XFRA:FWC 1-800 Flowers.com Inc Class A Quarterly Report 10-Q Filing - 4/1/2012

Effective Date 4/1/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 1, 2012

 

or

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to      

 

Commission File No. 0-26841

 

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

 

GRAPHIC

 

DELAWARE

 

11-3117311

(State of

 

(I.R.S. Employer

incorporation)

 

Identification No.)

 

One Old Country Road, Carle Place, New York 11514

(Address of principal executive offices)(Zip code)

 

(516) 237-6000

(Registrant’s telephone number, including area code)

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No o

 

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 o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a 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 o No x

 

The number of shares outstanding of each of the Registrant’s classes of common stock:

 

27,930,222

(Number of shares of Class A common stock outstanding as of May 4, 2012)

 

36,858,465

(Number of shares of Class B common stock outstanding as of May 4, 2012)

 

 

 



Table of Contents

 

1-800-FLOWERS.COM, Inc.

 

TABLE OF CONTENTS

 

INDEX

 

 

 

 

 

Page

Part I.

 

Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets — April 1, 2012 (Unaudited) and July 3, 2011

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended April 1, 2012 and March 27, 2011

 

2

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended April 1, 2012 and March 27, 2011

 

3

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

4

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

 

33

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

33

 

 

 

 

 

Item 5.

 

Other Information

 

33

 

 

 

 

 

Item 6.

 

Exhibits

 

34

 

 

 

 

 

Signatures

 

 

 

35

 



Table of Contents

 

PART I. — FINANCIAL INFORMATION

ITEM 1. — CONSOLIDATED FINANCIAL STATEMENTS

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

April 1,
2012

 

July 3,
2011

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and equivalents

 

$

24,876

 

$

21,442

 

Receivables, net

 

21,477

 

11,916

 

Inventories

 

59,374

 

51,185

 

Deferred tax assets

 

6,916

 

5,416

 

Prepaid and other

 

6,575

 

7,360

 

Current assets of discontinued operations

 

145

 

3,506

 

Total current assets

 

119,363

 

100,825

 

 

 

 

 

 

 

Property, plant and equipment, net

 

47,799

 

49,908

 

Goodwill

 

40,695

 

39,348

 

Other intangibles, net

 

42,644

 

41,748

 

Deferred tax assets

 

9,416

 

17,181

 

Other assets

 

5,335

 

5,203

 

Non-current assets from discontinued operations

 

 

2,738

 

Total assets

 

$

265,252

 

$

256,951

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

68,719

 

$

65,603

 

Current maturities of long-term debt and obligations under capital leases

 

15,100

 

16,488

 

Current liabilities of discontinued operations

 

159

 

956

 

Total current liabilities

 

83,978

 

83,047

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases

 

18,000

 

29,250

 

Other liabilities

 

3,844

 

2,884

 

Non-current liabilities of discontinued operations

 

 

109

 

Total liabilities

 

105,822

 

115,290

 

Commitments and contingencies

 

 

 

 

 

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; 34,249,441 and 32,987,313 shares issued at April 1, 2012 and July 3, 2011, respectively

 

342

 

330

 

Class B common stock, $.01 par value, 200,000,000 shares authorized; 42,138,465 shares issued at April 1, 2012 and July 3, 2011

 

421

 

421

 

Additional paid-in capital

 

292,837

 

289,101

 

Retained deficit

 

(98,941

)

(114,755

)

Accumulated other comprehensive loss, net of tax

 

(26

)

(158

)

Treasury stock, at cost — 6,323,104 and 5,633,253 Class A shares at April 1, 2012 and July 3, 2011, respectively, and 5,280,000 Class B shares

 

(35,203

)

(33,278

)

Total stockholders’ equity

 

159,430

 

141,661

 

Total liabilities and stockholders’ equity

 

$

265,252

 

$

256,951

 

 

See accompanying Notes to Consolidated Financial Statements.

 

1



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

Net revenues

 

$

179,659

 

$

158,839

 

$

536,702

 

$

489,452

 

Cost of revenues

 

106,620

 

95,728

 

316,775

 

286,241

 

Gross profit

 

73,039

 

63,111

 

219,927

 

203,211

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Marketing and sales

 

48,598

 

43,513

 

133,900

 

123,616

 

Technology and development

 

5,646

 

5,119

 

15,252

 

14,639

 

General and administrative

 

13,766

 

12,659

 

39,057

 

36,553

 

Depreciation and amortization

 

4,874

 

5,069

 

14,705

 

15,272

 

Total operating expenses

 

72,884

 

66,360

 

202,914

 

190,080

 

Gain on sale of stores

 

 

 

3,789

 

 

Operating income (loss)

 

155

 

(3,249

)

20,802

 

13,131

 

Interest expense, net

 

(319

)

(854

)

(1,990

)

(3,321

)

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(164

)

(4,103

)

18,812

 

9,810

 

Income tax expense (benefit) from continuing operations

 

(215

)

(1,859

)

7,318

 

3,930

 

Income (loss) from continuing operations

 

51

 

(2,244

)

11,494

 

5,880

 

Loss from discontinued operations, net of tax

 

 

(432

)

(22

)

(150

)

Gain (loss) on sale of discontinued operations, net of tax

 

(136

)

 

4,342

 

 

Income (loss) from discontinued operations

 

(136

)

(432

)

4,320

 

(150

)

Net income (loss)

 

$

(85

)

$

(2,676

)

$

15,814

 

$

5,730

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share:

 

 

 

 

 

 

 

 

 

From continuing operations

 

$

0.00

 

$

(0.04

)

$

0.18

 

$

0.09

 

From discontinued operations

 

0.00

 

(0.01

)

0.07

 

0.00

 

Net income (loss) per common share

 

$

0.00

 

$

(0.04

)

$

0.24

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

From continuing operations

 

$

0.00

 

$

(0.04

)

$

0.17

 

$

0.09

 

From discontinued operations

 

0.00

 

(0.01

)

0.07

 

0.00

 

Net income (loss) per common share

 

$

0.00

 

$

(0.04

)

$

0.24

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in the calculation of net income (loss) per common share

 

 

 

 

 

 

 

 

 

Basic

 

64,988

 

63,999

 

64,683

 

63,953

 

Diluted

 

66,299

 

63,999

 

66,257

 

65,083

 

 

See accompanying Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

Operating activities:

 

 

 

 

 

Net income

 

$

15,814

 

$

5,730

 

Reconciliation of net income to net cash provided by operating activities:

 

 

 

 

 

Operating activities of discontinued operations

 

1,927

 

(751

)

Gain on sale of discontinued operations

 

(8,733

)

 

Depreciation and amortization

 

14,705

 

15,272

 

Amortization of deferred financing costs

 

343

 

360

 

Deferred taxes

 

5,720

 

3,332

 

Bad debt expense

 

692

 

1,271

 

Stock-based compensation

 

3,736

 

2,857

 

Other non-cash items

 

(22

)

7

 

Changes in operating items, excluding the effects of acquisitions:

 

 

 

 

 

Receivables

 

(9,709

)

(5,886

)

Inventories

 

(7,670

)

(6,999

)

Prepaid and other

 

804

 

(2,839

)

Accounts payable and accrued expenses

 

2,489

 

39

 

Other assets

 

1,604

 

(561

)

Other liabilities

 

1,187

 

(29

)

Net cash provided by operating activities

 

22,887

 

11,803

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(4,336

)

(1,450

)

Proceeds from sale of business

 

12,826

 

 

Capital expenditures

 

(11,986

)

(10,914

)

Purchase of investment

 

(1,111

)

 

Other, net

 

(271

)

184

 

Investing activities of discontinued operations

 

 

(124

)

Net cash used in investing activities

 

(4,878

)

(12,304

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Acquisition of treasury stock

 

(1,925

)

(101

)

Proceeds from bank borrowings

 

56,000

 

40,000

 

Proceeds from exercise of employee stock options

 

 

49

 

Repayment of notes payable and bank borrowings

 

(67,250

)

(49,000

)

Debt issuance costs

 

 

(17

)

Repayment of capital lease obligations

 

(1,400

)

(1,449

)

Net cash used in financing activities

 

(14,575

)

(10,518

)

Net change in cash and equivalents

 

3,434

 

(11,019

)

Cash and equivalents:

 

 

 

 

 

Beginning of period

 

21,442

 

27,843

 

End of period

 

$

24,876

 

$

16,824

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1 — Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and subsidiaries (the “Company”) in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 1, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending July 1, 2012 due to seasonal and other factors.

 

Accordingly, the information in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2011.

 

References in this Quarterly Report on Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

 

Comprehensive Income (Loss)

 

For the three and nine months ended April 1, 2012 and March 27, 2011, the Company’s comprehensive income (loss) was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

 

 

 

(in thousands)

 

 

 

 

Net income (loss)

 

$

(85

)

$

(2,676

)

$

15,814

 

$

5,730

 

Change in fair value of cash flow hedge, net of tax

 

32

 

44

 

132

 

128

 

Comprehensive income (loss)

 

$

(53

)

$

(2,632

)

$

15,946

 

$

5,858

 

 

4



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Recent Accounting Pronouncements

 

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 “Testing Goodwill for Impairment” (ASU No. 2011-08) which is intended to reduce the complexity and costs to test goodwill for impairment. The amendment allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The ASU also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company’s fiscal year ending June 30, 2013. Early adoption is permitted. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (ASU No. 2011-05), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income (OCI) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (ASU No. 2011-12), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning with the first quarter of the Company’s fiscal year ending on June 30, 2013 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 will not have a material impact on the Company’s consolidated financial position or results of operations.

 

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU No. 2011-04). This standard results in a common requirement between the FASB and the International Accounting Standards Board (IASB) for measuring fair value and for disclosing information about fair value measurements. This amendment was effective prospectively for the Company’s interim reporting period ended April 1, 2012.  The adoption of ASU No. 2011-04 did not have a material impact on the Company’s consolidated financial position or results of operations.

 

Reclassifications

 

Certain balances in the prior fiscal year have been reclassified to conform with the presentation in the current fiscal year.  On September 6, 2011, the Company, through its Winetasting Network subsidiary, completed the sale of certain assets of its wine fulfillment services business. Refer to Note 11-Discontinued Operations, for further discussion. Consequently, the Company has classified the results of operations of its wine fulfillment services business as discontinued operations for all periods presented.

 

5



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 2 — Net Income (Loss) Per Common Share from Continuing Operations

 

The following table sets forth the computation of basic and diluted net income (loss) per common share from continuing operations:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

 

 

(in thousands, except per share data)

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

51

 

$

(2,244

)

$

11,494

 

$

5,880

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

64,988

 

63,999

 

64,683

 

63,953

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Employee stock options (1)

 

65

 

 

20

 

 

Employee restricted stock awards

 

1,246

 

 

1,554

 

1,130

 

 

 

1,311

 

 

1,574

 

1,130

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted-average shares and assumed conversions

 

66,299

 

63,999

 

66,257

 

65,083

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share from

 

 

 

 

 

 

 

 

 

continuing operations

 

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

$

(0.04

)

$

0.18

 

$

0.09

 

Diluted

 

$

0.00

 

$

(0.04

)

$

0.17

 

$

0.09

 

 

Basic net income (loss) from continuing operations per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) from continuing operations per share is computed using the weighted-average number of common and dilutive common equivalent shares (consisting of employee stock options and unvested restricted stock awards) outstanding during the period.  Diluted net loss per share excludes the effect of potential common shares (consisting primarily of employee stock options and unvested restricted stock awards) as their inclusion would be antidilutive.

 

(1)          The effect of options to purchase 5.5 million and 6.6 million shares during the three and nine months ended April 1, 2012 and 6.8 million and 7.1 million shares during the three and nine months ended March 27, 2011, respectively, were excluded from the calculation of net income per share on a diluted basis as their effect is anti-dilutive.

 

Note 3 — Stock-Based Compensation

 

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2011, that 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 stock-based awards.

 

6



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The amounts of stock-based compensation expense recognized in the periods presented are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

 

 

 

(in thousands)

 

 

 

 

Stock options

 

$

316

 

$

296

 

$

866

 

$

881

 

Restricted stock awards

 

1,040

 

804

 

2,870

 

1,976

 

Total

 

1,356

 

1,100

 

3,736

 

2,857

 

Deferred income tax benefit

 

(502

)

(388

)

(1,373

)

(992

)

Stock-based compensation expense, net

 

$

854

 

$

712

 

$

2,363

 

$

1,865

 

 

Stock-based compensation is recorded within the following line items of operating expenses:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

 

 

 

(in thousands)

 

 

 

 

Marketing and sales

 

$

474

 

$

424

 

$

1,364

 

$

1,116

 

Technology and development

 

136

 

198

 

489

 

534

 

General and administrative

 

746

 

478

 

1,883

 

1,207

 

Total

 

$

1,356

 

$

1,100

 

$

3,736

 

$

2,857

 

 

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 granted during the respective periods were as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

Weighted average fair value of options granted

 

$

2.01

 

$

1.73

 

$

1.84

 

$

1.19

 

Expected volatility

 

72.1

%

69.4

%

72.1

%

68.0

%

Expected life

 

8.0 yrs

 

5.9 yrs

 

8.0 yrs

 

7.5 yrs

 

Risk-free interest rate

 

0.90

%

2.02

%

0.90

%

1.28

%

Expected dividend yield

 

0.0

%

0.0

%

0.0

%

0.0

%

 

The following table summarizes stock option activity during the nine months ended April 1, 2012:

 

 

 

Options

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value (000s)

 

Outstanding at July 3, 2011

 

6,915,535

 

$

6.08

 

 

 

 

 

Granted

 

1,027,500

 

$

2.63

 

 

 

 

 

Exercised

 

 

$

 

 

 

 

 

Forfeited

 

(1,198,115

)

$

11.98

 

 

 

 

 

Outstanding at April 1, 2012

 

6,744,920

 

$

4.51

 

5.0 years

 

$

2,039

 

 

 

 

 

 

 

 

 

 

 

Options vested at April 1, 2012

 

6,316,366

 

$

4.66

 

4.7 years

 

$

1,711

 

Exercisable at April 1, 2012

 

4,026,446

 

$

5.90

 

2.8 years

 

$

204

 

 

7



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

As of April 1, 2012, the total future compensation cost related to nonvested options, not yet recognized in the statement of income, was $2.6 million and the weighted average period over which these awards are expected to be recognized was 5.5 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 (Restricted Stock Awards). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended April 1, 2012:

 

 

 

 

 

 

Shares

 

Weighted
Average Grant
Date Fair
Value

 

Non-vested at July 3, 2011

 

3,395,261

 

$

2.49

 

Granted

 

2,045,862

 

$

2.61

 

Vested

 

(1,262,128

)

$

2.94

 

Forfeited

 

(48,500

)

$

2.63

 

Non-vested at April 1, 2012

 

4,130,495

 

$

2.41

 

 

The fair value of nonvested shares is determined based on the closing stock price on the grant date. As of April 1, 2012, there was $6.5 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 2.2 years.

 

Note 4 — Acquisitions and dispositions

 

Sale and franchise of Fannie May retail stores

 

On November 21, 2011, Fannie May Franchise LLC, a wholly-owned subsidiary of Fannie May Confections Brands, Inc., which in turn is a wholly-owned subsidiary of 1-800-Flowers.com, Inc., and GB Chocolates LLC (GB Chocolates) entered into an area development agreement whereby GB Chocolates will open a minimum of 45 new Fannie May franchise stores by December 2014.  The agreement provides exclusive development rights for several Midwestern states, as well as specific cities in Florida and Ohio. The terms of the agreement include a non-refundable area development fee of $0.9 million, store opening fees of $0.5 million, assuming successful opening of 45 stores, and a non-performance promissory note in the amount of $1.2 million, which becomes due and payable only if GB Chocolates does not open all 45 stores as set forth in the development agreement.  The Company has deferred recognition of the $0.9 million area development fee associated with the 45 store area development agreement, and will recognize such fees in income on a pro-rata basis, when the conditions for revenue recognition under the area development agreement is met. Both store opening fees and area development fees are generally recognized upon the opening of a franchise store, or upon termination of the agreement between the Company and the franchisee. The Company recognized approximately $0.2 million, of the $1.2 million promissory note, based upon its assessment of the likelihood that the performance criteria under the agreement will be achieved.

 

In addition to the 45 store area development agreement, the Company also sold 17 existing Fannie May stores, to be operated as franchised locations by GB Chocolates, for $5.6 million, recognizing a gain on the sale of $3.8 million.  Upon completion of the sale, the Company also recognized initial franchise fees associated with these 17 stores in the amount of $0.5 million.

 

8



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Acquisition of Flowerama

 

On August 1, 2011, the Company completed the acquisition of Flowerama of America, Inc. (Flowerama), a franchisor and operator of retail flower shops under the Flowerama trademark, with annual revenue of approximately $4.6 million and annual operating income of $0.1 million in its most recent year end prior to acquisition.  The purchase price, which included the acquisition of receivables, inventory, eight retail store locations and certain other assets and related liabilities, was approximately $4.3 million. The acquisition was financed utilizing available cash balances.  Of the acquired intangible assets, $1.9 million was assigned to amortizable investment in licenses, which is being amortized over the estimated useful life of 20 years, based upon the estimated remaining life of the franchise agreements.  Approximately $2.3 million of purchase price was assigned to goodwill which is not deductible for tax purposes.

 

Investment in Colonial Gifts Limited

 

On July 29, 2011, the Company purchased an equity investment in Colonial Gifts Limited (iflorist) in the amount of $1.2 million. Combined with prior purchases, the total equity investment in iflorist, which the Company is accounting for under the cost method, is $1.6 million. In addition, the Company has loaned iflorist $0.8 million through a senior secured debt financing at a rate of 7%. Iflorist, located in England, with revenue in its last fiscal year of approximately $7.0 million, is a direct-to-consumer marketer of floral and gift-related products sold and delivered throughout Europe, with wire-service operations within the same territory.

 

Acquisition of FineStationery

 

On May 10, 2011, the Company acquired selected assets of FineStationery Solutions, Inc. (Fine Stationery), a retailer of personalized stationery, invitations and announcements, with annual revenue of approximately $10.1 million and annual operating income of $0.4 million in its most recent year end prior to acquisition. The purchase price, which included the acquisition of inventory, production equipment and certain other assets, was approximately $3.3 million, including cash consideration of $2.8 million, plus additional consideration of $0.5 million based upon achieving specified operating results during fiscal 2012 through 2014, which is included in other liabilities in the Company’s consolidated balance sheet. The acquisition was financed utilizing available cash balances.  Of the $1.7 million of acquired intangible assets, $1.6 million was assigned to trademarks that are not subject to amortization, while the remaining acquired intangibles of $0.1 million were allocated to customer related intangibles which are being amortized over the estimated useful life of 3 years. In addition, approximately $1.1 million of the purchase price was assigned to goodwill, which is expected to be deductible for tax purposes.

 

Acquisition of Selected Assets of Mrs. Beasley’s

 

On March 9, 2011, the Company acquired selected assets of Mrs. Beasley’s Bakery, LLC (Mrs. Beasley’s), a baker and marketer of cakes, muffins and gourmet gift baskets for cash consideration of approximately $1.5 million, expanding the breadth of the Company’s baked goods and gourmet gift baskets product line. The acquisition included inventory and certain manufacturing equipment, which was consolidated within the Company’s baked goods manufacturing facilities. Approximately $0.6 million of the purchase price was assigned to tradenames that are not subject to amortization, while $0.3 million was assigned to goodwill which is expected to be deductible for tax purposes.

 

The Company is in the process of finalizing its allocation of the purchase prices to individual assets acquired and liabilities assumed as a result of the acquisitions of Flowerama and Fine Stationery. This will result in potential adjustments to the carrying value of their respective recorded assets and liabilities, the establishment of certain additional intangible assets, revisions of useful lives of intangible assets, some of which will have indefinite lives not subject to amortization, and the determination of any residual amount that will be allocated to goodwill. The preliminary allocation of the purchase price included in the current period balance sheet is based on the best estimates of management and is subject to revision based on final determination of asset fair values and useful lives.

 

9



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

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 Flowerama, Fine Stationery and Mrs. Beasley’s:

 

 

 

Flowerama
Purchase Price
Allocation

 

Fine Stationery
Purchase Price
Allocation

 

Mrs. Beasley’s
Purchase Price
Allocation

 

 

 

(in thousands)

 

Current assets

 

$

1,090

 

$

360

 

$

353

 

Intangible assets

 

1,902

 

1,674

 

585

 

Goodwill

 

2,348

 

1,051

 

308

 

Property, plant and equipment

 

104

 

269

 

204

 

Total assets acquired

 

5,444

 

3,354

 

1,450

 

 

 

 

 

 

 

 

 

Current liabilities

 

606

 

20

 

 

Other liabilities assumed

 

502

 

 

 

 

 

1,108

 

20

 

 

Net assets acquired

 

$

4,336

 

$

3,334

 

$

1,450

 

 

Pro forma Results of Operation

 

The following unaudited pro forma consolidated financial information has been prepared as if the acquisitions of Flowerama, Fine Stationery and Mrs. Beasley’s had taken place at the beginning of fiscal year 2011. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results. The adjustments primarily include amortization expense associated with acquired identifiable intangible assets. This information has not been adjusted to reflect any changes in the operations of the businesses subsequent to its acquisition by the Company. Changes in operations of the acquired businesses include, but are not limited to, discontinuation of products, integration of systems and personnel, changes in manufacturing processes or locations, and changes in marketing and advertising programs. Had any of these changes been implemented by the former managements of the businesses acquired prior to acquisition by us, the sales and net income information might have been materially different than the actual results achieved and from the pro forma information provided. 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.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
 2012

 

March 27,
2011

 

 

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from continuing operations

 

$

179,659

 

$

162,703

 

$

537,175

 

$

503,233

 

Operating income (loss) from continuing operations

 

$

155

 

$

(3,112

)

$

20,603

 

$

14,079

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

51

 

(2,162

)

$

11,374

 

$

6,616

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share from continuing operations

 

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

$

0.03

 

$

0.18

 

$

0.10

 

Diluted

 

$

0.00

 

$

0.03

 

$

0.17

 

$

0.10

 

 

10



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5 — Inventory

 

The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finished goods for resale, packaging supplies, raw material ingredients for manufactured products and associated manufacturing labor, and is classified as follows:

 

 

 

April 1,
2012

 

July 3,
2011

 

 

 

(in thousands)

 

 

 

 

 

 

 

Finished goods

 

$

29,585

 

$

26,629

 

Work-in-process

 

11,238

 

9,243

 

Raw materials

 

18,551

 

15,312

 

 

 

 

 

 

 

 

 

$

59,374

 

$

51,185

 

 

Note 6 — Goodwill and Intangible Assets

 

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. 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.

 

The carrying amount of goodwill is as follows:

 

 

 

1-800-
Flowers.com
Consumer
Floral

 

BloomNet
Wire
Service

 

Gourmet
Food and
Gift Baskets

 

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Balance at July 3, 2011

 

$

6,779

 

$

 

$

32,569

 

$

39,348

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Flowerama

 

2,348

 

 

 

2,348

 

 

 

 

 

 

 

 

 

 

 

Sale of Fannie May stores

 

 —

 

 —

 

(1,001

)

(1,001

)

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2012

 

$

9,127

 

$

 

$

31,568

 

$

40,695

 

 

The Company’s other intangible assets consist of the following:

 

 

 

 

 

April 1, 2012

 

July 3, 2011

 

 

 

Amortization
Period

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with determinable lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in licenses

 

14 - 16 years

 

$

7,216

 

$

5,322

 

$

1,894

 

$

5,314

 

$

5,314

 

$

 

Customer lists

 

3 - 10 years

 

15,998

 

9,595

 

6,403

 

15,804

 

8,619

 

7,185

 

Other

 

5 - 8 years

 

2,538

 

2,072

 

466

 

2,538

 

1,770

 

768

 

 

 

 

 

25,752

 

16,989

 

8,763

 

23,656

 

15,703

 

7,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks with indefinite lives

 

 

33,881

 

 

33,881

 

33,795

 

 

33,795

 

Total identifiable intangible assets

 

 

 

$

59,633

 

$

16,989

 

$

42,644

 

$

57,451

 

$

15,703

 

$

41,748

 

 

11



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Future estimated amortization expense is as follows: remainder of fiscal 2012 - $0.5 million, fiscal 2013 - $1.8 million, fiscal 2014 - $1.4 million, fiscal 2015 - $1.3 million, fiscal 2016 - $1.2 million, and thereafter - $2.6 million.

 

Note 7 — Long-Term Debt

 

The Company’s long-term debt and obligations under capital leases consist of the following:

 

 

 

April 1,
2012

 

July 3,
2011

 

 

 

(in thousands)

 

 

 

 

 

 

 

Term loan (1)

 

$

33,000

 

$

44,250

 

Revolving line of credit (1)

 

 

 

Obligations under capital leases (2)

 

100

 

1,488

 

 

 

33,100

 

45,738

 

Less current maturities of long-term debt and obligations under capital leases

 

15,100

 

16,488

 

 

 

$

18,000

 

$

29,250

 

 

(1)                On April 14, 2009, the Company amended its 2008 Credit Facility with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “Amended 2008 Credit Facility”). The Amended 2008 Credit Facility provided for term loan debt of $92.4 million and a seasonally adjusted revolving credit line ranging from $75.0 to $125.0 million. The Amended 2008 Credit Facility, effective March 28, 2009, also revised certain financial and non-financial covenants.

 

On April 16, 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “2010 Credit Facility”) which superseded the Amended 2008 Credit Facility. The 2010 Credit Facility included a prepayment of approximately $12.1 million, comprised primarily of the proceeds from the sale of the Home & Children’s Gifts segment in January 2010, and thereby reducing the Company’s outstanding term loan under the facility to $60 million upon closing.  The term loan, which matures on March 30, 2014, is payable in sixteen quarterly installments of principal and interest beginning in June 2010, with escalating principal payments at the rate of 20% in year one, 25% in years two and three and 30% in year four.

 

In addition, the 2010 Credit Facility extended the Company’s revolving credit line through April 16, 2014, and reduced available borrowings from a seasonally adjusted limit which ranged from $75.0 million to $125.0 million to a seasonally adjusted limit ranging from $40.0 to $75.0 million. The 2010 Credit Facility also revised certain financial and non-financial covenants, including maintenance of certain financial ratios. The obligations of the Company and its subsidiaries under the 2010 Credit Facility are secured by liens on all personal property of the Company and its domestic subsidiaries.

 

Outstanding amounts under the 2010 Credit Facility bear interest at the Company’s option of 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 range from 3.00% to 3.75% for LIBOR loans and 2.00% to 2.75% for ABR loans with pricing based upon the Company’s leverage ratio.

 

The Company does not enter into derivative transactions for trading purposes, but rather to hedge its exposure to interest rate fluctuations. The Company manages its floating rate debt using interest rate swaps in order to reduce its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest.

 

12



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

In July 2009, the Company entered into a $45.0 million notional amount swap agreement that exchanges a variable interest rate (LIBOR) for a 1.92% fixed rate of interest over the term of the agreement. This swap matures on July 25, 2012. The Company has designated this swap as a cash flow hedge of the interest rate risk attributable to forecasted variable interest (LIBOR) payments. The effective portion of the after tax fair value gains or losses on this swap is included as a component of accumulated other comprehensive income.  The ineffective portion, if any, is recorded within interest expense in the consolidated statement of operations.

 

(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.

 

Note 8-Fair Value Measurements

 

The Company’s financial assets and liabilities are measured and recorded at fair value, except for the Company’s investment in i-florist, a privately-held company, which is accounted for under the cost method of accounting and is periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstances indicate that an other-than-temporary decline in value may have occurred.   Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently if impairment indicators are present, as required under the accounting standards. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value, due to its variable nature.

 

The authoritative guidance for fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

 

Level 1

Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

 

 

Level 2

Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

 

 

Level 3

Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

All of the Company’s financial instruments were classified within Level 1 or Level 2 of the fair value hierarchy as of April 1, 2012 because they were valued using quoted market prices, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.

 

13



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Financial assets (excluding cash held in operating accounts and time deposits of $6.8 million) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company’s Consolidated Balance Sheet as follows:

 

 

 

 

 

 

 

Fair Value Measurements
Assets (Liabilities)

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

(in thousands)

 

 

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

Money Market — April 1, 2012

 

$

18,095

 

$

18,095

 

 

 

Money Market — July 3, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

 

 

 

 

Interest rate swap — April 1, 2012

 

$

(44

)

 

$

(44

)

 

Interest rate swap — July 3, 2011

 

$

(263

)

 

$

(263

)

 

 

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s interest rate swap, which is included in other liabilities in the consolidated balance sheet.  The fair value is based on forward looking interest rate curves.

 

Note 9 — Income Taxes

 

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate from continuing operations for the three and nine months ended April 1, 2012 was 131.1% and 38.9%, respectively, compared to 45.3% and 40.1% in the prior year periods.  The effective rates for fiscal 2012 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes and other permanent non-deductible items, offset by various tax credits.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has concluded its federal examination by the Internal Revenue Service for its fiscal years 2007 through 2009. Fiscal 2010 and fiscal 2011 remain subject to federal examination. Due to non-conformity with the federal statute of limitations for assessment, certain states remain open from fiscal 2006. 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. The Company does not have any material accrued interest or penalties associated with any unrecognized tax benefits, nor was any material interest expense recognized during the year.

 

14



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 10 — Business Segments

 

The Company’s management reviews the results of the Company’s operations by the following three business categories:

 

·                  1-800-Flowers.com Consumer Floral,

·                  BloomNet Wire Service, and

·                  Gourmet Food and Gift Baskets

 

During the first quarter of fiscal 2012, the Company made the decision to divest its non-strategic wine fulfillment services business, which was previously included within its Gourmet Foods & Gift Baskets category. On September 6, 2011, the Company completed the sale of this business; refer to “Discontinued Operations” below for a further discussion. Consequently, the Company has classified the results of operations of its wine fulfillment services business as discontinued operations for all periods presented.

 

 

 

Three Months Ended

 

Nine Months Ended

 

Net revenues

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

1-800-Flowers.com Consumer Floral

 

$

112,987

 

$

100,341

 

$

274,168

 

$

245,518

 

BloomNet Wire Service

 

24,060

 

20,765

 

60,837

 

51,943

 

Gourmet Food & Gift Baskets

 

43,104

 

37,936

 

202,829

 

192,203

 

Corporate (**)

 

199

 

301

 

575

 

855

 

Intercompany eliminations

 

(691

)

(504

)

(1,707

)

(1,067

)

Total net revenues

 

$

179,659

 

$

158,839

 

$

536,702

 

$

489,452

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Operating Income

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,
2011

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Category Contribution Margin (*):

 

 

 

 

 

 

 

 

 

1-800-Flowers.com Consumer Floral

 

$

10,948

 

$

7,980

 

$

26,899

 

$

21,513

 

Bloomnet Wire Service

 

6,258

 

5,345

 

15,925

 

15,007

 

Gourmet Food & Gift Baskets (***)

 

948

 

588

 

29,188

 

26,322

 

Category Contribution Margin Subtotal

 

18,154

 

13,913

 

72,012

 

62,842

 

Corporate (**)

 

(13,125

)

(12,093

)

(36,505

)

(34,439

)

Depreciation and amortization

 

(4,874

)

(5,069

)

(14,705

)

(15,272

)

Operating income

 

$

155

 

$

(3,249

)

$

20,802

 

$

13,131

 

 


(*)  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 corporate overhead, which includes stock-based compensation, (see footnote (**) below), depreciation and amortization, net interest expense and income taxes. Assets and liabilities are reviewed at the consolidated level by management and are not accounted for by category.

 

(**)  The Company’s enterprise shared service cost centers include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions.  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, which includes stock-based compensation, as they are not directly allocable to a specific category.

 

15



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

(***) Category contribution margin, during the nine months ended April 1, 2012, includes a $3.8 million gain on the sale of Fannie May retail stores, which are being operated as franchised locations post-sale.

 

Note 11-Discontinued Operations

 

On September 6, 2011, the Company, through its subsidiary The Winetasting Network, completed the sale of certain assets of its wine fulfillment services business in order to focus on its core Direct-to-Consumer wine business. The sales price consisted of $12.0 million of cash proceeds at closing, with the potential for an additional $1.5 million upon achieving specified revenue targets during the two year period following the closing date.  The Company has classified the results of operations of its wine fulfillment services business, which had previously been included within its Gourmet Foods & Gift Baskets category, as discontinued operations for all periods presented.

 

Results for discontinued operations are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

April 1,
2012

 

March 27,

2011

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from discontinued operations

 

$

 

$

3,940

 

$

2,003

 

$

13,251

 

 

 

 

 

 

 

 

 

 

 

Operating loss from discontinued operations

 

$

 

$

(696

)

$

(232

)

$

(228

)

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of discontinued operations, net of tax

 

$

(136

)

$

 

$

4,342

 

$

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

$

(136

)

$

(432

)

$

4,320

 

$

(150

)

 

Note 12 — Commitments and Contingencies

 

Legal Proceedings

 

From time to time, the Company is subject to legal proceedings and claims arising in the ordinary course of business.

 

On November 10, 2010, a purported class action complaint was filed in the United States District Court for the Eastern District of New York naming the Company (along with Trilegiant Corporation, Inc., Affinion, Inc. and Chase Bank USA, N.A.) as defendants in an action purporting to assert claims against the Company alleging violations arising under the Connecticut Unfair Trade Practices Act among other statutes, and for breach of contract and unjust enrichment in connection with certain post-transaction marketing practices in which certain of the Company’s subsidiaries previously engaged in with certain third-party vendors.  On March 6, 2012 and March 15, 2012, two additional purported class action complaints were filed in the United States District Court for the District of Connecticut naming the Company and numerous other parties as defendants in actions purporting to assert claims substantially similar to those asserted in the lawsuit filed on November 10, 2010.  In each case, plaintiffs seek to have the respective case certified as a class action and seek restitution and other damages, each in an amount in excess of $5.0 million. On April 26, 2012, the two Connecticut cases were consolidated with a third case previously pending in the United States District Court for the District of Connecticut in which the Company is not a party. The Company intends to defend each of these actions vigorously.

 

16



Table of Contents

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

There are no assurances that additional legal actions will not be instituted in connection with the Company’s former post-transaction marketing practices involving third party vendors nor can we predict the outcome of any such legal action. At this time, we are unable to estimate a possible loss or range of possible loss for the aforementioned actions for various reasons, including, among others: (i) the damages sought are indeterminate, (ii) the proceedings are in the very early stages and the court has not yet ruled as to whether the classes will be certified, and (iii) there is uncertainty as to the outcome of pending motions.  As a result of the foregoing, we have determined that the amount of possible loss or range of loss is not reasonably estimable.  However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which may be beyond our control.

 

17



Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward Looking Statements

 

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-Q and in the Company’s Annual Report on 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 or referred to 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 Factors That May Affect Future Results” and under Part I, Item 1A, of the Company’s Annual Report on Form 10-K under the heading “Risk Factors.”

 

Overview

 

1-800-FLOWERS.COM, Inc. is the world’s leading florist and gift shop. For more than 30 years, 1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift.  1-800-FLOWERS.COM’s Mobile Flower & Gift Center was named winner of the Mobile Shopping Summit’s “Best Mobile Site of 2011.”  1-800-FLOWERS.COM was also rated number one vs. competitors for customer satisfaction by STELLAService and named by the E-Tailing Group as one of only nine online retailers out of 100 benchmarked to meet the criteria for Excellence in Online Customer Service. 1-800-FLOWERS.COM has been honored in Internet Retailer’s “Hot 100: America’s Best Retail Web Sites” for 2011. The Company’s BloomNet® international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

 

The 1-800-FLOWERS.COM “Gift Shop” also includes gourmet gifts such as popcorn and specialty treats from: The Popcorn Factory® (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl’s® (1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May® confections brands (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com®  (www.1800baskets.com); wine gifts from Winetasting.com® (www.winetasting.com); top quality steaks and chops from Stockyards.com (www.stockyards.com); as well as premium branded customizable invitations and personal stationery from FineStationery.com (www.finestationery.com).  The Company’s Celebrations® brand (www.celebrations.com) is a premier online destination for fabulous party ideas and planning tips. 1-800-FLOWERS.COM, Inc. is involved in a broad range of corporate social responsibility initiatives including continuous expansion and enhancement of its environmentally-friendly “green” programs as well as various philanthropic and charitable efforts.

 

On September 6, 2011, the Company, through its Winetasting Network subsidiary, completed the sale of certain assets of its non-strategic wine fulfillment services business in order to focus on its core Direct-to-Consumer wine business. The Company has classified the results of operations of its wine fulfillment services business, which had previously been included within its Gourmet Foods & Gift Baskets category, as discontinued operations for all periods presented.

 

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.

 

18



Table of Contents

 

Category Information

 

The following table presents the contribution of net revenues, gross profit and category contribution margin from each of the Company’s business categories, as well as consolidated “EBITDA” (earnings before interest, taxes, depreciation and amortization). Additionally, the table adjusts Category Contribution Margin to EBITDA, EBITDA excluding stock-based compensation, and Adjusted EBITDA from continuing operations, excluding stock-based compensation, and reconciles Net Income (Loss) from continuing operations to EBITDA, EBITDA excluding stock-based compensation and Adjusted EBITDA from continuing operations, excluding stock-based compensation. As previously noted, the Company’s wine fulfillment services business has been classified as discontinued operations and therefore is excluded from category information below.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

% Change

 

April 1,
2012

 

March 27,
2011

 

% Change

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

Net revenues from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-800-Flowers.com Consumer Floral

 

$

112,987

 

$

100,341

 

12.6

%

$

274,168

 

$

245,518

 

11.7

%

BloomNet Wire Service

 

24,060

 

20,765

 

15.9

%

60,837

 

51,943

 

17.1

%

Gourmet Food & Gift Baskets

 

43,104

 

37,936

 

13.6

%

202,829

 

192,203

 

5.5

%

Corporate (*)

 

199

 

301

 

(33.9

)%

575

 

855

 

(32.7

)%

Intercompany eliminations

 

(691

)

(504

)

36.9

%

(1,707

)

(1,067

)

60.0

%

Total net revenues from continuing operations

 

$

179,659

 

$

158,839

 

13.1

%

$

536,702

 

$

489,452

 

9.7

%

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

% Change

 

April 1,
2012

 

March 27,
2011

 

% Change

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

Gross profit from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-800-Flowers.com Consumer Floral

 

$

44,045

 

$

37,160

 

18.5

%

$

106,258

 

$

92,853

 

14.4

%

 

 

39.0

%

37.0

%

 

 

38.8

%

37.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BloomNet Wire Service

 

10,733

 

9,813

 

9.4

%

28,254

 

27,362

 

3.3

%

 

 

44.6

%

47.3

%

 

 

46.4

%

52.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gourmet Food & Gift Baskets

 

18,116

 

16,002

 

13.2

%

84,981

 

82,572

 

2.9

%

 

 

42.0

%

42.2

%

 

 

41.9

%

43.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate (*)

 

145

 

136

 

7.0

%

434

 

424

 

2.4

%

 

 

72.9

%

45.2

%

 

 

75.6

%

49.6

%

 

 

Total gross profit from continuing operations

 

$

73,039

 

$

63,111

 

15.7

%

$

219,927

 

$

203,211

 

8.2

%

 

 

40.7

%

39.7

%

 

 

41.0

%

41.5

%

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

% Change

 

April 1,
2012

 

March 27,
2011

 

% Change

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

Adjusted EBITDA from continuing operations, excluding stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Category Contribution Margin (**)

 

 

 

 

 

 

 

 

 

 

 

 

 

1-800-Flowers.com Consumer Floral

 

$

10,948

 

$

7,980

 

37.2

%

$

26,899

 

$

21,513

 

25.0

%

BloomNet Wire Service

 

6,258

 

5,345

 

17.1

%

15,925

 

15,007

 

6.1

%

Gourmet Food & Gift Baskets (***)

 

948

 

588

 

61.2

%

29,188

 

26,322

 

10.9

%

Category Contribution Margin Subtotal

 

18,154

 

13,913

 

30.5

%

72,012

 

62,842

 

14.6

%

Corporate (*)

 

(13,125

)

(12,093

)

(8.5

)%

(36,505

)

(34,439

)

(6.0

)%

EBITDA

 

5,029

 

1,820

 

176.3

%

35,507

 

28,403

 

25.0

%

Add: Stock-based compensation

 

1,356

 

1,098

 

23.5

%

3,736

 

2,855

 

30.9

%

EBITDA, excluding stock-based compensation

 

6,385

 

2,918

 

118.8

%

39,243

 

31,258

 

25.5

%

Less: Gain on sale of stores (***)

 

 

 

 

(3,789

)

 

 

Adjusted EBITDA from continuing operations, excluding stock-based compensation

 

$

6,385

 

$

2,918

 

118.8

%

$

35,454

 

$

31,258

 

13.4

%

 

19



Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

April 1,
2012

 

March 27,
2011

 

% Change

 

April 1,
2012

 

March 27,
2011

 

% Change

 

 

 

(in thousands)

 

 

 

(in thousands)