------------------
June 28, June 29, July 1,
Gross Profit from Continuing Operations: 2009 % Change 2008 % Change 2007
------------ --------------- ------------- ------------- -------------
(in thousands)
Gross profit:
1-800-Flowers.com Consumer Floral $152,045 (20.1%) $190,259 (1.4%) $192,921
36.6% 38.7% 39.3%
BloomNet Wire Service 35,374 17.6% 30,080 21.1% 24,844
55.3% 56.2% 56.0%
Gourmet Food & Gift Baskets 94,021 2.5% 91,713 4.0% 88,207
39.1% 46.7% 45.8%
Corporate (*) 289 (70.2%) 970 27.0% 764
25.8% 39.9% 46.2%
Intercompany eliminations (524) (727) (169)
------------ ------------- -------------
Total gross profit from continuing
operations $281,206 (10.0%) $312,295 1.9% $306,567
============ ============= =============
39.4% 42.2% 42.2%
============ ============= =============
26
Years Ended
----------------------------------------------------------------------
Adjusted EBITDA(**) from June 28, June 29, July 1,
Continuing Operations 2009 % Change 2008 % Change 2007
------------ --------------- ------------- ------------- -------------
(in thousands)
1-800-Flowers.com Consumer Floral $40,882 (35.1%) $62,967 (3.4%) $65,166
BloomNet Wire Service 19,093 3.2% 18,509 30.7% 14,162
Gourmet Food & Gift Baskets 23,433 (4.7%) 24,593 (6.8%) 26,377
------------ ------------- -------------
Category Contribution Margin Subtotal 83,408 (21.4%) 106,069 0.3% 105,705
Corporate (*) (49,492) (1.2%) (48,922) (0.9%) (48,483)
Severance and other restructuring costs 2,543 100.0% - - -
------------ ------------- -------------
Adjusted EBITDA from continuing
operations $36,459 (36.2%) $57,147 0.1% $57,222
============ ============= =============
Years Ended
----------------------------------------------------------------------
Discontinued operations: June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
------------ --------------- ------------- ------------- -------------
(in thousands)
Net revenues from discontinued
operations $143,746 (20.2%) $180,181 (3.6%) $186,948
Gross profit from discontinued
operations 67,439 (17.2%) 81,459 (5.2%) 85,899
Adjusted EBITDA from discontinued
operations (2,569) (539.9%) 584 113.3% (4,392)
(*) Corporate expenses consist of the Company's enterprise shared service
cost centers, and include, among other items, Information Technology,
Human Resources, Accounting and Finance, Legal, Executive and Customer
Service Center functions, as well as Stock-Based Compensation. In
order to leverage the Company's infrastructure, these functions are
operated under a centralized management platform, providing support
services throughout the organization. The costs of these functions,
other than those of the Customer Service Center, which are allocated
directly to the above categories based upon usage, are included within
corporate expenses as they are not directly allocable to a specific
category.
(**) Performance is measured based on category contribution margin or
category Adjusted EBITDA, reflecting only the direct controllable
revenue and operating expenses of the categories. As such,
management's measure of profitability for these categories does not
include the effect of corporate overhead, described above,
depreciation and amortization, other income (net), including deferred
financing write-offs, income taxes, goodwill and intangible
impairment, and severance and other restructuring costs. Management
utilizes EBITDA, and adjusted financial information, as a performance
measurement tool because it considers such information a meaningful
supplemental measure of its performance and believes it is frequently
used by the investment community in the evaluation of companies with
comparable market capitalization. The Company also uses EBITDA and
adjusted financial information as one of the factors used to determine
the total amount of bonuses available to be awarded to executive
officers and other employees. The Company's credit agreement uses
EBITDA and adjusted financial information to measure compliance with
covenants such as interest coverage and debt incurrence. EBITDA and
adjusted financial information is also used by the Company to evaluate
and price potential acquisition candidates. EBITDA and adjusted
financial information have limitations as an analytical tool, and
should not be considered in isolation or as a substitute for analysis
of the Company's results as reported under GAAP. Some of these
limitations are: (a) EBITDA does not reflect changes in, or cash
requirements for, the Company's working capital needs; (b) EBITDA does
not reflect the significant interest expense, or the cash requirements
necessary to service interest or principal payments, on the Company's
debts; and (c) although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized may have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such capital expenditures. Because of these
limitations, EBITDA should only be used on a supplemental basis
combined with GAAP results when evaluating the Company's performance.
27
Due to the Company's strategic decision to divest its Home & Children's Gifts
segment and classify such as Discontinued Operations as well as other
non-recurring charges incurred during fiscal 2009 (Goodwill and intangible
impairment; Deferred financing costs write-off; and Severance and other
restructuring costs), the following Non-GAAP reconciliation table have been
included within MD&A.
Reconciliation of Net Income (Loss) from Continuing Operations to Adjusted
EBITDA from Continuing Operations:
Years Ended
------------ ------------------------
June 28, June 29, July 1,
2009 2008 2007
------------ ----------- ------------
Net income (loss) from continuing operations ($66,501) $22,029 $20,981
Add:
Interest expense 6,269 5,039 7,212
Depreciation and amortization 21,010 17,822 15,353
Income tax expense - 13,126 14,755
Goodwill and intangible impairment 85,438 - -
Deferred financing cost write-off 3,245 - -
Severance and other restructuring costs 2,543 - -
Less:
Income tax benefit 15,326 - -
Interest income 314 826 1,077
Other income (expense) (95) 43 2
------------ ----------- ------------
Adjusted EBITDA from continuing operations $36,459 $57,147 $57,222
============ =========== ============
28
Results of Operations
The Company's fiscal year is a 52- or 53-week period ending on the Sunday
nearest to June 30. Fiscal years 2009, 2008 and 2007 which ended on June 28,
2009, June 29, 2008 and July 1, 2007 respectively, consisted of 52 weeks.
Net Revenues
Years Ended
--------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
------------ ------------- ------------- ------------- -------------
(in thousands)
Net revenues:
E-Commerce $498,519 (14.7%) $584,174 1.3% $576,627
Other 215,431 39.0% 155,037 4.0% 149,023
------- ------- -------
$713,950 (3.4%) $739,211 1.9% $725,650
======== ======== ========
Net revenues consist primarily of the selling price of the merchandise, service
or outbound shipping charges, less discounts, returns and credits.
During the fiscal year ended June 28, 2009, revenues declined by 3.4% over the
prior year period, resulting from continued weakness in the retail economy
causing a decline in both customer orders as well as overall average order
values as consumers "traded down" to lower price point products. The decline was
partially offset by revenue growth in the Company's BloomNet Wire Service
category, which increased during the year ended June 28, 2009 by 19.5% over the
prior year due to the acquisition of Napco, a wholesaler of floral hardgoods, in
July 2008, as well as growth from the Gourmet Food & Gift Baskets category by
22.4%, due to the incremental revenue associated with the acquisition of
DesignPac in May 2008 and Geerlings & Wade in March 2009. Organic revenue,
excluding the revenue associated with the acquisitions of DesignPac, Napco,
29
and Geerlings & Wade, declined approximately 13.1% during the fiscal year ended
June 28, 2009. The Company's revenue growth of 1.9% during the fiscal year ended
June 29, 2008 was primarily attributable to the continued expansion of the
Company's BloomNet Wire Service business, which increased 20.5% over the prior
fiscal year, as well as growth from the Gourmet Food & Gift Basket business,
which increased 1.9% over the same period of the prior year.
The Company fulfilled approximately 8.6 million, 9.8 million and 9.8 million
orders through its e-commerce (combined online and telephonic) sales channel
during fiscal 2009, 2008 and 2007, respectively. The Company's e-commerce
(combined online and telephonic) sales channel average order value decreased
3.5% to $57.69 during fiscal 2009, as a result of increased promotional pricing
and markdowns and consumers trading down to lower price point products, whereas
the average order value increased by 1.4% to $59.79 during fiscal 2008,
primarily as a result of increased service and shipping charges (in line with
industry norms) to partially offset the impact of increased fuel costs passed on
from freight carriers.
Other revenues increased during fiscal 2009 as a result of the Company's recent
acquisitions of Napco and DesignPac, and during fiscal 2008 due to growth within
the Company's BloomNet Wire Service category.
The 1-800-Flowers.com Consumer Floral category includes the operations of the
1-800-Flowers brand which derives revenue from the sale of consumer floral
products through its E-Commerce sales channels (telephonic and online sales) and
company-owned and operated retail floral stores, as well as royalties from its
franchise operations. Net revenues during the fiscal year ended June 28, 2009
decreased 15.6% over the prior year period due to lower order volume as a result
of continued decline in demand throughout the consumer sector, caused by the
weak economy. Net revenues during the fiscal year ended June 29, 2008 increased
by 0.1% over the prior year period, primarily from an increased average order
value from its e-commerce sales channel, offset in part by lower retail sales
from its company-owned floral stores due to the planned transition of Company
stores to franchise ownership.
The BloomNet Wire Service category includes revenues from membership fees as
well as other product and service offerings to florists. Net revenues during the
fiscal year ended June 28, 2009 increased by 19.5% over the prior year,
resulting entirely from the incremental revenue generated by the acquisition of
Napco in July 2008, as lower wholesale product sales due to florists scaling
back purchases due to the recession offset gains in monthly service fees. Net
revenues during the fiscal year ended June 29, 2008 increased by 20.5% over the
prior year period primarily as a result of increased florists' membership fees,
expanded product and service offerings, and pricing initiatives.
The Gourmet Food & Gift Baskets category includes the revenues of Cheryl & Co.,
Fannie May (including Harry London), Popcorn Factory, The Winetasting Network
(including Geerlings & Wade) and DesignPac brands. Revenue is derived from the
sale of cookies, baked gifts, premium chocolates and confections, gourmet
popcorn, wine gifts and gift baskets through its E-commerce sales channels
(telephonic and online sales) and company-owned and operated retail stores under
the Cheryl & Co. and Fannie May brands, as well as wholesale operations. Net
revenues during the fiscal year ended June 28, 2009 increased by 22.4% over the
prior year period as a result of incremental wholesale revenues generated by
DesignPac, acquired in April 2008. Net revenues decreased 7.8%, excluding the
revenues of DesignPac, as a result of reduced consumer spending caused by the
economic down-turn. Net revenues for the fiscal year ended June 29, 2008
increased 1.9% compared to the prior fiscal year as a result of increased
direct-to-consumer order volume from Cheryl & Co. and Fannie May Confections
brands.
The Company expects economic conditions for consumers will continue to be very
challenging. Based on this outlook, the Company anticipates that revenues for
the full fiscal year 2010 will be consistent to down approximately 5 percent
compared with the prior year.
Gross Profit
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
------------- ------------ --------------- --------------- ------------
(in thousands)
Gross profit $281,206 (10.0%) $312,295 1.9% $306,567
Gross margin % 39.4% 42.2% 42.2%
30
Gross profit consists of net revenues less cost of revenues, which is comprised
primarily of florist fulfillment costs (primarily fees paid directly to
florists), the cost of floral and non-floral merchandise sold from inventory or
through third parties, and associated costs including inbound and outbound
shipping charges. Additionally, cost of revenues include labor and facility
costs related to direct-to-consumer and wholesale production operations.
Gross profit decreased during the fiscal year ended June 28, 2009, through a
combination of the decline in revenues described above, offset in part by the
incremental gross profit generated by the DesignPac and Napco acquisitions and
the reduction in gross margin percentage. Gross margin percentage during the
fiscal year ended June 28, 2009, decreased by 280 basis points, primarily
reflecting a combination of product mix associated with revenues from the
Company's most recent acquisitions, which are primarily wholesale businesses, as
well as increased promotional and markdown activity designed to improve sales.
Gross profit increased during the fiscal year ended June 29, 2008 in comparison
to the same period of the prior year, primarily as a result of the revenue
growth described above. Gross margin percentage during the fiscal year ended
June 29, 2008 was consistent with the prior year period.
The 1-800-Flowers.com Consumer Floral category gross profit and gross profit
margin percentage decreased during the fiscal years ended June 28, 2009 and June
29, 2008, by 20.1% and 210 basis points, and 1.4% and 60 basis points, over the
respective prior year periods, as a result of decreased sales volume and
promotional pricing, which has characterized the retail sector as a result of
the recession.
The BloomNet Wire Service category gross profit increased during the fiscal year
ended June 28, 2009 by 17.6% compared to the prior year, as a result of the
aforementioned revenue contribution from the Napco acquisition in July 2008.
Gross profit margins decreased by 90 basis points during fiscal 2009 as a result
of product mix, including Napco's wholesale products, which bear lower margins.
During the fiscal year ended June 29, 2008 gross profit increased by 21.1% over
the prior year period as a result of the above mentioned revenue growth
resulting from an increase in membership services and pricing initiatives, which
also drove a higher gross margin, which increased 20 basis points in comparison
to the prior year.
The Gourmet Food & Gift Baskets category gross profit increased during the
fiscal year ended June 28, 2009 by 2.5% over the prior year period as a result
of the incremental gross profit generated by DesignPac, which was also the
primary driver of the decrease in gross margin percentage as DesignPac products
carry lower wholesale margins. In addition, gross profit margins were depressed
as a result of increased promotional activity during the key holiday periods
within the category's E-Commerce and retail store sales channels. During the
fiscal year ended June 29, 2008 the Gourmet Food & Gift Basket category gross
profit increased by 4.0% over the prior year period as a result of higher
revenues and higher gross margin percentage, which increased 90 basis points to
46.7% due to manufacturing efficiencies and sales channel/product mix.
During fiscal 2010, the Company expects its gross margin percentage will improve
slightly in comparison to 2009 as a result of a positive shift in product mix
and anticipated gross margin improvements in most of its businesses resulting
from product sourcing and supply chain initiatives, which are expected to reduce
reliance on promotional activity.
Marketing and Sales Expense
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
------------- ------------- --------------- -------------- -------------
(in thousands)
Marketing and sales $175,839 (4.1%) $183,430 1.8% $180,238
Percentage of sales 24.6% 24.8% 24.8%
Marketing and sales expense consists primarily of advertising and promotional
expenditures, catalog costs, online portal and search costs, retail store and
fulfillment operations (other than costs included in cost of revenues) and
customer service center expenses, as well as the operating expenses of the
Company's departments engaged in marketing, selling and merchandising
activities.
During the fiscal year ended June 28, 2009, marketing and sales expenses
decreased 4.1% and 20 basis points to 24.6% of net revenue in comparison to the
prior year. (Excluding the impact of severance and other restructuring costs of
$1.8 million including within marketing and sales, marketing and sales expense
decreased 5.1% and 40 basis points in comparison to prior year.) The overall
31
decrease in expense reflects the success of the Company's ongoing cost reduction
initiatives, including accelerated efforts to reduce costs in the face of
continuing revenue declines, as well as the impact of DesignPac's cost structure
which has low operating costs relative to its revenue. These cost reduction
programs, which began in 2006, were designed to improve operating leverage
across the Company's brands, reducing the Company's operating expense ratio by
290 basis points through fiscal 2008, and have been expanded and accelerated to
mitigate the revenue reductions that have been associated with the current
economic decline. Within marketing and sales, the Company has undertaken
programs that have reduced or reallocated media, portal spending, and customer
prospecting through catalogs, which were not expected to generate sufficient
returns in this challenging economic environment. In addition, initiatives
such as catalog print and paper sourcing, co-mailing and e-mail pricing
reductions, and further virtualization of our consumer service platform to
reduce fixed facility and labor, have enabled the Company to improve its cost
structure. During the fiscal year ended June 29, 2008, marketing and sales
expenses were consistent as a percentage of revenue in comparison to fiscal
2007.
During the fiscal year ended June 28, 2009 the Company added approximately 2.4
million new e-commerce customers, compared to 2.8 million and 2.7 million in
2008 and 2007, respectively. Of the 5.0 million total customers who placed
e-commerce orders during fiscal 2009, approximately 52% were repeat customers,
compared to 49% and 48% in 2008 and 2007, respectively, reflecting the Company's
ongoing focus on deepening the relationship with its existing customers as their
trusted source for gifts and services for all of their celebratory occasions.
During fiscal 2010, the Company expects that marketing and sales expense will
continue to decrease in comparison to the prior year, but remain consistent as a
percentage of net revenues due to the expectation of a slight decline in sales
resulting from anticipated weakness in the economy through the fiscal 2010
holiday season.
Technology and Development Expense
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
-------------- ------------- ------------- ------------- -------------
(in thousands)
Technology and development $21,000 7.1% $19,611 3.9% $18,871
Percentage of sales 2.9% 2.7% 2.6%
Technology and development expense consists primarily of payroll and operating
expenses of the Company's information technology group, costs associated with
its web sites, including hosting, design, content development and maintenance
and support costs related to the Company's order entry, customer service,
fulfillment and database systems.
During the fiscal year ended June 28, 2009, technology and development expense
increased by 7.1% over the prior year as a result of the incremental technology
and integration costs associated with the acquisitions of DesignPac and Napco,
and an increase in hosting costs, as well as severance and restructuring costs
associated with the Company's cost reduction programs in the amount of $0.3
million. Fiscal 2009 restructuring initiatives included a reduction in the
number of hosting sites and footprint which will result in annualized savings
during fiscal 2010. During fiscal 2008, technology and development expense
increased 3.9% and 10 basis points to 2.6% of net revenues, in comparison to the
prior year period as a result of increased labor costs. The increased labor
costs were necessary to support the Company's technology platform, and were
partially offset by savings derived from renegotiating certain technology
maintenance and license agreements.
During the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 the
Company expended $35.7 million, $32.2 million, and $29.5 million, respectively,
on technology and development, of which $14.7 million, $12.6 million, and $10.6
million, respectively, has been capitalized.
The Company believes that continued investment in technology and development is
critical to attaining its strategic objectives, and expects that its spending
for fiscal 2010 will decrease slightly, as a percentage of net revenues, in
comparison to the prior year.
32
General and Administrative Expense
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
-------------- ------------- ------------- ------------- -------------
(in thousands)
General and administrative $50,451 (3.2%) $52,107 3.7% $50,236
Percentage of sales 7.1% 7.0% 6.9%
General and administrative expense consists of payroll and other expenses in
support of the Company's executive, finance and accounting, legal, human
resources and other administrative functions, as well as professional fees and
other general corporate expenses.
General and administrative expense decreased by 3.2% during the fiscal year
ended June 28, 2009, as the prior year period reflects the achievement of
certain cash and equity performance based bonus targets, which were not earned
in fiscal 2009, as well as cost reduction initiatives, offset in part by the
incremental expenses of DesignPac and Napco and severance and restructuring
costs of approximately $0.2 million. During fiscal 2008, general and
administrative expenses increased 3.7% as a percentage of net revenues in
comparison to the prior year, due to increased professional fees and corporate
initiatives. The benefit of these increased costs in fiscal 2008 are reflected
in the improvements within the Company's overall operating expense ratios, in
comparison to the same period of the prior year.
As a result of cost reduction initiatives, the Company expects that its general
and administrative expenses for fiscal 2010 will decrease slightly as a
percentage of net revenues in comparison to the prior year.
Depreciation and Amortization
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
-------------- ------------- ------------- ------------- -------------
(in thousands)
Depreciation and amortization $21,010 17.9% $17,822 16.1% $15,353
Percentage of sales 2.9% 2.4% 2.1%
Depreciation and amortization expense increased by 17.9% and 16.1% during the
fiscal years ended June 28, 2009 and June 29, 2008, respectively, in comparison
to the prior year periods, as a result of capital additions for technology
platform improvements and the incremental amortization related to the
intangibles established as a result of the acquisition of DesignPac in April
2008.
The Company believes that continued investment in its infrastructure, primarily
in the areas of technology and development, including the improvement of the
technology platforms, are critical to attaining its strategic objectives.
However, the Company is committed to reducing its capital expenditures and
coupled with the impairment charge associated with certain of its amortizable
intangibles, the Company expects that depreciation and amortization for fiscal
2010 will decrease in comparison to the prior year.
Goodwill and Intangible Impairment
During fiscal 2009 the Gourmet Food & Gift Basket segment experienced declines
in revenue and operating performance when compared to prior years and their
strategic outlook. The Company believes that this weak performance was
attributable to reduced consumer spending due to the overall weakness in the
economy. Based upon the expectation of a continuation of the current economic
downturn, supported by lower order quantities received for the upcoming holiday
season by certain wholesale customers, coupled with a decline of the Company's
market capitalization and contraction of public company multiples, the Company
recorded goodwill and intangible impairment charges of $85.4 million during
the year ended June 28, 2009. Of the total impairment, approximately $65.6
million was related to goodwill and $19.8 million was related to intangibles.
33
Other Income (Expense)
Years Ended
-----------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
-------------- ------------- ------------- ------------- -------------
(in thousands)
Interest income $ 314 (62.0%) $ 826 (23.3%) $1,077
Interest expense (6,269) (24.4%) (5,039) (30.1%) (7,212)
Deferred financing write-off (3,245) - - - -
Other, net (95) (320.9%) 43 2,050.0% 2
-------------- ------------- -------------
$(9,295) 122.9% $(4,170) 32.0% $(6,133)
============== ============= =============
Other income (expense) consists primarily of interest expense and amortization
of deferred financing costs, primarily attributable to the Company's long-term
debt and revolving line of credit, partially offset by income earned on the
Company's investments and available cash balances.
Net borrowing costs increased during the fiscal year ended June 28, 2009, in
comparison to the prior year period, primarily as a result of incremental
borrowings and related financing costs associated with the Company's credit
facility (as defined below), whereas net borrowing costs declined during fiscal
2008, in comparison to fiscal 2007, as a result of declining interest rates and
a reduction in outstanding debt.
In order to fund the increase in working capital requirements associated with
DesignPac, on August 28, 2008, the Company entered into a $293.0 million Amended
and Restated Credit Agreement with JPMorgan Chase Bank N.A., as administrative
agent, and a group of lenders (the "2008 Credit Facility"). The 2008 Credit
Facility provided for borrowings of up to $293.0 million, including: (i) a
$165.0 million revolving credit commitment, (ii) $60.0 million of new term loan
debt, and (iii) $68.0 million of existing term loan debt associated with the
Company's previous credit facility.
On April 14, 2009, the Company entered into an amendment to the 2008 Credit
Facility (the "Amended 2008 Credit Facility"). The Amended 2008 Credit Facility,
effective March 29, 2009, included a prepayment of $20.0 million, reducing the
Company's outstanding term loans under the facility to $92.4 million upon
closing. In addition, the amendment reduced the Company's revolving credit line
from $165.0 million to a seasonally adjusted line ranging from $75.0 to $125.0
million. Outstanding amounts under the Amended 2008 Credit Facility will bear
interest at the Company's option at either: (i) LIBOR plus a defined margin, or
(ii) the agent bank's prime rate plus a margin. The applicable margins for the
Company's term loans and revolving credit facility will range from 3.00% to
4.50% for LIBOR loans and 2.00% to 3.50% for ABR loans with pricing based upon
the Company's leverage ratio. The repayment terms of the existing term loans
were reduced, on a pro-rata basis, for the $20.0 million prepayment.
As a result of the modifications of its credit agreements, during the quarter
ended June 28, 2009, the Company wrote-off $3.2 million of financing costs
associated with the term debt related to both the 2008 Credit Facility and the
Amended 2008 Credit Facility.
During March 2009, the Company obtained a $5.0 million equipment lease line of
credit with a bank and a $5.0 million equipment lease line of credit with a
vendor. Interest under these lines, which both mature in April 2012, range from
2.99% to 7.48%. The borrowings are payable in 36 monthly installments of
principal and interest commencing in April 2009.
Income Taxes
During the fiscal year ended June 28, 2009, the Company recorded an income tax
benefit of $15.3 million, resulting in an effective tax rate for the fiscal year
ended June 28, 2009 of 18.7%. The Company's effective tax rate for the fiscal
year ended June 28, 2009, differed from the U.S. federal statutory rate of 35%
primarily due to the impact of the non-deductible portions of the goodwill and
other intangible impairment charges of $85.4 million and various tax credits,
partially offset by state income taxes.
During the fiscal years ended June 29, 2008 and July 1, 2007, the Company
recorded income tax expense of $13.1 million and $14.8 million, respectively.
The Company's effective tax rate for the fiscal years ended June 29, 2008 and
34
July 1, 2007 was 37.3% and 41.3%, respectively. The decrease in the effective
tax rate during the fiscal year ended June 29, 2008 resulted primarily from
lower state taxes, as well as various tax credits programs. The Company's
effective tax rate for the fiscal years ended June 29, 2008 and July 1, 2007
differed from the U.S. federal statutory rate of 35% primarily due to state
income taxes, partially offset by various tax credits.
At June 28, 2009, the Company's federal net operating loss carryforwards were
approximately $4.2 million, which, if not utilized, will begin to expire in
fiscal year 2025.
Discontinued Operations
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. Consequently, the Company has classified the results of operations
of its Home & Children's Gifts segment as discontinued operations for all
periods presented.
Results for discontinued operations are as follows:
Years Ended
---------------------------------------------------------------------
June 28, June 29, July 1,
2009 % Change 2008 % Change 2007
-------------- ------------- ------------- ------------- -----------
(in thousands)
Net revenues from discontinued operations $143,746 (20.2%) $180,181 (3.6%) $186,948
Gross profit from discontinued operations 67,439 (17.2%) 81,459 (5.2%) 85,899
Operating income (loss) from discontinued operations (4,996) (179.9%) (1,785) 73.5% (6,727)
Impairment of discontinued operations (34,758) - - - -
Income (loss) from discontinued operations (31,916) (3,173.4%) (975) 74.8% (3,863)
The Home & Children's Gifts category includes revenues from Plow & Hearth, Wind
& Weather, HearthSong and Magic Cabin brands. Revenue is derived from the sale
of home decor and children's gifts through its E-commerce sales channels
(telephonic and online sales) and company-owned and operated retail stores under
the Plow & Hearth brand.
During the fiscal years ended June 28, 2009 and June 29, 2008, net revenues from
discontinued operations decreased by 20.2% and 3.6%, respectively, over the
prior year periods primarily as a result of lower order volume from the
E-commerce sales channel, due to a combination of reduced consumer spending,
particularly in the home decor product category, and a planned reduction in
catalog circulation, including the elimination of the Madison Place and Problem
Solvers catalog titles in fiscal 2008. Further contributing to the revenue
decline were lower retail store sales, compared to the same periods of the prior
year, due to a decline in customer traffic.
Gross profit from discontinued operations during the fiscal years ended June 28,
2009 and June 29, 2008, decreased by 17.2% and 5.2%, respectively, over the
prior year periods as a result of the aforementioned revenue declines. Gross
margin percentage during fiscal 2009 increased 170 basis points to 46.9%,
benefiting from enhanced product sourcing and shipping initiatives, while during
fiscal 2008, the gross margin percentage declined 70 basis points to 45.2%, due
to promotional offers designed to re-engage core customers who had left the
brand during fiscal 2007 when it had unsuccessfully moved away from its
traditional product offerings, as well as from higher fuel surcharges on its
outbound shipments.
Operating income (loss) from discontinued operations during the fiscal year
ended June 28, 2009 includes approximately $0.4 million of restructuring costs
associated with the Company's cost reduction initiatives.
During fiscal 2009, the Home and Children's Gift segment experienced significant
declines in revenue and operating performance when compared to prior years and
their strategic outlook. The Company believes that this weak performance was
attributable to reduced consumer spending due to the overall weakness in the
economy, and in particular, as a result of the continued decline in demand for
home decor products. As a result of these factors, as well as the Company's
plans to resize this category based on the expectation of continued weakness in
the home decor retail sector, upon completion of the Company's impairment
analysis, the goodwill and intangibles related to this reporting unit were
deemed to be fully impaired. Therefore the Company recorded a goodwill and
35
intangible impairment charge of $20.0 million related to this business segment.
In the fourth quarter ended June 28, 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment. Consequently,
the Company has classified the results of its Home & Children's Gifts segment as
a discontinued operation, and recorded a charge of $14.7 million to write-down
the assets of the discontinued business to management's estimate of their fair
value.
36
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of
operations for each quarter of fiscal years 2009 and 2008. The Company believes
this unaudited information has been prepared substantially on the same basis as
the annual audited consolidated financial statements and all necessary
adjustments, consisting of only normal recurring adjustments, have been included
in the amounts stated below to present fairly the Company's results of
operations. The operating results for any quarter are not necessarily indicative
of the operating results for any future period.
Three months ended
------------------------------------------------------------------------------------------
Jun.29, Mar.28, Dec.28, Sep.28, Jun. 29, Mar. 30, Dec.30, Sep. 30,
2009 2009 2008 2008 2008 2008 2007 2007
--------- ----------- ---------- ----------- --------- ---------- ---------- -------------
(in thousands, except per share data)
Net revenues:
E-commerce (telephonic/online) $138,090 $115,449 $157,085 $87,896 $154,284 $155,060 $181,817 $93,002
Other 34,372 39,030 94,486 47,542 32,661 39,942 54,372 28,073
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Total net revenues 172,462 $154,479 $251,571 $135,438 $186,945 $195,002 $236,189 $121,075
Cost of revenues 105,876 92,768 150,858 83,242 110,751 115,041 129,724 71,400
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Gross profit 66,586 61,711 100,713 52,196 76,194 79,961 106,465 49,675
Operating expenses:
Marketing and sales 45,776 43,429 54,560 32,074 45,953 48,985 57,042 31,450
Technology and development 5,951 5,205 4,781 5,063 4,925 4,985 4,886 4,815
General and administrative 13,582 11,886 10,929 14,054 12,646 11,745 13,877 13,839
Depreciation and amortization 5,282 5,559 5,094 5,075 4,871 4,365 4,333 4,253
Goodwill and intangible impairment 8,978 76,460 - - - - - -
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Total operating expenses 79,569 142,539 75,364 56,266 68,395 70,080 80,138 54,357
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Operating income (loss) (12,983) (80,828) 25,349 (4,070) 7,799 9,881 26,327 (4,682)
Other income (expense), net (*) (4,810) (1,000) (2,420) (1,065) (541) (741) (1,488) (1,400)
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Income (loss) from continuing
operations before income taxes (17,793) (81,828) 22,929 (5,135) 7,258 9,140 24,839 (6,082)
Income tax expense (benefit) (4,713) (17,569) 8,973 (2,017) 2,432 3,077 10,028 (2,411)
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Income (loss) from continuing (13,080) (64,259) 13,956 (3,118) 4,826 6,063 14,811 (3,672)
operations
Loss from discontinued operations,
before income taxes (14,269) (3,309) (18,559) (3,617) (1,072) (4,584) 7,359 (3,488)
Income tax expense (benefit) (5,122) (1,793) 508 (1,431) (544) (1,811) 2,914 (1,369)
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Loss from discontinued operations (9,147) (1,516) (19,067) (2,186) (528) (2,773) 4,445 (2,119
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Net income (loss) $(22,227) $(65,775) $(5,111) $(5,304) $4,298 $3,290 $19,256 $(5,790)
=========== ========== ========= ========= =========== =========== ============ ===========
Net income (loss) per common share
(basic):
From continuing operations ($0.21) ($1.00) $0.22 ($0.05) $0.08 $0.10 $0.24 ($0.06)
From discontinued operations (0.14) (0.02) (0.30) (0.03) (0.01) (0.04) 0.07 (0.03)
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Net income (loss) per common share
(basic) ($0.35) ($1.03) ($0.08) ($0.08) $0.07 $0.05 $0.31 ($0.09)
=========== ========== ========= ========= =========== =========== ============ ===========
Net income (loss) per common share
(diluted):
From continuing operations ($0.21) ($1.00) $0.22 ($0.05) $0.07 $0.09 $0.22 ($0.06)
From discontinued operations (0.14) (0.02) (0.30) (0.03) (0.01) (0.04) 0.07 (0.03)
----------- ---------- --------- --------- ----------- ----------- ------------ -----------
Net income (loss) per common share
(diluted) ($0.35) ($1.03) ($0.08) ($0.08 $0.07 $0.05 $0.29 ($0.09)
=========== ========== ========= ========= =========== =========== ============ ===========
Basic 63,466 63,646 63,631 63,518 63,386 63,261 63,020 62,638
=========== ========== ========= ========= =========== =========== ============ ===========
Diluted 63,466 63,646 63,631 63,518 65,462 65,413 66,050 62,638
=========== ========== ========= ========= =========== =========== ============ ===========
(*) Other income (expense), net during the three months ended June 28, 2009
includes the write-off of deferred financing costs of approximately $3.2 million
related to the April 14, 2009 modification of the Company's 2008 Credit
Facility.
37
The Company's quarterly results may experience seasonal fluctuations. Due to the
Company's expansion into non-floral products, including the recent acquisition
of DesignPac Gifts, LLC, which was acquired in May 2008, the Thanksgiving
through Christmas holiday season, which falls within the Company's second fiscal
quarter, generates the highest proportion of the Company's annual revenues.
Additionally, as the result of a number of major floral gifting occasions,
including Mother's Day, Administrative Professionals Week and Easter, revenues
also rise during the Company's fiscal fourth quarter.
Liquidity and Capital Resources
At June 28, 2009, the Company had working capital of $43.7 million, including
cash and equivalents of $29.6 million, compared to working capital of $33.4
million, including cash and equivalents of $12.1 million, at June 29, 2008.
Net cash provided by operating activities of $28.2 million for the fiscal year
ended June 28, 2009 was attributable to operating income, after adjusting for
non-cash charges related to goodwill and other intangible charges ($85.4
million), impairment from discontinued operations ($34.8 million) and
depreciation and amortization, offset by an increase in deferred taxes as a
result of the non-cash charges related to goodwill and other intangibles, as
well as seasonal changes in working capital including lower accounts payable and
accrued expenses related to timing of vendor purchases, and increases in
inventory due to the upcoming launch of the Company's 1-800-BASKETS.com brand
and unfavorable revenues. Net cash provided by operating activities includes
cash provided by the operating activities of discontinued operations of $7.2
million.
Net cash used in investing activities of $25.2 million for the fiscal year ended
June 28, 2009 was attributable to capital expenditures, primarily related to the
Company's technology and distribution infrastructure, and the acquisition of
Napco in July 2008 and Geerlings & Wade in March 2009. Napco's purchase price of
approximately $9.4 million, included an up-front cash payment of $9.3 million,
net of cash acquired, and the expected portion of "earn-out" incentives, which
amount to a maximum of $1.6 million through the years ending July 2, 2012, upon
achievement of specified performance targets. As of June 28, 2009, the Company
does not expect that any of the specified performance targets will be achieved.
Net cash provided by financing activities of $14.5 million for the fiscal year
ended June 28, 2009 was primarily from bank borrowings related to the Company's
2008 Credit Facility, as subsequently amended, net of the repayment of bank
borrowings on outstanding debt and long-term capital lease obligations, as well
as debt issuance costs.
In order to fund the increase in working capital requirements associated with
DesignPac, on August 28, 2008, the Company entered into a $293.0 million Amended
and Restated Credit Agreement with JPMorgan Chase Bank N.A., as administrative
agent, and a group of lenders (the "2008 Credit Facility"). The 2008 Credit
Facility provided for borrowings of up to $293.0 million, including: (i) a
$165.0 million revolving credit commitment, (ii) $60.0 million of new term loan
debt, and (iii) $68.0 million of existing term loan debt associated with the
Company's previous credit facility.
On April 14, 2009, the Company entered into an amendment to the 2008 Credit
Facility (the "Amended 2008 Credit Facility"). The Amended 2008 Credit Facility,
effective March 29, 2009, included a prepayment of $20.0 million, reducing the
Company's outstanding term loans under the facility to $92.4 million upon
closing. In addition, the amendment reduced the Company's revolving credit line
from $165.0 million to a seasonally adjusted line ranging from $75.0 to $125.0
million. Outstanding amounts under the Amended 2008 Credit Facility will bear
interest at the Company's option at either: (i) LIBOR plus a defined margin, or
(ii) the agent bank's prime rate plus a margin. The applicable margins for the
Company's term loans and revolving credit facility will range from 3.00% to
4.50% for LIBOR loans and 2.00% to 3.50% for ABR loans with pricing based upon
the Company's leverage ratio. The repayment terms of the existing term loans
were reduced, on a pro-rata basis, for the $20.0 million prepayment.
As a result of the modifications of its credit agreements, during the quarter
ended June 28, 2009, the Company wrote-off $3.2 million of financing costs
associated with the term debt related to both the 2008 Credit Facility and the
Amended 2008 Credit Facility.
During March 2009, the Company obtained a $5.0 million equipment lease line of
credit with a bank and a $5.0 million equipment lease line of credit with a
vendor. Interest under these lines, which both mature in April 2012, range from
2.99% to 7.48%. The borrowings are payable in 36 monthly installments of
principal and interest commencing in April 2009.
38
At June 28, 2009, the Company had no outstanding amounts under its revolving
credit facility.
On January 21, 2008, the Company's Board of Directors authorized an increase to
its stock repurchase plan which, when added to the funds remaining on its
earlier authorization, increased the amount available for repurchase to $15.0
million. Any such purchases could be made from time to time in the open market
and through privately negotiated transactions, subject to general market
conditions. The repurchase program will be financed utilizing available cash.
The Company repurchased $0.8 million of common stock during the year ended June
28, 2009. As of June 28, 2009, $13.2 million remains authorized but unused.
Under this program, as of June 28, 2009, the Company had repurchased 2,058,685
shares of common stock for $13.1 million, of which $0.8 million (397,899
shares), $1.1 million (133,609 shares) and $0.2 million (24,627 shares) were
repurchased during the fiscal years ending June, 28, 2009, June 29, 2008 and
July 1, 2007, respectively. In a separate transaction, during fiscal 2007, the
Company's Board of Directors authorized the repurchase of 3,010,740 shares of
common stock from an affiliate. The purchase price was $15,689,000, or $5.21 per
share. The repurchase was approved by the disinterested members of the Company's
Board of Directors and was in addition to the Company's then existing stock
repurchase authorization.
At June 28, 2009, the Company's contractual obligations from continuing
operations consist of:
Payments due by period
-----------------------------------------------------------------------------------
(in thousands)
Less than More than 5
Total 1 year 1 - 2 years 3 - 5 years years
------------- ------------ -------------- ------------- ---------------
Long-term debt, including interest $97,255 $24,764 $59,646 $12,845 $-
Capital lease obligations, 6,214 2,264 3,944 6 -
including interest
Operating lease obligations 50,107 11,441 19,078 13,873 5,715
Sublease obligations 7,721 2,455 3,406 1,469 391
Marketing Agreement 7,000 3,500 3,500
Purchase commitments (*) 29,521 29,521 - - -
------------- ------------ -------------- ------------- ---------------
Total $197,818 $73,945 $89,574 $28,193 $6,106
============= ============ ============== ============= ===============
(*) Purchase commitments consist primarily of inventory, equipment purchase
orders and online marketing agreements made in the ordinary course of business.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial position and results of
operations are based upon the consolidated financial statements of
1-800-FLOWERS.COM, Inc., which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amount of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, management
evaluates its estimates, including those related to revenue recognition,
inventory and long-lived assets, including goodwill and other intangible assets
related to acquisitions. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions. Management believes the following critical accounting policies,
among others, affect its more significant judgments and estimates used in
preparation of its consolidated financial statements.
Revenue Recognition
Net revenues are generated by E-commerce operations from the Company's online
and telephonic sales channels as well as other operations (retail/wholesale) and
primarily consist of the selling price of merchandise, service or outbound
shipping charges, less discounts, returns and credits. Net revenues are
recognized upon product shipment. Shipping terms are FOB shipping point. Net
revenues generated by the Company's BloomNet Wire Service operations include
membership fees as well as other products and service offerings to florists.
Membership fees are recognized monthly in the period earned, and products sales
are recognized upon product shipment with shipping terms of FOB shipping point.
39
Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers or franchisees to make required
payments. If the financial condition of the Company's customers or franchisees
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Inventory
The Company states inventory at the lower of cost or market. In assessing the
realization of inventories, we are required to make judgments as to future
demand requirements and compare that with inventory levels. It is possible that
changes in consumer demand could cause a reduction in the net realizable value
of inventory.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired and is evaluated annually for impairment. The cost of
intangible assets with determinable lives is amortized to reflect the pattern of
economic benefits consumed, on a straight-line basis, over the estimated periods
benefited, ranging from 3 to 16 years.
The Company performs an annual impairment test as of the first day of its fiscal
fourth quarter, or earlier if indicators of potential impairment exist, to
evaluate goodwill. Goodwill is considered impaired if the carrying amount of the
reporting unit exceeds its estimated fair value. In assessing the recoverability
of goodwill, the Company reviews both quantitative as well as qualitative
factors to support its assumptions with regard to fair value. Judgment regarding
the existence of impairment indicators is based on market conditions and
operational performance of the Company. Future events could cause the Company to
conclude that impairment indicators exist and that goodwill and other intangible
assets associated with our acquired businesses is impaired.
Capitalized Software
The carrying value of capitalized software, both purchased and internally
developed, is periodically reviewed for potential impairment indicators. Future
events could cause the Company to conclude that impairment indicators exist and
that capitalized software is impaired.
Stock-based Compensation
SFAS No. 123R requires the measurement of stock-based compensation expense based
on the fair value of the award on the date of grant. The Company determines the
fair value of stock options issued by using the Black-Scholes option-pricing
model. The Black-Scholes option-pricing model considers a range of assumptions
related to volatility, dividend yield, risk-free interest rate and employee
exercise behavior. Expected volatilities are based on historical volatility of
the Company's stock price. The dividend yield is based on historical experience
and future expectations. The risk-free interest rate is derived from the US
Treasury yield curve in effect at the time of grant. The Black-Scholes model
also incorporates expected forfeiture rates, based on historical behavior.
Determining these assumptions are subjective and complex, and therefore, a
change in the assumptions utilized could impact the calculation of the fair
value of the Company's stock options.
Income Taxes
The Company has established deferred income tax assets and liabilities for
temporary differences between the financial reporting bases and the income tax
bases of its assets and liabilities at enacted tax rates expected to be in
effect when such assets or liabilities are realized or settled. The Company has
recognized as a deferred tax asset the tax benefits associated with losses
related to operations, which are expected to result in a future tax benefit.
Realization of this deferred tax asset assumes that we will be able to generate
sufficient future taxable income so that these assets will be realized. The
factors that we consider in assessing the likelihood of realization include the
forecast of future taxable income and available tax planning strategies that
could be implemented to realize the deferred tax assets.
It is the Company's policy to provide for uncertain tax positions and the
related interest and penalties based upon management's assessment of whether a
40
tax benefit is more-likely-than-not to be sustained upon examination by taxing
authorities. To the extent that the Company prevails in matters for which a
liability for an unrecognized tax benefit is established or is required to pay
amounts in excess of the liability, the Company's effective tax rate in a given
financial statement period may be affected.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162." SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 162 is effective for the Company's interim reporting
period ending on September 27, 2009. The Company does not anticipate the
adoption of SFAS No. 168 will have a material impact on its financial position,
results of operations or cash flows.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No. 165 is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This SFAS requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis
for that date. The disclosure requirement under this SFAS is effective for the
Company's annual reporting for the fiscal year ended on June 28, 2009.
In April 2009, the FASB issued FSP SFAS No. 141(R)-1, "Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies." FSP SFAS No. 141(R)-1 will amend the provisions related to the
initial recognition and measurement, subsequent measurement and disclosure of
assets and liabilities arising from contingencies in a business combination
under SFAS No. 141(R), "Business Combinations." The FSP will carry forward the
requirements in SFAS No. 141, "Business Combinations," for acquired
contingencies, thereby requiring that such contingencies be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period. Otherwise, entities would typically account for the
acquired contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies." The FSP will have the same effective date as SFAS No. 141(R),
and will therefore be effective for the Company's business combinations for
which the acquisition date is on or after July 1, 2009. The Company is currently
evaluating the impact of the implementation of FSP SFAS No. 141(R)-1 on its
consolidated financial position, results of operations and cash flows.
In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, "Interim
Disclosures about Fair Value of Financial Instruments." FSP SFAS No. 107-1 and
APB 28-1 enhances consistency in financial reporting by increasing the frequency
of fair value disclosures. The FSP relates to fair value disclosures for any
financial instruments that are not currently reflected on a company's balance
sheet at fair value. Prior to the effective date of this FSP, fair values for
these assets and liabilities have only been disclosed once a year. The FSP will
now require these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. The disclosure
requirement under this FSP is effective for the Company's interim reporting
period ending on September 27, 2009.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R and other generally accepted
accounting principles. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company is currently evaluating
the impact, if any, that this FSP will have on its results of operations,
financial position or cash flows.
In December 2007, the FASB issued Statement No. 141 (Revised), "Business
Combinations" ("SFAS No. 141R") and SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements ("SFAS 160"). SFAS No. 141R and SFAS 160
revise the method of accounting for a number of aspects of business combinations
and non-controlling interests, including acquisition costs, contingencies
(including contingent assets, contingent liabilities and contingent purchase
price), the impacts of partial and step-acquisitions (including the valuation of
net assets attributable to non-acquired minority interests), and post
acquisition exit activities of acquired businesses. SFAS 141R and SFAS 160 will
be effective for the Company during the fiscal year beginning June 29, 2009. The
41
Company cannot anticipate whether the adoption of SFAS No. 141R will have a
material impact on its results of operations and financial condition as the
impact is solely dependent on the terms of any business combination entered into
by the Company after June 29, 2009.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations
due to changes in interest rates primarily from its investment
of available cash balances in money market funds and investment
grade corporate and U.S. government securities, as well as from
outstanding debt. As of June 28, 2009, the Company's outstanding
debt, including current maturities, approximated $92.9 million, of
which $87.4 million was variable rate debt. Each 25 basis point
change in interest rates would have a corresponding effect on our
interest expense of approximately $0.2 million as of June 28, 2009.
In July 2009 the Company entered into interest rate hedge contracts
totaling $45.0 million to manage its exposure to changes in the
fair value of debt due in fiscal 2010 through 2012. The effect of
these hedges is to change the variable rate interest to a fixed
rate.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Annual Financial Statements: See Part IV, Item 15 of this Annual
Report on Form 10-K. Selected Quarterly Financial Data: See Part
II, Item 7 of this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Company's disclosure controls and
procedures, as defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as of June 28, 2009. Based on that
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls
and procedures were effective as of June 28, 2009.
42
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules
13-a-15(f) and 15d-15(f) under the Exchange Act as a process designed
by, or under the supervision of, the Company's principal executive and
principal financial officers and effectuated by the Company's board of
directors, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:
o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only
in accordance with authorization of management and directors of
the Company; and
o provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed the effectiveness of the Company's internal
control over financial reporting as of June 28, 2009. In making this
assessment, management used the criteria established in "Internal
Control-Integrated Framework," issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on this assessment, management believes that, as of June 28,
2009 the Company's internal control over financial reporting is
effective.
The Company acquired Napco Marketing Corp. on July 21, 2008, and has
excluded the acquired company from its assessment of and conclusion on
the effectiveness of internal control over financial reporting. The
acquired business constituted approximately 3% of total assets as of
June 28, 2009, and less than two percent of net revenues for the
fiscal year then ended.
Ernst & Young LLP, the Company's independent registered public
accounting firm, has issued a report on the effectiveness of the
Company's internal control over financial reporting, as of June 28,
2009; their report is included below.
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of 1-800-FLOWERS.COM, Inc. and
Subsidiaries
We have audited 1-800-FLOWERS.COM, Inc. and Subsidiaries (the "Company")
internal control over financial reporting as of June 28, 2009, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
Company's management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company's internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As indicated in the accompanying Management's Report on Internal Control over
financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Napco Marketing Corp., which is included in the fiscal 2009
consolidated financial statements of the Company and constituted approximately
3% of total assets as of June 28, 2009 and 2% of net revenues for the fiscal
year then ended. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over
financial reporting of Napco Marketing Corp.
In our opinion, 1-800-FLOWERS.COM, Inc. and Subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
June 28, 2009, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
1-800-FLOWERS.COM, Inc. and Subsidiaries as of June 28, 2009 and June 29, 2008,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 28, 2009 and our
report dated September 11, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Melville, New York
September 11, 2009
44
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fiscal quarter ended June 28, 2009 that have
materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
45
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth in the Proxy Statement for the 2009
annual meeting of stockholders is incorporated herein by reference.
The Company maintains a Code of Ethics, which is applicable to all
directors, officers and employees on the Investor Relations-
Corporate Governance tab of the Company's website at
www.1800flowers.com. Any amendment or waiver to the Code of Ethics
that applies to our directors or executive officers will be posted
on our website or in a report filed with the SEC on Form 8-K. A
copy of the Code of Ethics is available without charge upon written
request to: Investor Relations, 1-800-FLOWERS.COM, Inc., One Old
Country Road, Suite 500, Carle Place, New York 11514.
Item 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement for the 2009
Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth in the Proxy Statement for the 2009
Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information set forth in the Proxy Statement for the 2009
Annual Meeting of Stockholders is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth in the Proxy Statement for the 2009
Annual Meeting of Stockholders is incorporated herein by reference.
46
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Index to Consolidated Financial Statements:
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of June 28, 2009 and June 29, 2008 F-2
Consolidated Statements of Operations for the years ended June 28, 2009
June 29, 2008 and July 1, 2007 F-3
Consolidated Statements of Stockholders' Equity for the years ended
June 28, 2009, June 29, 2008 and July 1, 2007 F-4
Consolidated Statements of Cash Flows for the years ended June 28, 2009
June 29, 2008 and July 1, 2007 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) Index to Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts S-1
All other information and financial statement schedules are omitted because
they are not applicable, or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
(a) (3) Index to Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to
exhibits or appendices previously filed with the Securities and Exchange
Commission, as indicated by the reference in brackets. All other exhibits
are filed herewith. Exhibits 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8 are
management contracts or compensatory plans or arrangements.
Exhibit Description
------- -----------
*3.1 Third Amended and Restated Certificate of Incorporation. (Registration
Statement on Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit
3.1)
*3.2 Amendment No. 1 to Third Amended and Restated Certificate of
Incorporation. (Registration Statement on Form S-1/A (No. 333-78985)
filed on July 22, 1999, Exhibit 3.2)
*3.3 Amended and Restated By-laws. (Registration Statement on Form S-1
(No 333-78985) filed on May 21, 1999, Exhibit 3.3)
*4.1 Specimen Class A common stock certificate. (Registration Statement on
Form S-1/A (No. 333-78985 filed on July 9, 1999, Exhibit 4.1)
*4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and By-laws of the Registrant defining the rights of
holders of Common Stock of the Registrant.
*10.3 1997 Stock Option Plan, as amended. (Registration Statement on Form
S-1 (no. 333-78985) filed on May 21, 1999, Exhibit 10.10)
*10.4 1999 Stock Incentive Plan. (Registration Statement on Form S-1/A (No.
333-78985) filed on July 27, 1999, Exhibit 10.18)
*10.5 Employment Agreement, effective as of July 1, 1999, between James F.
McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No. 333-78985) filed
on July 9, 1999, Exhibit 10.19)
*10.6 Amendment dated December 3, 2008 to Employment Agreement, between
James F. McCann and 1-800-FLOWERS.COM, Inc. (quarterly reports on Form
10-Q filed on February 6, 2009, Exhibit 10.1)
*10.7 Employment Agreement, effective as of July 1, 1999, between
Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No.
333-78985) filed on July 9, 1999, Exhibit 10.20)
*10.8 Amendment dated December 3, 2008 to Employment Agreement between
Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (quarterly reports
on Form 10-Q filed on February 6, 2009, Exhibit 10.2).
*10.9 2003 Long Term Incentive and Share Award Plan. (Definitive Proxy
Statement filed on October 27, 2003 (No. 000-26841), Annex D)
*10.10 Employment Agreement, dated as of May 2, 2006, by and among 1-800-
FLOWERS.COM, Inc., Fannie May Confections Brands, Inc. and David
Taiclet. (Annual Report on Form 10-K for the fiscal year ended July 3,
2005 filed on September 15, 2006, Exhibit 10.8).
*10.11 Lease, dated May 20, 2005, between Treeline Mineola, LLC and 1-800-
FLOWERS.COM, Inc. (Annual Report on Form 10-K for the fiscal year
ended July 3, 2005 filed on September 15, 2005, Exhibit 10.26)
47
10.12 Offer letter to Julie McCann Mulligan.
*10.13 Offer letter to Timothy J. Hopkins (quarterly reports on Form 10-Q
filed on November 8, 2007, Exhibit 10.3).
10.14 Amendment dated July 20, 2009 to Offer Letter to Timothy J. Hopkins.
*10.15 Offer letter to Stephen Bozzo (quarterly reports on Form 10-Q filed on
November 8, 2007, Exhibit 10.4).
*10.16 Form of Restricted Share Agreement under 2003 Long Term Incentive and
Share Award Plan. (Annual Report on Form 10-K for the fiscal year
ended June 29, 2008 filed on September 12, 2008, Exhibit 10.15)
*10.17 Form of Incentive Stock Option Agreement under 2003 Long Term
Incentive and Share Award Plan. (Annual Report on Form 10-K for the
fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit
10.16)
*10.18 Form of Non-statutory Stock Option Agreement under 2003 Long Term
Incentive and Share Award Plan. (Annual Report on Form 10-K for the
fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit
10.17)
*10.19 Amended and Restated Credit Agreement dated as of August 28, 2008
among 1-800-Flowers.com, Inc, The Subsidiary Borrowers Party hereto,
The Guarantors Party hereto, The Lenders Party hereto and J.P. Morgan
Chase Bank, N.A., as Administrative Agent.(Annual Report on Form 10-K
for the fiscal year ended June 29, 2008 filed on September 12, 2008,
Exhibit 10.18).
*10.20 First Amendment to Amended and Restated Credit Agreement dated as of
April 14, 2009 among 1-800-Flowers.com, Inc, The Subsidiary Borrowers
Party hereto, The Guarantors Party hereto, The Lenders Party hereto
and J.P. Morgan Chase Bank, N.A., as Administrative Agent. (Current
Report on Form 8-K filed with the SEC on April 16, 2009, Exhibit 99.B)
*10.21 Second Amendment to Amended and Restated Credit Agreement dated as of
May 21, 2009 among 1-800-Flowers.com, Inc, The Subsidiary Borrowers
Party hereto, The Guarantors Party hereto, The Lenders Party hereto
and J.P. Morgan Chase Bank, N.A., as Administrative Agent. (Current
Report on Form 8-K filed with the SEC on May 26, 2009, Exhibit 99.1)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
----------------------------------------------
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 11, 2009 1-800-FLOWERS.COM, Inc.
By: /s/ James F. McCann
----------------------------
James F. McCann
Chief Executive Officer
Chairman of the Board of Directors
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated below:
Dated: September 11, 2009 By: /s/ James F. McCann
-------------------------
James F. McCann
Chief Executive Officer
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: September 11, 2009 By: /s/ William E. Shea
--------------------------
William E. Shea
Senior Vice President Finance and
Administration (Principal Financial
and Accounting Officer)
49
Dated: September 11, 2009 By: /s/ Christopher G. McCann
-------------------------------
Christopher G. McCann
Director, President
Dated: September 11, 2009 By: /s/ Lawrence Calcano
-------------------------------
Lawrence Calcano
Director
Dated: September 11, 2009 By: /s/ James A. Cannavino
-------------------------------
James A. Cannavino
Director
Dated: September 11, 2009 By: /s/ John J. Conefry, Jr.
-------------------------------
John J. Conefry, Jr.
Director
Dated: September 11, 2009 By: /s/ Leonard J. Elmore
-------------------------------
Leonard J. Elmore
Director
Dated: September 11, 2009 By: /s/ Jan L. Murley
-------------------------------
Jan L. Murley
Director
Dated: September 11, 2009 By: /s/ Jeffrey C. Walker
-------------------------------
Jeffrey C. Walker
Director
Dated: September 11, 2009 By: /s/ Larry Zarin
-------------------------------
Larry Zarin
Director
50
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
1-800-FLOWERS.COM, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
1-800-FLOWERS.COM, Inc. and Subsidiaries (the "Company") as of June 28, 2009 and
June 29, 2008, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended June 28, 2009. Our audits also included the financial statement schedule
listed in the index at Item 15(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 1-800-FLOWERS.COM,
Inc. and Subsidiaries at June 28, 2009 and June 29, 2008, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 28, 2009, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements the Company
adopted FASB Statement No. 165, Subsequent Events, effective for annual periods
ending after June 15, 2009. As discussed in Note 9 to the consolidated financial
statements the Company adopted FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,"
effective July 2, 2007.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), 1-800-FLOWERS.COM, Inc. and
Subsidiaries' internal control over financial reporting as of June 28, 2009,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated September 11, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Melville, New York
September 11, 2009
F-1
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
June 28, June 29,
2009 2008
------------- ------------
Assets
Current assets:
Cash and equivalents $ 29,562 $ 12,124
Receivables, net 11,335 12,471
Inventories 45,854 38,844
Deferred tax assets 12,666 7,977
Prepaid and other 4,518 4,263
Current assets of discontinued operations 18,143 33,871
------------- ------------
Total current assets 122,078 109,550
Property, plant and equipment, net 54,770 50,275
Goodwill 41,205 105,899
Other intangibles, net 42,822 65,421
Deferred income taxes 11,725 -
Other assets 3,952 3,912
Non-current assets of discontinued operations 9,575 36,281
------------- ------------
Total assets $286,127 $371,338
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $52,251 $57,815
Current maturities of long-term debt and obligations under capital leases 22,337 12,801
Current liabilites of discontinued operations 3,811 5,518
------------- ------------
Total current liabilities 78,399 76,134
Long-term debt and obligations under capital leases 70,518 55,250
Deferred tax liabilities - 5,527
Other liabilities 3,270 2,759
Non-current liabilities of discontinued operations 157 203
------------- ------------
Total liabilities 152,344 139,873
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued - -
Class A common stock, $.01 par value, 200,000,000 shares authorized, 31,730,404
and 31,368,241 shares issued in 2009 and 2008, respectively 317 314
Class B common stock, $.01 par value, 200,000,000 shares authorized, 42,138,465
shares issued in 2009 and 2008 421 421
Additional paid-in capital 281,247 279,718
Retained deficit (116,256) (17,839)
Treasury stock, at cost, 5,122,225 and 4,724,326 Class A shares in 2009 and 2008,
respectively, and 5,280,000 Class B shares (31,946) (31,149)
------------- ------------
Total stockholders' equity 133,783 231,465
------------- ------------
Total liabilities and stockholders' equity $286,127 $371,338
============= ============
See accompanying notes.
F-2
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Years ended
--------------------------------------------
June 28, June 29, July 1,
2009 2008 2007
-------------- ------------- -------------
Net revenues $713,950 $739,211 $725,650
Cost of revenues 432,744 426,916 419,083
-------------- ------------- -------------
Gross profit 281,206 312,295 306,567
Operating expenses:
Marketing and sales 175,839 183,430 180,238
Technology and development 21,000 19,611 18,871
General and administrative 50,451 52,107 50,236
Depreciation and amortization 21,010 17,822 15,353
Goodwill and intangible impairment 85,438 - -
-------------- ------------- -------------
Total operating expenses 353,738 272,970 264,698
-------------- ------------- -------------
Operating income (loss) (72,532) 39,325 41,869
Other income (expense):
Interest income 314 826 1,077
Interest expense (6,269) (5,039) (7,212)
Deferred financing write-off (3,245) - -
Other, net (95) 43 2
-------------- ------------- -------------
Total other income (expense), net (9,295) (4,170) (6,133)
-------------- ------------- -------------
Income (loss) from continuing operations before income taxes (81,827) 35,155 35,736
Income tax expense (benefit) from continuing operations (15,326) 13,126 14,755
-------------- ------------- -------------
Income (loss) from continuing operations (66,501) 22,029 20,981
-------------- ------------- -------------
Operating income (loss) from discontinued operations (4,996) (1,785) (6,727)
Impairment of discontinued business (34,758) - -
Income tax expense (benefit) from discontinued operations (7,838) (810) (2,864)
-------------- ------------- -------------
Loss from discontinued operations (31,916) (975) (3,863)
-------------- ------------- -------------
Net income (loss) ($98,417) $21,054 $17,118
============== ============= =============
Net income (loss) per common share (basic):
From continuing operations ($1.05) $0.35 $0.33
From discontinued operations (0.50) (0.02) (0.06)
-------------- ------------- -------------
Net income (loss) per common share (basic) ($1.55) $0.33 $0.27
============== ============= =============
Net income (loss) per common share (diluted):
From continuing operations ($1.05) $0.34 $0.32
From discontinued operations (0.50) (0.01) (0.06)
-------------- ------------- -------------
Net income (loss) per common share (diluted) ($1.55) $0.32 $0.26
============== ============= =============
Weighted average shares used in the calculation of net income
(loss) per common share:
Basic 63,565 63,074 63,786
============== ============= =============
Diluted 63,565 65,458 65,526
============== ============= =============
See accompanying notes.
F-3
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended June 28, 2009, June 29, 2008 and July 1, 2007
(in thousands, except share data)
Common Stock
--------------------------------------
Class A Class B Additional Treasury Stock
------------------- ------------------- Paid-in Retained ------------------ Stockholders'
Shares Amount Shares Amount Capital Deficit Shares Amount Equity
---------- -------- ----------- -------- ---------- ----------- ------------ ----------- -------------
Balance at
July 2, 2006 29,872,183 $299 42,138,465 $421 $262,667 $(56,011) 6,835,350 $(14,193) $193,183
Exercise of
employee stock
options and
vesting of
resricted stock 425,836 4 - - 2,003 - - - 2,007
Stock-based
compensation - - - - 4,600 - - - 4,600
Stock repurchase
Program - - - - - - 3,035,367 (15,877) (15,877)
Net Income - - - - - 17,118 - - 17,118
---------- -------- ----------- -------- ---------- ----------- ------------ ----------- -------------
Balance at July 1,
2007 30,298,019 303 42,138,465 421 269,270 (38,893) 9,870,717 (30,070) 201,031
Exercise of
employee stock
options and vesting
of restricted stock 1,070,222 11 - - 4,718 - - - 4,729
Stock-based
compensation - - - - 3,534 - - - 3,534
Excess tax benefit
from stock based
compensation - - - - 2,196 - - - 2,196
Stock repurchase
program - - - - - - 133,609 (1,079) (1,079)
Net Income - - - - - 21,054 - - 21,054
---------- -------- ----------- -------- ---------- ----------- ------------ ----------- -------------
Balance at June
29, 2008 31,368,241 314 42,138,465 421 279,718 (17,839) 10,004,326 (31,149) 231,465
Exercise of
employee stock
options and vesting
of restricted stock 362,163 3 - - 111 - - - 114
Stock-based
compensation - - - - 1,724 - - - 1,724
Deferred tax asset
stock option
shortfall - - - - (306) - - - (306)
Stock repurchase
program - - - - - - 397,899 (797) (797)
Net Loss - - - - - (98,417) - - (98,417)
---------- -------- ----------- -------- ---------- ----------- ------------ ----------- -------------
Balance at
June 29, 2008 31,730,404 $317 42,138,465 $421 $281,247 ($116,256) 10,402,225 ($31,946) $133,783
See accompanying notes.
F-4
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Years ended
------------------------------------------------
June 28, 2009 June 29, 2008 July 1, 2007
--------------- --------------- ---------------
Operating activities:
Net income (loss) ($98,417) $21,054 $17,118
Reconciliation of net income (loss) to net cash provided by
operating activities, net of acquisitions:
Operating activities of discontinued operations 7,210 3,009 893
Depreciation and amortization 21,010 17,624 15,353
Amortization of deferred financing costs 3,751 198 -
Deferred income taxes (22,249) 8,582 12,622
Stock-based compensation 1,724 3,534 4,600
Excess tax benefit from stock-based compensation - (2,196) -
Bad debt expense 2,264 2,094 1,713
Goodwill and intangible asset impairment from
continuing operations 85,426 -
Impairment from discontinued operations 34,758 -
Other non-cash items (166) 809 (791)
Changes in operating items, excluding the effects of
acquisitions:
Receivables 516 848 (6,176)
Inventories (2,589) (5,023) (5,211)
Prepaid and other (219) 505 (682)
Accounts payable and accrued expenses (5,754) 8,639 (2,540)
Other assets 412 (2,166) (6,044)
Other liabilities 511 391 1,486
--------------- --------------- ---------------
Net cash provided by operating activities 28,188 57,902 32,341
Investing activities:
Acquisitions, net of cash acquired (12,001) (37,849) (347)
Capital expenditures (12,265) (18,237) (15,009)
Proceeds from sale of business 25 463 1,463
Other, net 215 (387) 242
Investing activities of discontinued operations (1,202) (1,705) (3,034)
--------------- --------------- ---------------
Net cash used in investing activities (25,228) (57,715) (16,685)
Financing activities:
Acquisition of treasury stock (797) (1,079) (15,877)
Proceeds from employee stock options 114 4,729 2,007
Excess tax benefits from stock based compensation - 2,196 -
Proceeds from bank borrowings 120,000 110,000 110,000
Repayment of notes payable and bank borrowings (100,648) (118,487) (118,510)
Debt issuance cost (3,603) -
Repayment of capital lease obligations (502) (28) (378)
Financing activities of discontinued operations (86) (1,481) (1,410)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 14,478 (4,150) (24,168)
--------------- --------------- ---------------
Net change in cash and equivalents 17,438 (3,963) (8,512)
Cash and equivalents:
Beginning of year 12,124 16,087 24,599
--------------- --------------- ---------------
End of year $29,562 $12,124 $16,087
=============== =============== ===============
Supplemental Cash Flow Information:
-----------------------------------
- Interest paid amounted to $5.8 million, $5.1 million, and $7.4 million for the years ended June 28, 2009,
June 29, 2008 and July 1, 2007, respectively.
- Capital expenditures excludes capital lease financing of $6.0 million $-, and $- for the years ended
June 28, 2009, June 29, 2008 and July 1, 2007, respectively.
- The Company paid income taxes of approximately $3.0 million, $2.1 million and $1.4 million, net of tax
refunds received, for the years ended June 28, 2009, June 29, 2008, and July 1, 2007, respectively.
See accompanying notes.
F-5
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Description of Business
For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing customers
with fresh flowers and the finest selection of plants, gift baskets, gourmet
foods, confections, balloons and plush stuffed animals perfect for every
occasion. 1-800-FLOWERS.COM(R) offers the best of both worlds: exquisite
arrangements individually created by some of the nation's top floral artists and
hand-delivered the same day, and spectacular flowers shipped overnight under our
Fresh From Our Growers(R) program. As always, 100 percent satisfaction and
freshness are guaranteed. The Company's BloomNet(R) (www.mybloomnet.net)
international floral wire service provides a broad range of quality products and
value-added services designed to help professional florists to grow their
businesses profitably. The 1-800-FLOWERS.COM, Inc. "Gift Shop" also includes
gourmet gifts such as popcorn and specialty treats from The Popcorn Factory(R)
(1-800-541-2676 or www.thepopcornfactory.com); exceptional cookies and baked
gifts from Cheryl&Co.(R) (1-800-443-8124 or www.cherylandco.com); premium
chocolates and confections from Fannie May Confections Brands (www.fanniemay.com
and www.harrylondon.com); gourmet foods from Greatfood.com(R)
(www.greatfood.com); wine gifts from Ambrosia(R) (www.ambrosia.com or
www.winetasting.com or www.Geerwade.com); and gift baskets from
1-800-BASKETS.COM(R) (www.1800baskets.com) and DesignPac Giftssm
(www.designpac.com).
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. The Company has classified the results of operations of its Home &
Children's Gifts segment, which includes Home Decor and Children's Gifts from
Plow & Hearth(R) (1-800-627-1712 or www.plowandhearth.com), Wind & Weather(R)
(www.windandweather.com), HearthSong(R) (www.hearthsong.com) and Magic Cabin(R)
(www.magiccabin.com), as discontinued operations for all periods presented.
1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ Global Select Market under
ticker symbol FLWS.
Note 2. Significant Accounting Policies
Fiscal Year
The Company's fiscal year is a 52- or 53-week period ending on the Sunday
nearest to June 30. Fiscal years 2009, 2008 and 2007, which ended on June 28,
2009, June 29, 2008 and July 1, 2007, respectively, consisted of 52 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of 1-800-FLOWERS.COM,
Inc. and its wholly-owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company has classified the results of operations of its Home
& Children's Gifts segment as discontinued operations for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Equivalents
Cash and equivalents consist of demand deposits with banks, highly liquid money
market funds, United States government securities, overnight repurchase
agreements and commercial paper with maturities of three months or less when
purchased.
F-6
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method of accounting.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by accumulated
depreciation. Depreciation expense is recognized over the assets' estimated
useful lives using the straight-line method. Amortization of leasehold
improvements and capital leases are calculated using the straight-line method
over the shorter of the lease terms, including renewal options expected to be
exercised, or estimated useful lives of the improvements. Estimated useful lives
are periodically reviewed, and where appropriate, changes are made
prospectively. The Company's property plant and equipment is depreciated using
the following estimated lives:
Buildings 40 years
Leasehold Improvements 3-10 years
Furniture, Fixtures and Equipment 3-10 years
Software 3-5 years
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangibles are not amortized, but are evaluated
annually for impairment. The Company performs its annual impairment test in its
fiscal fourth quarter, or earlier if indicators of potential impairment exist,
to evaluate goodwill. Goodwill is considered impaired if the carrying amount of
the reporting unit exceeds its estimated fair value. In assessing the
recoverability of goodwill, the Company reviews both quantitative as well as
qualitative factors to support its assumptions with regard to fair value.
The cost of intangible assets with determinable lives is amortized to reflect
the pattern of economic benefits consumed, on a straight-line basis, over the
estimated periods benefited, ranging from 3 to 16 years.
During fiscal 2009, the Company conducted its evaluation of impairment for
goodwill and intangible assets and concluded that the carrying value of these
assets exceeded their estimated fair value. Refer to Note 6, "Goodwill and
Intangible Assets" for further description.
Deferred Catalog Costs
The Company capitalizes the costs of producing and distributing its catalogs.
These costs are amortized in direct proportion with actual sales from the
corresponding catalog over a period not to exceed 26-weeks. Included within
prepaid and other current assets was $0.4 million and $0.5 million at June 28,
2009 June 29, 2008, respectively, relating to prepaid catalog expenses.
Investments
The Company considers all of its debt and equity securities, for which there is
a determinable fair market value and no restrictions on the Company's ability to
sell within the next 12 months, as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses reported
as a separate component of stockholders' equity. For the years ended June 28,
2009, June 29, 2008 and July 1, 2007, there were no significant unrealized gains
or losses. Realized gains and losses are included in other income. The cost
basis for realized gains and losses on available-for-sale securities is
determined on a specific identification basis.
F-7
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair Values of Financial Instruments
The recorded amounts of the Company's cash and equivalents, short-term
investments, receivables, accounts payable, and accrued liabilities approximate
their fair values principally because of the short-term nature of these items.
The fair value of investments, including available-for-sale securities, is based
on quoted market prices where available. The fair value of the Company's
long-term obligations, the majority of which are carried at a variable rate of
interest, are estimated based on the current rates offered to the Company for
obligations of similar terms and maturities. Under this method, the Company's
fair value of long-term obligations was not significantly different than the
carrying values at June 28, 2009 and June 29, 2008.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and equivalents,
investments and accounts receivable. The Company maintains cash and equivalents
and investments with high credit, quality financial institutions. Concentration
of credit risk with respect to accounts receivable are limited due to the
Company's large number of customers and their dispersion throughout the United
States, and the fact that a substantial portion of receivables are related to
balances owed by major credit card companies. Allowances relating to consumer,
corporate and franchise accounts receivable ($1.8 million and $1.4 million at
June 28, 2009 and June 29, 2008, respectively) have been recorded based upon
previous experience and management's evaluation.
Revenue Recognition
Net revenues are generated by E-commerce operations from the Company's online
and telephonic sales channels as well as other operations (retail/wholesale) and
primarily consist of the selling price of merchandise, service or outbound
shipping charges, less discounts, returns and credits. Net revenues are
recognized upon product shipment and do not include sales tax. Shipping terms
are FOB shipping point. Net revenues generated by the Company's BloomNet Wire
Service operations include membership fees as well as other products and service
offerings to florists. Membership fees are recognized monthly in the period
earned, and products sales are recognized upon product shipment with shipping
terms of FOB shipping point.
Cost of Revenues
Cost of revenues consists primarily of florist fulfillment costs (fees paid
directly to florists), the cost of floral and non-floral merchandise sold from
inventory or through third parties, and associated costs including inbound and
outbound shipping charges. Additionally, cost of revenues includes labor and
facility costs related to manufacturing and production operations.
Marketing and Sales
Marketing and sales expense consists primarily of advertising and promotional
expenditures, catalog costs, online portal and search expenses, retail store and
fulfillment operations (other than costs included in cost of revenues), and
customer service center expenses, as well as the operating expenses of the
Company's departments engaged in marketing, selling and merchandising
activities.
The Company expenses all advertising costs, with the exception of catalog costs
(see Deferred Catalog Costs above) at the time the advertisement is first shown.
Advertising expense was $70.8 million, $78.9 million and $75.5 million for the
years ended June 28, 2009, June 29, 2008 and July 1, 2007, respectively.
F-8
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Technology and Development
Technology and development expense consists primarily of payroll and operating
expenses of the Company's information technology group, costs associated with
its web sites, including hosting, content development and maintenance and
support costs related to the Company's order entry, customer service,
fulfillment and database systems. Costs associated with the acquisition or
development of software for internal use are capitalized if the software is
expected to have a useful life beyond one year and amortized over the software's
useful life, typically three to five years. Costs associated with repair,
maintenance or the development of web site content are expensed as incurred as
the useful lives of such software modifications are less than one year.
Stock-Based Compensation
The Company records compensation expense associated with stock options and other
forms of equity compensation in accordance with SFAS No. 123(R), "Share-Based
Payment." The Company adopted the modified prospective application method
provided for under SFAS 123(R) and consequently did not retroactively adjust
results from prior periods. Under this transition method, compensation cost
associated with stock options and awards recognized in the fiscal years ended
June 28, 2009, June 29, 2008 and July 1, 2007, includes: (a) compensation cost
of all stock-based payments granted prior to, but not yet vested as of, July 4,
2005 (based on grant-date fair value estimated in accordance with the original
provisions of SFAS No. 123), and (b) compensation cost for all stock-based
payments granted subsequent to July 3, 2005 (based on the grant-date fair value
estimated in accordance with the new provision of SFAS No. 123(R)).
Income Taxes
The Company has established deferred income tax assets and liabilities for
temporary differences between the financial reporting bases and the income tax
bases of its assets and liabilities at enacted tax rates expected to be in
effect when such assets or liabilities are realized or settled. During fiscal
2008, the Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a
recognition and measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities.
There was no material impact on the Company's consolidated financial position or
results of operations as a result of the adoption of the provisions of FIN 48.
Comprehensive Income
For the years ended June 28, 2009, June 29, 2008 and July 1, 2007, the Company's
comprehensive income (loss) was equal to the respective net income (loss) for
each of the periods presented.
Fair Value Measurements
Effective June 30, 2008, the Company adopted Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" ("SFAS 157") for certain financial
assets and liabilities. This standard establishes a framework for measuring fair
value and requires enhanced disclosures about fair value measurements. SFAS 157
clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. SFAS 157 also establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The statement requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three categories:
F-9
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Level 1: Quoted market prices in active markets for identical assets or
liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities,
quoted prices for identically similar assets or liabilities in markets
that are not active and models for which all significant inputs are
observable either directly or indirectly.
Level 3: Unobservable inputs reflecting the reporting entity's own assumptions
or external inputs for inactive markets.
The determination of where assets and liabilities fall within this hierarchy is
based upon the lowest level of input that is significant to the fair value
measurement. While the Company has previously invested in certain assets that
would be classified as "level 1", as of June 28, 2009, the Company does not hold
any "level 1" cash equivalents that are measured at fair value on a recurring
basis, nor does the Company have any assets or liabilities that are based on
"level 2" or "level 3" inputs.
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed using the weighted-average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted-average number of common and dilutive
common equivalent shares (consisting primarily of employee stock options and
unvested restricted stock awards) outstanding during the period. Diluted net
loss per share is computed using the weighted-average number of common shares
outstanding during the period, and excludes the effect of dilutive potential
common shares (consisting primarily of employee stock options and unvested
restricted stock awards) as their inclusion would be antidilutive.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162." SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 162 is effective for the Company's interim reporting
period ending on September 27, 2009. The Company does not anticipate the
adoption of SFAS No. 168 will have a material impact on its financial position,
results of operations or cash flows.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No. 165 is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This SFAS requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis
for that date. The disclosure requirement under this SFAS is effective for the
Company's annual reporting for the fiscal year ended on June 28, 2009.
In April 2009, the FASB issued FSP SFAS No. 141(R)-1, "Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies." FSP SFAS No. 141(R)-1 will amend the provisions related to the
initial recognition and measurement, subsequent measurement and disclosure of
assets and liabilities arising from contingencies in a business combination
under SFAS No. 141(R), "Business Combinations." The FSP will carry forward the
requirements in SFAS No. 141, "Business Combinations," for acquired
contingencies, thereby requiring that such contingencies be recognized at fair
value on the acquisition date if fair value can be reasonably estimated during
the allocation period. Otherwise, entities would typically account for the
acquired contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies." The FSP will have the same effective date as SFAS No. 141(R),
and will therefore be effective for the Company's business combinations for
which the acquisition date is on or after July 1, 2009. The Company is currently
evaluating the impact of the implementation of FSP SFAS No. 141(R)-1 on its
consolidated financial position, results of operations and cash flows.
F-10
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, "Interim
Disclosures about Fair Value of Financial Instruments." FSP SFAS No. 107-1 and
APB 28-1 enhances consistency in financial reporting by increasing the frequency
of fair value disclosures. The FSP relates to fair value disclosures for any
financial instruments that are not currently reflected on a company's balance
sheet at fair value. Prior to the effective date of this FSP, fair values for
these assets and liabilities have only been disclosed once a year. The FSP will
now require these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. The disclosure
requirement under this FSP is effective for the Company's interim reporting
period ending on September 27, 2009.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R and other generally accepted
accounting principles. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company is currently evaluating
the impact, if any, that this FSP will have on its results of operations,
financial position or cash flows.
In December 2007, the FASB issued Statement No. 141 (Revised), "Business
Combinations" ("SFAS No. 141R") and SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements ("SFAS 160"). SFAS No. 141R and SFAS 160
revise the method of accounting for a number of aspects of business combinations
and non-controlling interests, including acquisition costs, contingencies
(including contingent assets, contingent liabilities and contingent purchase
price), the impacts of partial and step-acquisitions (including the valuation of
net assets attributable to non-acquired minority interests), and post
acquisition exit activities of acquired businesses. SFAS 141R and SFAS 160 will
be effective for the Company during the fiscal year beginning June 29, 2009. The
Company cannot anticipate whether the adoption of SFAS No. 141R will have a
material impact on its results of operations and financial condition as the
impact is solely dependent on the terms of any business combination entered into
by the Company after June 29, 2009.
Reclassifications
Certain balances in the prior fiscal years have been reclassified to conform
with the presentation in the current fiscal year. As a result of the Company's
decision to dispose of its Home & Children's Gifts businesses, this segment has
been accounted for as a discontinued operation and the prior periods have been
reclassified to conform to the current period presentation. (Refer to Note 15.
Discontinued Operations)
F-11
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 3 - Net Income Per Common Share
The following table sets forth the computation of basic and diluted net income
(loss) per common share:
Years Ended
----------------------------------------------------------
June 28, 2009 June 29, 2008 July 1, 2007
------------------ ----------------- -------------------
(in thousands, except per share data)
Numerator:
Net income (loss) $(98,417) $21,054 $17,118
================== ================= ===================
Denominator:
Weighted average shares outstanding 63,565 63,074 63,786
Effect of dilutive securities:
Employee stock options (1) - 1,808 1,282
Employee restricted stock awards - 576 458
------------------ ----------------- -------------------
- 2,384 1,740
------------------ ----------------- -------------------
Adjusted weighted-average shares and assumed
conversions 63,565 65,458 65,526
================== ================= ===================
Net income per common share:
Basic $(1.55) $0.33 $0.27
================== ================= ===================
Diluted $(1.55) $0.32 $0.26
================== ================= ===================
Note (1): The effect of options to purchase 8.9 million, 3.2
million and 5.8 million shares for the years ended June 28, 2009,
June 29, 2008, and July 1, 2007, respectively, were excluded from
the calculation of net income per share on a diluted basis as
their effect is anti-dilutive.
Note 4. Acquisitions
The Company accounts for its business combinations in accordance with SFAS No.
141, "Business Combinations," which addresses financial accounting and reporting
for business combinations and requires that all such transactions be accounted
for using the purchase method. Under the purchase method of accounting for
business combinations, the aggregate purchase price for the acquired business is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date.
Acquisition of Napco Marketing Corp.
On July 21, 2008, the Company acquired selected assets of Napco Marketing Corp.
(Napco), a wholesale merchandiser and marketer of products designed primarily
for the floral industry. The purchase price of approximately $9.4 million
included the acquisition of a fulfillment center located in Jacksonville, FL,
inventory and certain other assets, as well as the assumption of certain related
liabilities, including their seasonal line of credit of approximately $4.0
million. The acquisition was financed utilizing a combination of available cash
generated from operations and through borrowings against the Company's revolving
credit facility. The purchase price includes an up-front cash payment of $9.3
million, net of cash acquired, and the expected portion of "earn-out"
incentives, which amount to a maximum of $1.6 million through the years ending
July 2, 2012, upon achievement of specified performance targets. As of June 28,
2009, the Company does not expect that any of the specified performance targets
will be achieved.
F-12
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table summarizes the preliminary allocation of purchase price to
the estimated fair values of assets acquired and liabilities assumed at the date
of the acquisition of Napco:
Napco
Purchase
Price
Allocation
-----------------
(in thousands)
Current assets $5,119
Property, plant and equipment 3,929
Intangible assets 397
Goodwill -
Other 74
-----------------
Total assets acquired 9,519
-----------------
Current liabilities 162
-----------------
Total liabilities assumed 162
-----------------
Net assets acquired $9,357
=================
Acquisition of Geerlings & Wade
On March 25, 2009, the Company acquired selected assets of Geerlings & Wade,
Inc., a retailer of wine and related products. The purchase price of
approximately $2.6 million included the acquisition of inventory, and certain
other assets(approximately $1.4 million of goodwill is deductible for tax
purposes), as well as the assumption of certain related liabilities. The
acquisition was financed utilizing available cash on hand.
The following table summarizes the preliminary allocation of purchase price to
the estimated fair values of assets acquired and liabilities assumed at the date
of the acquisition of Geerlings & Wade:
Geerlings
& Wade
Purchase
Price
Allocation
-----------------
(in thousands)
Current assets $990
Intangible assets 253
Goodwill 1,438
-----------------
Total assets acquired 2,681
-----------------
Current liabilities 77
-----------------
Total liabilities assumed 77
-----------------
Net assets acquired $2,604
=================
F-13
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Acquisition of DesignPac Gifts LLC
On April 30, 2008, the Company acquired all of the membership interest in
DesignPac Gifts LLC (DesignPac), a designer, assembler and distributor of
gourmet gift baskets, gourmet food towers and gift sets, including a broad range
of branded and private label components, based in Melrose Park, IL. The
acquisition, for approximately $33.4 million in cash, net of cash acquired, was
financed utilizing a combination of available cash generated from operations and
through borrowings against the Company's revolving credit facility. The purchase
price is subject to "earn-out" incentives which amount to a maximum of $2.0
million through the year ending June 27, 2010, upon achievement of specified
performance targets. As of June 28, 2009, the Company does not expect that any
of the specified performance targets will be achieved.
The following table summarizes the allocation of purchase price to the estimated
fair values of assets acquired and liabilities assumed at the date of the
acquisition of DesignPac:
DesignPac
Purchase
Price
Allocation
--------------------
(in thousands)
Current assets $1,287
Property, plant and equipment 1,172
Intangible assets 18,753
Goodwill 12,332
Other 82
--------------------
Total assets acquired 33,626
--------------------
Current liabilities 184
--------------------
Total liabilities assumed 184
--------------------
Net assets acquired $33,442
====================
Of the $18.8 million of acquired intangible assets related to the DesignPac
acquisition, $6.7 million was assigned to trademarks that are not subject to
amortization, while the remaining acquired intangibles of $12.2 million were
allocated primarily to customer related intangibles which are being amortized
over the assets' estimated useful life of 10 years. Approximately $12.3 million
of goodwill is deductible for tax purposes. As described further in Note 6,
during the year ended June 28, 2009, the Company recorded an impairment charge
of $85.4 million for the write-down of goodwill and intangibles associated with
its Gourmet Food and Gift Basket category to which DesignPac is categorized.
F-14
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Pro forma Results of Operation
The following unaudited pro forma consolidated financial information has been
prepared as if the acquisitions of DesignPac, Napco and Geerlings & Wade had
taken place at the beginning of fiscal year 2007. The following unaudited pro
forma information is not necessarily indicative of the results of operations in
future periods or results that would have been achieved had the acquisitions
taken place at the beginning of the periods presented.
Years Ended
---------------------------------------------
June 28, 2009 June 29, 2008 July 1, 2007
--------------- ------------- ---------------
(in thousands, except per share data)
Net revenues from continuing operations $ 718,419 $814,373 $803,313
Operating income (loss) from continuing operations $ (71,838) $ 48,670 $ 48,227
Net income (loss) from continuing operations $ (65,913) $ 26,481 $ 26,957
Net income (loss) $ (97,829) $ 25,506 $ 20,094
Net income (loss) per common share from continuing
operations
Basic $ (1.04) $ 0.42 $ 0.38
Diluted $ (1.04) $ 0.40 $ 0.37
Net income (loss) per common share
Basic $ (1.54) $ 0.40 $ 0.32
Diluted $ (1.54) $ 0.39 $ 0.31
Note 5. Inventory
The Company's inventory, stated at cost, which is not in excess of market,
includes purchased and manufactured finish goods for resale, packaging supplies,
raw material ingredients for manufactured products and associated manufacturing
labor, and is classified as follows:
June 28, June 29,
2009 2008
--------------- -------------
(in thousands)
Finished goods $23,759 $20,819
Work-in-process 16,619 14,583
Raw materials 5,476 3,442
--------------- -------------
$45,854 $38,844
=============== =============
F-15
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 6. Goodwill and Intangible Assets
The change in the net carrying amount of goodwill is as follows:
1-800-
Flowers.com Gourmet Food
Consumer BloomNet and Gift
Floral Wire Service Baskets Total
----------------------------------------------------------------
(in thousands)
Balance at July 1, 2007 $6,352 $- $87,279 $93,631
Acquisition of DesignPac Gifts 12,085 12,085
Other (187) 370 183
Balance at June 29, 2008 6,165 99,734 105,899
Acquisition of Geerlings & Wade 1,438 1,438
Goodwill impairment (65,644) (65,644)
Other (437) (51) (488)
Balance at June 28, 2009 $5,728 $- $35,477 $41,205
============== ============= ============== ===========
Goodwill represents the excess of the purchase price over the fair value of the
net tangible and identifiable intangible assets acquired in each business
combination. The carrying value of the Company's goodwill was allocated to its
reporting units pursuant to SFAS No. 142, "Goodwill and Other Intangible
Assets." In accordance with SFAS No. 142, goodwill and other indefinite lived
intangibles are subject to an assessment for impairment, which must be performed
annually, or more frequently if events or circumstances indicate that goodwill
or other indefinite lived intangibles might be impaired. Goodwill impairment
testing involves a two-step process. Step 1 compares the fair value of the
Company's reporting units to their carrying values. If the fair value of the
reporting unit exceeds its carrying value, no further analysis is necessary. If
the carrying amount of the reporting unit exceeds its fair value, Step 2 must be
completed to quantify the amount of impairment. Step 2 calculates the implied
fair value of goodwill by deducting the fair value of all tangible and
intangible assets, excluding goodwill, of the reporting unit, from the fair
value of the reporting unit as determined in Step 1. The implied fair value of
goodwill determined in this step is compared to the carrying value of goodwill.
If the implied fair value of goodwill is less than the carrying value of
goodwill, an impairment loss, equal to the difference, is recognized.
During the year ended June 28, 2009 the Gourmet Food & Gift Basket segment
experienced declines in revenue and operating performance when compared to prior
years and their strategic outlook. The Company believes that this weak
performance was attributable to reduced consumer spending due to the overall
weakness in the economy. Based upon the expectation of a continuation of the
current economic downturn, supported by lower order quantities received for the
upcoming holiday season by certain wholesale customers, coupled with a decline
of the Company's market capitalization and contraction of public company
multiples, the Company recorded a goodwill and intangible impairment charges of
$85.4 million during the year ended June 28, 2009. Of the total impairment
charge approximately $65.6 million was related to goodwill and $19.8 million was
related to intangibles.
F-16
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair value was determined by using a combination of a market-based and an
income-based approach, weighting both approaches equally. Under the market-based
approach, the Company utilized information regarding the Company as well as
publicly available industry information to determine earnings and revenue
multiples that are used to value the Company's reporting units. Under the
income-based approach, the Company determined fair value based upon estimated
future cash flows of the reporting unit, discounted by an estimated
weighted-average cost of capital, which reflected the overall level of inherent
risk of the reporting unit and the rate of return that an outside investor would
expect to earn. The Company reconciled the value of its reporting units to its
current market capitalization (based upon the Company's stock price) to
determine that its assumptions were consistent with that of an outside investor.
The Company's other intangible assets consist of the following:
June 28, 2009 June 29, 2008
-----------------------------------------------------------------------------
Gross Gross
Amortization Carrying Accumulated Carrying Accumulated
Period Amount Amortization Net Amount Amortization Net
-------------- ----------- ---------------- ---------- ------------ -------------- ---------
(in thousands)
Intangible assets with
determinable lives:
Investment in licenses 14 - 16 years $ 5,314 $4,823 $491 $ 4,927 $4,408 $519
Customer lists 3 - 10 years 15,695 4,673 11,022 24,910 5,690 19,220
Other 5 - 8 years 2,388 960 1,428 2,376 551 1,825
------------ -----------------------------------------------------------------------
27,397 10,456 12,941 32,213 10,649 21,564
Trademarks with
indefinite lives 29,881 - 29,881 43,857 - 43,857
------------ -----------------------------------------------------------------------
Total intangible
assets $57,278 $10,456 $42,822 $76,070 $10,649 $65,421
============ =======================================================================
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable. As part of the aforementioned impairment analysis performed
for the Gourmet Food and Gift Basket segments, the Company recorded an
impairment charge of $19.8 million related to the trade names and customer
lists, which were determined to be impaired due to changes in the business
environment and adverse economic conditions currently being experienced due to
decreased consumer spending.
The amortization of intangible assets for the years ended June 28, 2009, June
29, 2008 and July 1, 2007 was $3.7 million, $2.8 million, and $2.3 million,
respectively. Future estimated amortization expense is as follows: 2010 - $3.0
million, 2011 - $2.3 million, 2012 - $1.6 million, and 2013 - $1.5 million, and
thereafter - $4.5 million.
F-17
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 7. Property, Plant and Equipment
June 28, June 29,
2009 2008
-------------- -------------
(in thousands)
Land $2,907 $1,850
Building and building improvements 9,659 7,069
Leasehold improvements 15,039 15,023
Furniture and fixtures 3,965 4,431
Equipment 20,795 19,189
Computer equipment 55,541 52,847
Telecommunication equipment 8,536 9,152
Software 73,445 62,281
-------------- -------------
189,887 171,842
Accumulated depreciation and amortization 135,117 121,567
-------------- -------------
$54,770 $50,275
============== =============
Note 8. Long-Term Debt
June 28, June 29,
2009 2008
-------------- -------------
(in thousands)
Term loan and revolving credit line (1) $87,351 $68,000
Revolving credit line (1) - -
Obligations under capital leases (2) 5,504 51
-------------- --------------
92,855 68,051
Less current maturities of long-term debt and obligations under
capital leases 22,337 12,801
-------------- --------------
$70,518 $55,250
============== ==============
(1) In order to fund the increase in working capital requirements
associated with DesignPac, on August 28, 2008, the Company
entered into a $293.0 million Amended and Restated Credit
Agreement with JPMorgan Chase Bank N.A., as administrative
agent, and a group of lenders (the "2008 Credit Facility"). The
2008 Credit Facility provided for borrowings of up to $293.0
million, including: (i) a $165.0 million revolving credit
commitment, (ii) $60.0 million of new term loan debt, and (iii)
$68.0 million of existing term loan debt associated with the
Company's previous credit facility.
F-18
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On April 14, 2009, the Company entered into an amendment to the
2008 Credit Facility (the "Amended 2008 Credit Facility"). The
Amended 2008 Credit Facility included a prepayment of $20.0
million, reducing the Company's outstanding term loans under the
facility to $92.4 million upon closing. In addition, the
amendment reduced the Company's revolving credit line from
$165.0 million to a seasonally adjusted line ranging from $75.0
to $125.0 million. The Amended 2008 Credit Facility, effective
March 29, 2009, also revises certain financial and non-financial
covenants, including maintenance of certain financial ratios and
eliminates the consolidated net worth covenant that had been
included in the previous agreement. Outstanding amounts under
the Amended 2008 Credit Facility will bear interest at the
Company's option at either: (i) LIBOR plus a defined margin, or
(ii) the agent bank's prime rate plus a margin. The applicable
margins for the Company's term loans and revolving credit
facility will range from 3.00% to 4.50% for LIBOR loans and
2.00% to 3.50% for ABR loans with pricing based upon the
Company's leverage ratio. The repayment terms of the existing
term loans were reduced, on a pro-rata basis, for the $20.0
million prepayment. The obligations of the Company and its
subsidiaries under the Amended 2008 Credit Facility are secured
by liens on all personal property of the Company and its
subsidiaries.
As a result of the modifications of its credit agreements,
during the quarter ended June 28, 2009, the Company wrote-off
$3.2 million of financing costs associated with the term debt
related to both the 2008 Credit Facility and the Amended 2008
Credit Facility.
(2) During March 2009, the Company obtained a $5.0 million equipment
lease line of credit with a bank and a $5.0 million equipment
lease line of credit with a vendor. Interest under these lines,
which both mature in April 2012, range from 2.99% to 7.48%.
Borrowings under the bank line are collateralized by the
underlying equipment purchased, while the equipment lease line
with the vendor is unsecured. The borrowings are payable in 36
monthly installments of principal and interest commencing in
April 2009.
As of June 28, 2009 long-term debt maturities, excluding amounts relating to
capital leases (refer to Note 16. Commitments and Contingencies), are as
follows:
Debt
Year Maturities
---- --------------
(in thousands)
2010 20,348
2011 23,842
2012 30,830
2013 9,865
2014 2,466
--------------
$87,351
==============
Note 9. Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, or
FIN 48, on July 2, 2007. The Company did not have any significant unrecognized
tax benefits and there was no material effect on its financial condition or
results of operations as a result of implementing FIN 48.
F-19
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company files income tax returns in the U.S. federal jurisdiction and
various state jurisdictions. The Company is currently under examination by the
Internal Revenue Service for its fiscal 2007 tax year, however, fiscal 2006
through fiscal 2009 remain subject to examination, with the exception of certain
states where the statute remains open from fiscal 2004, due to non-conformity
with the federal statute of limitations for assessment. The Company does not
believe there will be any material changes in its unrecognized tax positions
over the next twelve months.
The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date
of adoption of FIN 48, the Company did not have any material accrued interest or
penalties associated with any unrecognized tax benefits, nor was any material
interest expense recognized during the year.
Significant components of the income tax provision from continuing operations
are as follows:
Years ended
------------------------------------------
June 28, June 29, July 1,
2009 2008 2007
------------- -------------- -------------
(in thousands)
Current provision:
Federal $1,254 $3,008 ($275)
State 54 1,751 2,136
------------- -------------- -------------
1,308 4,759 1,861
Deferred provision:
Federal (15,089) 8,558 11,746
State (1,545) (191) 1,148
------------- -------------- -------------
(16,634) 8,367 12,894
------------- -------------- -------------
Income tax (benefit) expense $(15,326) $13,126 $14,755
============= ============== =============
A reconciliation of the U.S. federal statutory tax rate to the Company's
effective tax rate is as follows:
Years ended
------------------------------------------
June 28, June 29, July 1,
2009 2008 2007
------------- -------------- -------------
Tax at U.S. statutory rates 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 2.4 3.5 7.1
Non-deductible stock-based compensation (0.2) 0.1 1.4
Non-deductible goodwill amortization (17.7) 0.3 0.3
Rate change (1.4) -
Tax credits (0.1) (0.7) (0.3)
Tax settlements - (0.4) (2.5)
Other, net 0.7 (0.5) 0.3
------------- -------------- --------------
18.7% 37.3% 41.3%
============= ============== ==============
F-20
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred income tax assets (liabilities) are as
follows:
Years ended
------------------------------------------
June 28, June 29, July 1,
2009 2008 2007
------------- -------------- -------------
(in thousands)
Deferred income tax assets:
Net operating loss carryforwards $ 4,031 $3,483 $12,944
Accrued expenses and reserves 12,142 5,876 6,318
Stock-based compensation 2,871 3,407 2,529
Other intangibles 8,370 - -
Deferred income tax liabilities:
Other intangibles - (8,834) (9,112)
Tax in excess of book depreciation (3,023) (1,482) (1,649)
------------- -------------- -------------
Net deferred income tax assets $24,391 $2,450 $11,030
============= ============== =============
At June 28, 2009, the Company's federal net operating loss carryforwards were
approximately $4.2 million, which if not utilized, will begin to expire in
fiscal year 2025.
Note 10. Capital Stock
Holders of Class A common stock generally have the same rights as the holders of
Class B common stock, except that holders of Class A common stock have one vote
per share and holders of Class B common stock have 10 votes per share on all
matters submitted to the vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a single class on all
matters presented to the stockholders for their vote or approval, except as may
be required by Delaware law. Class B common stock may be converted into Class A
common stock at any time on a one-for-one share basis. Each share of Class B
common stock will automatically convert into one share of Class A common stock
upon its transfer, with limited exceptions.
On January 21, 2008, the Company's Board of Directors authorized an increase to
its stock repurchase plan which, when added to the $8.7 million remaining on its
earlier authorization, increased the amount available for repurchase to $15.0
million. Any such purchases could be made from time to time in the open market
and through privately negotiated transactions, subject to general market
conditions. The repurchase program will be financed utilizing available cash. As
of June 28, 2009, $13.2 remains authorized but unused.
Under this program, as of June 28, 2009, the Company had repurchased 2,058,685
shares of common stock for $13.1 million, of which $0.8 million (397,899
shares), $1.1 million (133,609 shares) and $0.2 million (24,627 shares) were
repurchased during the fiscal years ending June 28, 2009, June 29, 2008 and
July, 1 2007, respectively. In a separate transaction, during fiscal 2007, the
Company's Board of Directors authorized the repurchase of 3,010,740 shares from
an affiliate. The purchase price was $15,689,000 or $5.21 per share. The
repurchase was approved by the disinterested members of the Company's Board of
Directors and was in addition to the Company's existing stock repurchase
authorization.
F-21
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 11. Stock Based Compensation
The Company has stock options and restricted stock awards outstanding to
participants under the 1-800-FLOWERS.COM 2003 Long Term Incentive and Share
Award Plan (the "Plan"). Options are also outstanding under the Company's 1999
Stock Incentive Plan, but no further options may be granted under this plan. The
Plan is a broad-based, long-term incentive program that is intended to attract,
retain and motivate employees, consultants and directors to achieve the
Company's long-term growth and profitability objectives, and therefore align
stockholder and employee interests. The Plan provides for the grant to eligible
employees, consultants and directors of stock options, share appreciation rights
("SARs"), restricted shares, restricted share units, performance shares,
performance units, dividend equivalents, and other share-based awards
(collectively "Awards").
The Plan is administered by the Compensation Committee or such other Board
committee (or the entire Board) as may be designated by the Board (the
"Committee"). Unless otherwise determined by the Board, the Committee will
consist of two or more members of the Board who are non-employee directors
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended. The Committee will determine which eligible employees,
consultants and directors receive awards, the types of awards to be received and
the terms and conditions thereof. The Chief Executive Officer shall have the
power and authority to make Awards under the Plan to employees and consultants
not subject to Section 16 of the Exchange Act, subject to limitations imposed by
the Committee.
At June 28, 2009, the Company has reserved approximately 12.6 million shares of
common stock for issuance, including options previously authorized for issuance
under the 1999 Stock Incentive Plan.
The amounts of stock-based compensation expense recognized in the periods
presented are as follows:
Years Ended
--------------------------------------
June 28, June 29, July 1,
2009 2008 2007
---------- -------------------------
(in thousands, except per share data)
Stock options $1,383 $1,416 $2,736
Restricted stock awards 341 2,118 1,864
---------- -------------------------
Total 1,724 3,534 4,600
Deferred income tax benefit 444 1,333 1,353
---------- -------------------------
Stock-based compensation expense, net $1,280 $2,201 $3,247
========== =========================
Stock based compensation expense is recorded within the following line items of
operating expenses:
Years Ended
--------------------------------------
June 28, June 29, July 1,
2009 2008 2007
---------- -------------------------
(in thousands)
Marketing and sales $465 $1,051 $1,605
Technology and development 583 546 690
General and administrative 676 1,937 2,305
---------- -------------------------
Total $1,724 $3,534 $4,600
========== =========== ===========
Stock-based compensation expense has not been allocated between business
segments, but is reflected in Corporate. (Refer to Note 14 - Business Segments.)
F-22
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Stock Options Plans
The weighted average fair value of stock options on the date of grant, and the
assumptions used to estimate the fair value of the stock options using the
Black-Scholes option valuation model, were as follows:
Years Ended
-------------------------------------
June 28, June 29, July 1,
2009 2008 2007
---------- ------------ -------------
Weighted average fair value of options granted $1.83 $4.36 $3.29
Expected volatility 56% 45% 46%
Expected life (in years) 5.8 5.3 5.3
Risk-free interest rate 2.2% 4.1% 4.6%
Expected dividend yield 0.0% 0.0% 0.0%
The expected volatility of the option is determined using historical
volatilities based on historical stock prices. The Company estimated the
expected life of options granted based upon the historical weighted average. The
risk-free interest rate is determined using the yield available for zero-coupon
U.S. government issues with a remaining term equal to the expected life of the
option. The Company has never paid a dividend, and as such the dividend yield is
0.0%.
The following table summarizes stock option activity during the year ended June
28, 2009:
Weighted
Average
Weighted Remaining Aggregate
Average Contractual Intrinsic
Options Exercise Price Term Value (000s)
---------------------------------------------------------
Outstanding - beginning of period 7,872,344 $8.47
Granted 1,695,868 $3.54
Exercised (24,843) $4.60
Forfeited/Expired (626,697) $8.84
-------------
Outstanding - end of period 8,916,672 $7.52 3.9 years $-
=============
Options vested or expected to vest at end of period 8,619,968 $8.49 3.7 years $-
Exercisable at end of period 6,714,378 $8.63 2.8 years $-
The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the company's closing stock price on the
last trading day of fiscal 2009 and the exercise price, multiplied by the number
of in-the-money options) that would have been received by the option holders had
all option holders exercised their options on June 28, 2009. This amount changes
based on the fair market value of the company's stock. The total intrinsic value
of options exercised for the years ended June 28, 2009, June 29, 2008 and July
1, 2007 was $0.0 million, $5.9 million, and $1.0 million, respectively.
F-23
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table summarizes information about stock options outstanding at
June 28, 2009:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Remaining Exercise Options Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Price
------------------- -------------- ------------------ --------------- --------------- ---------------
$2.44 - 3.65 2,377,248 4.9 years $3.29 982,380 $3.63
$4.50 - 6.42 2,105,224 2.8 years $5.68 1,991,724 $5.70
$6.45 - 8.16 1,833,200 5.7 years $6.91 1,283,700 $6.90
$8.21 - 12.87 2,077,504 3.1 years $11.51 1,933,078 $11.69
$13.05 - 21.00 523,496 0.2 years $20.34 523,496 $20.34
-------------- ---------------
8,916,672 3.9 years $7.52 6,714,378 $8.49
============== ===============
As of June 28, 2009, the total future compensation cost related to nonvested
options not yet recognized in the statement of operations was $3.5 million and
the weighted average period over which these awards are expected to be
recognized was 2.7 years.
The Company grants shares of Common Stock to its employees that are subject to
restrictions on transfer and risk of forfeiture until fulfillment of applicable
service conditions and, in certain cases, holding periods (Restricted Stock).
The following table summarizes the activity of non-vested restricted stock
during the year ended June 28, 2009:
Weighted
Average Grant
Date Fair
Shares Value
------------- ---------------
Non-vested - beginning of period 1,275,153 $7.58
Granted 1,593,319 $3.43
Vested (337,320) $3.34
Forfeited (830,240) $7.41
-------------
Non-vested - end of period 1,700,912 $4.62
=============
The fair value of nonvested shares is determined based on the closing stock
price on the grant date. As of June 28, 2009, there was $4.3 million of total
unrecognized compensation cost related to non-vested restricted stock-based
compensation to be recognized over a weighted-average period of 2.2 years.
Note 12. Profit Sharing Plan
The Company has a 401(k) Profit Sharing Plan covering substantially all of its
eligible employees. All full-time employees who have attained the age of 21 are
eligible to participate upon completion of one year of service. Participants may
elect to make voluntary contributions to the 401(k) plan in amounts not
exceeding federal guidelines. On an annual basis the Company, as determined by
its board of directors, may make certain discretionary contributions. Employees
are vested in the Company's contributions based upon years of service. The
Company made contributions of $1.1 million, $0.7 million, and $0.5 million, for
the years ended June 28, 2009, June 29, 2008 and July 1, 2007, respectively.
F-24
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During fiscal 2008, the Company adopted a nonqualified supplemental deferred
compensation plan for certain executives pursuant to Section 409A of the
Internal Revenue Code. Participants can defer from 1% up to a maximum of 100% of
salary and performance and non-performance based bonus. The Company will match
50% of the deferrals made by each participant during the applicable period, up
to a maximum of $2,500. Employees are vested in the Company's contributions
based upon years of participation in the plan. Distributions will be made to
Participants upon termination of employment or death in a lump sum, unless
installments are selected. Company contributions during the years ended June 28,
2009 and June 29, 2008 were less than $0.1 million.
Note 13. Restructuring
During the third and fourth quarters of fiscal 2009 the Company implemented
expense reduction initiatives in order to reduce its cost structure. The
initiatives primarily involved the termination of employees and facility site
consolidation and closures. The Company recorded restructuring charges of $2.5
million, which are included within the following line items of the Company's
consolidated statement of operations: cost of revenues ($0.2 million), marketing
and sales ($1.7 million), technology and development ($0.4 million) and general
and administrative ($0.2 million). Approximately $1.0 million of severance costs
associated with the fourth quarter restructuring is included within accounts
payable and accrued expenses and is expected to be paid out during the first
quarter of fiscal 2010.
Note 14. Business Segments
The Company's management reviews the results of the Company's operations by the
following three business categories:
o 1-800-Flowers.com Consumer Floral;
o BloomNet Wire Service; and
o Gourmet Food and Gift Baskets; and
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. The Company has classified the results of operations of its Home &
Children's Gifts segment, which includes Home Decor and Children's Gifts from
Plow & Hearth(R), Wind & Weather(R), HearthSong(R) and Magic Cabin(R), as
discontinued operations for all periods presented.
F-25
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Category performance is measured based on contribution margin, which includes
only the direct controllable revenue and operating expenses of the categories.
As such, management's measure of profitability for these categories does not
include the effect of corporate overhead (see * below), which are operated under
a centralized management platform, providing services throughout the
organization, nor does it include stock-based compensation, depreciation and
amortization, other income (net), and income taxes. Assets and liabilities are
reviewed at the consolidated level by management and not accounted for by
category.
Years ended
-------------------------------------------
June 28, June 29, July 1,
Net revenues 2009 2008 2007
------------- -------------- --------------
(in thousands)
Net revenues:
1-800-Flowers.com Consumer Floral $414,897 $491,696 $491,404
BloomNet Wire Service 63,933 53,488 44,379
Gourmet Food & Gift Baskets 240,200 196,298 192,698
Corporate (*) 1,119 2,431 1,652
Intercompany eliminations (6,199) (4,702) (4,483)
------------- -------------- --------------
Total net revenues $713,950 $739,211 $725,650
============= ============== ==============
Years ended
-------------------------------------------
June 28, June 29, July 1,
Operating Income 2009 2008 2007
------------- -------------- --------------
(in thousands)
Category Contribution Margin:
1-800-Flowers.com Consumer Floral $40,882 $62,967 $65,166
BloomNet Wire Service 19,093 18,509 14,162
Gourmet Food & Gift Baskets 23,433 24,593 26,377
------------- -------------- --------------
Category Contribution Margin Subtotal 83,408 106,069 105,705
Corporate (*) (49,492) (48,923) (48,483)
Depreciation and amortization (21,010) (17,822) (15,353)
Goodwill and intangible impairment (85,438) - -
------------- -------------- --------------
Operating income (loss) ($72,532) $39,324 $41,869
============= ============== ==============
(*) Corporate expenses consist of the Company's enterprise shared service
cost centers, and include, among others, Information Technology, Human
Resources, Accounting and Finance, Legal, Executive and Customer
Service Center functions, as well as Stock-Based Compensation. In
order to leverage the Company's infrastructure, these functions are
operated under a centralized management platform, providing support
services throughout the organization. The costs of these functions,
other than those of the Customer Service Center which are allocated
directly to the above categories based upon usage, are included within
corporate expenses, as they are not directly allocable to a specific
category.
F-26
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 15. Discontinued Operations
During the fourth quarter of fiscal 2009, the Company made the strategic
decision to divest its Home & Children's Gifts business segment to focus on its
core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets
categories. Consequently, the Company has classified the results of operations
of its Home & Children's Gifts segment as discontinued operations for all
periods presented.
Results for discontinued operations are as follows:
Years Ended
-------------------------------------------------------
June 28, 2009 June 29, 2008 July 1, 2007
--------------------------------------------------------
(in thousands, except per share data)
Net revenues from discontinued operations $143,786 $180,181 $186,948
Operating income (loss) from discontinued operations (1) ($ 4,996) ($ 1,785) ($ 6,727)
Impairment of discontinued operations (2) ($ 34,758) - -
Income tax expense (benefit) from discontinued operations ($ 7,838) ($ 810) ($ 2,864)
Income (loss) from discontinued operations ($ 31,916) ($ 975) ($ 3,863)
(1) Operating income (loss) from discontinued operations during the year ended
June 28, 2009 includes approximately $0.4 million of restructuring costs
associated with the Company's cost reduction initiatives implemented during the
third quarter. Refer to Note 13. Restructuring Charges.
(2) During the three months ended December 28, 2008, the Home and Children's
Gift segment experienced significant declines in revenue and operating
performance when compared to prior years and their strategic outlook. The
Company believes that this weak performance was attributable to reduced consumer
spending due to the overall weakness in the economy, and in particular, as a
result of the continued decline in demand for home decor products. As a result
of these factors, as well as the Company's plans to resize this category based
on the expectation of continued weakness in the home decor retail sector, upon
completion of the impairment analysis described above, the goodwill and
intangibles related to this reporting unit was deemed to be fully impaired.
Therefore, during the three months ended December 28, 2008, the Company recorded
a goodwill and intangible impairment charge of $20.0 million related to this
business segment. In the fourth quarter ended June 28, 2009, the Company made
the strategic decision to divest its Home & Children's Gifts business segment.
Consequently, the Company has classified the results of its Home & Children's
Gifts segment as a discontinued operation, and recorded a charge of $14.7
million to write-down the assets of the discontinued business to management's
estimate of their fair value.
F-27
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
June 28, June 29,
2009 2008
------------- ------------
Assets of discontinued operations
Receivables, net $692 $972
Inventories 15,511 28,439
Prepaid and other 1,940 4,460
------------- ------------
Current assets of discontinued operations 18,143 33,871
Property, plant and equipment, net 8,861 15,462
Goodwill - 18,265
Other intangibles, net 714 2,507
Other assets - 47
------------- ------------
Non-current assets of discontinued operations 9,575 36,281
------------- ------------
Total assets of discontinued operations
$27,718 $70,152
============= ============
Liabilities of discontinued operations
Accounts payable and accrued expenses $3,811 $5,433
Current maturities of long-term debt and obligations under capital leases - 85
------------- ------------
Current liabilities of discontinued operations 3,811 5,518
Non-current liabilities of discontinued operations 157 203
------------- ------------
Total liabilities of discontinued operations $3,968 $5,721
============= ============
Note 16. Commitments and Contingencies
Leases
The Company currently leases office, store facilities, and equipment under
various operating leases through fiscal 2019. As these leases expire, it can be
expected that in the normal course of business they will be renewed or replaced.
Most lease agreements contain renewal options and rent escalation clauses and
require the Company to pay real estate taxes, insurance, common area maintenance
and operating expenses applicable to the leased properties. The Company has also
entered into leases that are on a month-to-month basis. In addition, the Company
has a $5.0 million equipment lease line of credit with a bank and a $5.0 million
equipment lease line of credit with a vendor. Interest under these lines, which
both mature in April 2012, range from 2.99% to 7.48%. The borrowings are payable
in 36 monthly installments of principal and interest commencing in April 2009.
All leases and subleases with an initial term of greater than one year are
accounted for under SFAS No. 13, Accounting for Leases. These leases are
classified as either capital leases, operating leases or subleases, as
appropriate.
F-28
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
As of June 28, 2009 future minimum payments under non-cancelable capital lease
obligations and operating leases with initial terms of one year or more consist
of the following:
Obligations
Under
Capital Operating
Leases Leases
------------- ------------
(in thousands)
2010 2,264 $11,441
2011 2,264 10,233
2012 1,680 8,845
2013 7 7,942
2014 - 5,931
Thereafter - 5,715
------------- ------------
Total minimum lease payments $6,215 $50,107
============
Less amounts representing interest 711
-------------
Present value of net minimum lease payments $5,504
=============
At June 28, 2009, the aggregate future sublease rental income under long-term
operating sub-leases for land and buildings and corresponding rental expense
under long-term operating leases were as follows:
Sublease Sublease
Income Expense
-------------- --------------
(in thousands)
2010 $2,455 $2,455
2011 1,918 1,918
2012 1,488 1,488
2013 999 999
2014 470 470
Thereafter 392 392
-------------- --------------
$7,722 $7,722
============== ==============
Rent expense was approximately $19.9 million, $17.1 million, and $16.1 million
for the years ended June 28, 2009, June 29, 2008 and July 1, 2007, respectively.
Litigation
There are various claims, lawsuits, and pending actions against the Company and
its subsidiaries incident to the operations of its businesses. It is the opinion
of management, after consultation with counsel, that the ultimate resolution of
such claims, lawsuits and pending actions will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity.
Note 17. Subsequent Event
The Company has evaluated subsequent events through September 11, 2009, which is
the date the Company filed its Annual Report on Form 10-K for fiscal 2009 with
the Securities and Exchange Commission. With the exception of the item listed
below, there are no further subsequent events for disclosure.
In July 2009 the Company entered into interest rate hedge contracts totaling
$45.0 million to manage its exposure to changes in the fair value of debt due in
fiscal 2010 through 2012. The effect of these hedges is to change the variable
rate interest to a fixed rate.
F-29
1-800-FLOWERS.COM, INC.
Schedule II - Valuation and Qualifying Accounts
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs Other Deductions- End of
of Period and Accounts- Describe (a) Period
Description Expenses Describe (b)
--------------------------- -------------- ------------ -------------- ------------- --------------
Reserves and allowances
deducted from asset
accounts:
Reserve for estimated
doubtful accounts-
accounts/notes
receivable
Year Ended June 28, 2009 $1,386,000 $566,000 $300,000 $(449,000) $1,803,000
Year Ended June 29, 2008 $1,113,000 $1,000,000 $ - $(727,000) $1,386,000
Year Ended July 1, 2007 $2,090,000 $1,040,000 $ - $(2,017,000) $1,113,000
(a) Reduction in reserve due to write-off of accounts/notes receivable balances.
(b) Amount represents opening balances from acquired businesses.
S-1