For All Of Life’s
Celebrations
2002 Annual Report
About 1-800-FLOWERS.COM®
With one of the most recognized brands in gift retailing, 1-800-FLOWERS.COM provides a broad range of thoughtful gift
products including flowers, plants, gourmet foods, candies, gift baskets and other unique gifts to customers around the world
via: the Internet at (www.1800flowers.com); by calling 1-800-FLOWERS® (1-800-356-9377) 24 hours a day; or by visiting one
of its Company-operated or franchised stores.The Company’s gift product line is extended by the merchandise sold under
its collection of brands, including home décor and garden merchandise under Plow & Hearth® (phone: 1-800-627-1712 and
web: www.plowandhearth.com), premium popcorn and other food gifts under The Popcorn Factory® (phone: 1-800-541-2676
and web: www.thepopcornfactory.com), gourmet food products under GreatFood.com® (www.greatfood.com), and
children’s gifts under HearthSong® (www.hearthsong.com) and Magic Cabin Dolls® (www.magiccabindolls.com).
The Company’s Class A common stock is listed on the NASDAQ National Market (ticker symbol “FLWS”).
Our Mission Statement
“1-800-FLOWERS.COM will be the leading provider of thoughtful gifts, helping
our customers connect with the important people in their lives. We 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.”
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report, other than statements of historical
fact, are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995.These statements involve risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the appli-
cable statements.These risks and uncertainties include, but are not limited to: the
Company’s ability to achieve solid, cost efficient growth; its ability to maintain and
enhance its online shopping web sites to attract customers; its ability to successfully
introduce new products and product categories; its ability to maintain and enhance
profit margins for its various products; its ability to provide timely fulfillment of cus-
tomer orders; its ability to cost effectively acquire and retain customers; its ability to
continue growing revenues; its ability to compete against existing and new competi-
tors; its ability to manage expenses associated with necessary general and adminis-
trative and technology investments; its ability to cost efficiently manage inventories;
its ability to improve its bottom line results and build long-term shareholder value; its
ability to leverage its operating infrastructure; its ability to achieve its stated results
guidance for fiscal 2003, and general consumer sentiment and economic conditions
that may affect levels of discretionary customer purchases of the Company’s prod-
ucts. For a more detailed description of these and other risk factors, please refer to
the Company’s SEC filings including the Company’s Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q.The Company expressly disclaims any intent
or obligation to update any of the forward looking statements made in this report
or in any of its SEC filings except as may be otherwise stated by the Company.
Table Of Contents
Financial Highlights
Letter to Shareholders
1
2
Thoughtful Gifts for Every Celebration 4
Deepening Our Customer Relationships 6
Growing our Unique
Fulfillment Network
Exceptional Customer Service
Selected Financial Statements
MD&A
Consolidated Financial
Statements
Company Information
8
10
11
12
18
IBC
Financial Highlights
Total Net Revenues
Telephonic Revenues
Online Revenues
Non-floral Revenues*
Gross Profit Margin Percentage
EBITDA
EPS
Customer Base (millions)
June 30,
2002
July 2,
2001
Years Ended
June 27,
June 29,
June 28,
2000 1999 1998
(in thousands, except percentages and customer data)
$497,205
248,931
218,179
46%
41.0%
11,396
(0.02)
18.1
$442,239
230,723
182,924
41%
39.4%
(23,757)
(0.64)
13.4
$379,528
227,380
116,810
32%
37.4%
(59,102)
(1.10)
9.1
$292,852
201,467
52,668
25%
38.6%
214
(0.27)
6.6
$218,212
159,715
26,684
13%
37.2%
10,583
0.07
4.7
* As a percentage of combined online and telephonic net revenues
Fiscal 2002 Achievements
Increased total revenues 12.4 percent to $497 million despite challenging retail economy
■ Grew online revenues 19.3 percent to $218 million, representing 44 percent of total revenues
Increased Gross Profit Margin 160 basis points to 41 percent
■ Achieved EBITDA of $11.4 million, an increase of $35 million
■ Cost efficiently added 3 million new customers
■ Deepened customer relationships, increasing quarterly repeat order rate to 50+ percent
■ Acquired The Popcorn Factory® in May, 2002; completed integration of website and customer service
functions October 1, 2002
Total Revenues
Rapid Online Revenue Growth
(in $ millions)
(in $ millions)
$497.2
$442.2
$379.5
$292.9
$218.2
$218.2
$182.9
$116.8
$52.7
$26.7
8
9
Y
F
9
9
Y
F
0
0
Y
F
1
0
Y
F
2
0
Y
F
8
9
Y
F
9
9
Y
F
0
0
Y
F
1
0
Y
F
2
0
Y
F
■
■
T o O u r S h a r e h o l d e r s
Fiscal 2002 was a very important
year for our company, one in
which we achieved solid revenue
growth and significantly improved
operating results despite a
challenging retail economy. We
accomplished this by leveraging
the investments made during
the past several years, particu-
larly those in our technolo-
gy platform, our fulfillment
system and our expanded
marketing and merchan-
dising programs.
■ On the customer front: an increasing percentage of new
customers and repeat business came to us online, representing
approximately 44 percent of total revenues, up from 41 percent
in the prior year. This trend is important for several reasons:
orders placed online enable us to leverage the efficiency
of our technology platform, providing lower order
handling costs compared with telephonic orders.
customers online can see our expanded range of non-
floral gifts which carry a higher gross profit margin
(averaging approximately 44 percent compared with
floral gifts at approximately 37 percent) and help
increase purchase frequency as customers bookmark
us for more of their gifting occasions, and…
▲ when customers come to us online we get an opportunity
to interact with them through the use of our extensive
service offerings including gift search and gift reminder
functions, as well as through e-mail marketing programs.
■ On product mix: the strong growth in our non-floral gift
sales – up to 46 percent of total revenues in fiscal 2002
from 41 percent in the prior year – combined with our focus
on customer service and operating efficiencies, enabled
us to increase our gross profit margin for
the year by 160 basis points to 41 percent
compared with 39.4 percent in fiscal 2001.
Key Initiatives
In addition, during the year we made signifi-
cant progress on some of our key initiatives
such as:
Product Offerings: expansion of gift bas-
kets and gourmet gifts, plants, candy and plush
stuffed animals – great gift categories in which
we believe we can build market share,
Fulfillment: further leveraging our unique ful-
fillment network to test same-day delivery for an
expanding range of non-floral gifts, including candy,
Lenox and Waterford giftware, plush and more –
all in addition to our traditional floral offerings,
■ Customer Service: completion of the re-engineering of our
service platform, increasing staffing flexibility and productivity
of our gift advisors while reducing overall labor costs,
■ Corporate Gifting: the expansion of our Corporate Gifting
effort where we’re developing strategic product categories
and gifting capabilities, such as personalization, that we antic-
ipate will accelerate our growth in this area, and finally…
■ Continuity Programs: we’ve expanded our Continuity
Gift programs, which allow our customers to conveniently
send gifts that keep on giving month after month.
Opportunistic Acquisition Strategy
On the business development front, while our growth plan is based
on “organic” expansion and does not require acquisitions to attain
our goals, we continue to be opportunistic in the area of acquisi-
tions. Specifically, we look to identify acquisition candidates that
offer products and/or services that are consistent with our mission
statement and which can be cost-effectively acquired and integrated.
Two years ago, we advised our shareholders that our approach
to future growth would not be the “high spend/hyper growth”
typical of much of the retail sector in the late 1990’s, but rather
one of building sustainable growth with lower spending require-
ments. We believed this would allow us to achieve
two important objectives. It would demonstrate
the financial leverage in our business model by
producing improved operating margins that
would grow at a rate greater than our revenue
growth rate, which in turn would accelerate
our return to being EBITDA and EPS positive.
Our fiscal 2002 results reflect the benefits
of this initiative and we plan to continue
to drive our business in this manner.
Leveraging Our Investments
During fiscal 2002, we reduced our operat-
ing expenses, both as a percent of revenue
and in absolute dollars, while continuing
to grow our business. Total revenues
increased 12 percent, fueled by a 19 percent
increase in our online business. Importantly, our ability to leverage
our operating infrastructure enabled us to achieve EBITDA of
more than $11 million, an improvement of $35 million compared
with fiscal 2001. In addition, we achieved positive EPS in three
of four quarters during the fiscal year, resulting in a reduction in
our net loss of approximately $40 million to a loss of $0.02 per
share compared with a loss of $0.64 per share a year earlier.
“Total revenues
increased 12
percent fueled by a
19 percent increase
in our online
business...”
Deepening Customer Relationships
This was accomplished while we cost-efficiently added three
million new customers during the year. We believe our cost to
acquire a new customer, at less than $20, is among the lowest in
the multi-channel, specialty retail industry. Concurrent with new
customer additions, we deepened our relationship with the more
than 10 million existing customers in our database, increasing the
percent of repeat business to more than 50 percent during the
fourth quarter and to approximately 40 percent for the full year.
In fact, throughout fiscal 2002, we saw a continuation of several
similarly favorable trends:
2
▲
▲
■
■
Using this disciplined approach, we have made several strategic
acquisitions during the past few years, all of which have helped us
expand our gift offering and deepen our relationship with our
customers. Exemplifying this approach is the acquisition of The
Popcorn Factory made in May 2002. The Popcorn Factory offers
a line of premium popcorn and confection gifts that comple-
ments our fast growing candy and food gift businesses for both
our retail customers and corporate accounts.
We believe that this low-investment profile will allow us to gen-
erate a return on capital deployed
in our business that is higher than
most of the specialty retail sector.
It will also enable us to produce
increasing levels of free cash flow,
which will add to our already
strong balance sheet.
Importantly, during the past several years we’ve gained significant
experience and developed the necessary skills to quickly and effi-
ciently integrate acquisitions. As a result, the integration of The
Popcorn Factory business – including upgrading and moving their
website onto our network and bringing their customer service
Guidance
During fiscal 2003, we anticipate
achieving revenue growth in a
range of 14-to-19 percent, further
demonstrating our ability to grow
our business despite continued
uncertainty in the overall economy.
We expect gross profit margin to
increase another 50-to-100 basis
points, to a range of 41.5-to-42
percent, as non-floral gifts grow to
more than 50 percent of total sales
and we continue to drive operating
efficiencies and provide excellent
customer service.
This year, on the anniversary of September
11, 2001, the 1-800-FLOWERS.COM team
members once again reached out to help
others. In locations across the nation,
1-800-FLOWERS.COM associates helped
to ease the pain of our customers, col-
leagues and friends during this difficult
time. They did so even as they dealt with
their own sorrows.
Because of their efforts, we were able
to do what we do best as a company, help
people express themselves, even on this
occasion of deep, national sorrow. As a
company, we were present at memorials
across the country to honor those lost.
And, as America begins to heal and move
forward, we are there for our customers,
each and every day. I would like to extend
a personal thank you to all of our associ-
ates as well as the vendors and suppliers
who helped 1-800-FLOWERS.COM make
a difference on this emotional anniversary.
functions in house – was accomplished in record time. This posi-
tions us well for the important holiday shopping season.
We will continue to be both opportunistic as well as highly
selective in our acquisition strategy.
Looking ahead
Going forward, we will further leverage our existing asset base
to cost-efficiently attract new customers and to expand our suite
of products and services which will enable us to deepen our
customer relationships. One important note on future growth;
we will maintain our strategy of low capital deployment, which
minimizes our inventory and fixed asset requirements. The
investments that we do make in fixed assets will continue to be
primarily in the areas of technology that will enhance our ser-
vices to our customers and drive operating efficiencies. With
respect to inventory, we will continue to work closely with our
vendor networks to minimize our inventory requirements.
We also anticipate achieving fur-
ther leverage in our operating
expenses. As a result, we expect
to generate EBITDA in excess of
$30 million and EPS of more than
$0.20 per share. Also, with fore-
casted capital expenditures of
approximately $13 million, down
from $15 million last year and more than $20 million in each of
the two prior years, we expect to generate free cash flow in
excess of $15 million in fiscal 2003. Looking beyond 2003, we
expect to grow EBITDA, EPS and Free Cash Flow at an accelerat-
ed pace relative to top line growth and thereby build long-term
shareholder value.
Most important, we believe our customers increasingly view their
relationship with 1-800-FLOWERS.COM as one of the most
convenient and dependable means of helping them connect with
all the important people in their lives. Through our expanded gift
selection, attentive customer service, unique same-day and next-
day delivery capability and extensive service offerings, we believe
we can deepen and expand this relationship to help our cus-
tomers with all of the celebrations in their lives. We thank our
customers, associates, investors, vendors and business partners
for their continued support.
Sincerely
Jim McCann
Chairman and CEO
3
T h o u g h t f u l G i f t s F o r
Birthdays, Graduations,Thank You, Anniversaries,
Halloween to see their cute costumes!” Everyone has
Get Well, Weddings, Job Promotion, Retirement,
thoughts like these every day – while out jogging, in the
Engagement, Secretaries’ Day, Bosses’ Day, Nurses
Day,Teachers Day, Family Reunions, Sweetest Day,
Valentine’s Day, Mother’s Day, Father’s Day,
Hanukah, Passover, Rosh Hashanah,Yom Kippur,
Earth Day, Halloween, Christmas, Kwanzaa, St.
Patrick’s Day, Easter, Fourth of July, New Baby,
Grandparent’s Day…
shower, on the way to work, during that long, boring
staff meeting – but we don’t always get to act on our
thoughtfulness. At 1-800-FLOWERS.COM® we believe
it is our mission to help people turn these thoughts
into actions – actions that help people connect.
We do this through convenient, multi-channel customer
access – on the Internet, over the phone, at one of our
company-owned or franchised stores – 24 x 7, year
round anywhere and any way that is convenient for our
customers. And we do it with unique same-day and
next-day delivery capability to help capture all of those
“spur-of-the-moment” thoughts. And we do it through
Touching
lives,
stirring
emotions
our expanded gift offering – flowers,
gift baskets, plants, home and gar-
den décor, children’s gifts, collectibles,
plush, balloons, gourmet items –
wonderful gifts for any occasion.
FLOWERS – THE CORE GIFT
Floral gifts remain the cornerstone
of the company’s business. In fact, a
majority of our first-time customers
come to us for a floral gift occasion.
While non-floral gifts are the fastest
growing segment of the Company’s
business, the floral side continues to grow as well.
When you think about it, there are many celebratory
occasions in our lives, many opportunities to connect
Signature pieces such as The Birthday Flower Cake™,
Make Lemonade™ and Plum Crazy™ arrangements con-
tinue to draw new customers for everyday occasions
such as birthdays and anniversaries. This past year cus-
with the people that are important to us. “My assistant
tomers also embraced our growing line of collectibles
did such a great job reorganizing my travel schedule, I
and exclusive vases from Lenox®,Waterford® and other
should send her something.” “My sister is a school
partners. “Bundling” floral gifts with exclusive vases,
nurse, I should let her know how proud I am of her.”
candy from Godiva®, jewelry and even adorable stuffed
“I wish I could be with my niece and nephew on
animals also continues to be a great growth area. Many
4
E v e r y C e l e b r a t i o n
of these bundled items are shipped overnight in specially
PLUSH – BIGGER IS BEAR-ER?
designed packages and some are even being made
Plush – cuddly teddy bears and other
available for same-day delivery.
PLANTS SHOOT UP
stuffed animals – is another fast growing
gift category, great for children and adults
alike. Our newly launched personalized
Plants are a natural compliment to our floral business,
Bobee Bear-It™ teddy bear offers cus-
and fiscal 2002 was a booming year for plants as gifts.
tomers the ability to have a personal
Working with vendors throughout the country to
message embroidered on
ensure ready access and ease of delivery, we identified
Bobee’s brightly colored
new varieties of plants – from poinsettias to azaleas
sweater, making it a great way
to bonsai for a broad range of occasions.
to connect to a niece or
DELICIOUS AND FUN FOOD GIFTS
nephew or to express yourself
during a holiday like National
From decadent candy to premium popcorn, gourmet
Teachers’ Week or Nurses’ Week.
fruit baskets, giant chocolate-dipped strawberries, tow-
ers of baked goods and even vegetable of the month!
Everyone likes to eat, and our broad selection of gift
UNIQUE GIFTS AND
GIFT CLUBS
food items ensures that our customers can find some-
Collectibles from Waterford®, Lenox®
thing to please the palate of any recipient whether
and Hummel® were a hit with cus-
they are family, friends or business associates.
tomers this past year and will grow
in importance as they are offered
Gift food items are one of the fastest growing cate-
as both stand-alone gifts and bundled
gories for 1-800-FLOWERS.COM. We expect this
with flowers, plush and candy. And for
trend to continue with the introduction of such great
Holiday 2002, beautiful jewelry from
gift items as our new line of whimsically oversized
Swarovski® will be one of the season’s
Animal Crackers, Life Savers® and other great snack
new offerings. Additionally, many of
GROWING NON-FLORAL
GIFTING
As % of combined
online and
telephonic
revenues
foods from one of our
these great brands are also a part of
newest vendors, Nabisco®.
the Company’s Gift Club “continu-
In addition, we recently
ity” programs. From roses of the
launched our own private
month to orchids and bonsai
label brand of delectable
plants to collectible Lenox snow-
baked goods under the
men, wreaths, coffee, cheese
Mama Moore’s™ Bake Shop
cakes and much more. These
brand, leveraging our great
programs allow customers to
growth in this area with
baked goods ranging from
send gifts that
keep on giving
cookies to crumb cake to
month after
cheesecake samplers and
month, season
even a very edible fruitcake!
after season.
5
D e e p e n i n g O u r
Responding to the familiar
broadcast and online advertising as well as a variety of
“ding” announcing the
direct marketing vehicles, we are able to both attract
arrival of e-mail, you click
millions of new customers each year and increase the
open the new message to
repeat business from the many millions of existing
find a timely reminder of
customers in our databases.
your mother-in-law’s upcom-
ing birthday. What’s more, the
During fiscal 2002, we began to shift the focus of our
e-mail includes several full-
marketing efforts to increase the emphasis on deepening
color product shots of great
the relationship with our more than 10 million existing
gift items specifically chosen
customers. We did this while continuing to cost
to appeal to dear old mom.
efficiently acquire a growing number of new customers
Using your customer profile
– 3 million in fiscal 2002 – who were attracted to the
information, including your
1-800-FLOWERS.COM brand by the convenience of
credit card number and
our multi-channel access, our expanded gift offering and
your mother-in-law’s
our unique same-day and next-day delivery capability.
address – information already
entered in your customer profile
CUSTOMER-IZED DIRECT MARKETING
– you select a gift and send it
Utilizing our large and growing customer database, we
on its way for delivery right to
are able to optimize our catalog marketing efforts by
mom’s door in sunny Florida.
pinpointing customers based on their specific gifting
Once again, through the
needs and buying habits. Based on data our customers
convenient service of
have provided about themselves and their gift recipi-
1-800-FLOWERS.COM,
ents, we can tailor mailings to them that will be both
you’ve endeared yourself to
pertinent and timely.
In addition, our expanded family
mom and managed to avoid
of gift brands – 1-800-FLOWERS.COM, Plow &
a major “dust up” at home.
Hearth, HearthSong, Magic Cabin Dolls and The
GROWING ONLINE
DEMAND
Online revenues as %
of total revenues
E-mail reminder services are
Popcorn Factory – offer us
cross marketing opportuni-
just one of the many ways that
ties that further expand
1-800-FLOWERS.COM helps its
our ability to fulfill our
customers connect with the
customers’ gifting needs.
important people in their lives.
It’s also one of the many ways that
While catalogs can be
we are deepening our relationship
tailored to specific audi-
with our customers as their gift
ences, perhaps no direct
provider for a broad range of
marketing vehicle is more
celebratory occasions. By leverag-
personal than e-mail.
ing the strength of our brand and
1-800-FLOWERS.COM uti-
utilizing a broad range of mar-
lizes various communication
keting approaches, including
streams within the e-mail
6
C u s t o m e r R e l a t i o n s h i p s
channel, each providing the personal touch of being sent
brations. Adding to these online ordering conveniences
directly to a customer’s computer screen. Many also
are customer relationship tools including personalized
include interesting anecdotes about certain celebrations,
“Gift Reminders” that remind our customers about
often prompting immediate purchases. Another advan-
upcoming occasions based on information they have
tage is cost efficiency; on average, e-mail promotion costs
provided.
In fiscal 2002, the number of customers
less than a penny per message.
utilizing our Gift Reminder program grew by more
In fiscal 2002, we grew our e-mail channel by
introducing several new campaigns. “Purchase
Reminders” are directed at customers who have
placed birthday, anniversary or maternity purchases
within the previous year. These customers are
reminded of the recipient and order date, and also
provided with gift suggestions. “Everyday Gifting”
e-mails are sent during non-holiday periods, offering
customers gift ideas for almost any occasion.
“Reactivation” e-mails target customers who have
not made a purchase within the past12 months with
special offers to try us again.
Looking forward to 2003, we
plan to build on the success of
our e-mail programs by introduc-
ing several new communication
streams, including “new customer
welcome,” annual birthday and
anniversary messages, and thank-
you e-mails to customers after their
orders are processed. These new
initiatives will be driven by the
personal purchasing history and
A t
t
i n c
t
i n g n e w
r a c
r s ,
o m e
t
c u s
i n g r e p e a t
r e a s
s
s
i n e
b u s
than 100 percent, giving us hundreds
of thousands of gifting occasions that
our customers have specifically asked
information provided by the customer.
us to remind them of with great gift suggestions.
ENHANCING THE ONLINE SHOPPING
EXPERIENCE
ON TV AND IN PRINT
Complementing our direct and online marketing strate-
The 1-800-FLOWERS.COM website cross-merchandises
gies is a full spectrum of broadcast media promotion
products and gifting occasions throughout our online
that includes national as well as regional television,
channels, so the customer can shop by type of product,
radio and print advertising. Commercials and ads are
by price point, or by occasion such as a birthday, wed-
created with a common theme: the customer can
ding, new baby, graduation, or a myriad of other cele-
depend on 1-800-FLOWERS.COM for thoughtful gifts
7
G r o w i n g O u r U n i q u e
that convey the right sentiment for every celebration.
Throughout the country and even internationally, cus-
To keep our message “front of mind,” the success of
tomers have come to rely on 1-800-FLOWERS.COM to
our advertising is carefully tracked and consumer
help them connect with the important people in their
feedback is continually analyzed,
lives and to do it real-time. We are uniquely positioned
helping us fine-tune our brand posi-
to provide such service because of the “hybrid”
tioning as our customers’ trusted
fulfillment system that we’ve evolved during our more
gifting source.
than 25 years as a specialty gift retailer.
It’s Aunt Ida’s birthday today
in Idaho (and you were
This system weaves together three primary elements:
■ Our BloomNet® network of more than 1,600
always her favorite). Mom
florists including independent florists, 26 company-
is back in Montana and
owned and 85 franchised floral shops which, together,
tomorrow is Mother’s Day.
provide nearly 100 percent coverage of the U.S.
Brother Dave just closed
Our independent BloomNet® members are selected
on his new house in
Boston. Little sister
because of their high-quality standards and their
exceptional service, characteristics that are regularly
Sandy is having a baby
monitored.
In addition, many of these florists have
shower next week in
been affiliated with us for more than 10 years and
Saratoga. You’re stuck in
our volume of orders typically represent a substan-
Boston on business. And, oh
tial portion of their annual sales volume, ensuring
yes, today is the three
good communications and attention to quality
month anniversary of your
and service.
first date with the girl of your
■ Approximately 600,000 square feet of our own
dreams, Kim, back in Kansas.
distribution and warehouse facilities located in
No problem. With
Madison,VA, Chicago, IL, and Vandalia, OH. These
facilities, together, shipped more than 2 million
1-800-FLOWERS.COM’s unique
packages in fiscal 2002
fulfillment capabilities you can
including a broad range
connect with all of the impor-
of gifts from home and
tant people in your life same-
day, next-day or any day. So,
garden décor to
children’s gifts to
it’s the signature The Birthday
popcorn.
GROWING
CUSTOMER BASE
Total Customers
(in millions)
Flower Cake™ to Aunt Ida for delivery by five, a
Several hundred third-
dozen multi-colored roses in a Lenox® vase for Mom
party drop ship vendors
arriving tomorrow, a brass fireplace set for brother
who receive their
Dave’s new hearth. A basket filled with baby goodies
orders directly from us
for sister Sandy will arrive next week, and two dozen
and ship directly out of
long-stemmed red roses in a beautiful Lenox® vase for
their facilities to our
Kim will be delivered today, just before you get home
customers according to
from your business trip. What a thoughtful guy…
our stringent packaging
8
■
F u l f i l l m e n t N e t w o r k
and shipping requirements. These vendors enable
independent florists with increased order volume and
us to offer our customers everything from towers
enhanced operating economics, further strengthening
of baked goods to gourmet fruit baskets and even
our business partnership.
Adirondack chairs.
Virtually all of these elements are tied together by
in its next phase of development, to provide
BloomLink®, our proprietary “extra-net” communica-
same-day delivery availability for a selection of non-
In addition, the LFC concept offers the opportunity,
tions system that provides our fulfilling vendors
with everything from their daily gift orders to
sales forecasts, product recipes and even perfor-
mance “report cards.” A key advantage of this
system is the capability it provides for same-day
and next-day delivery while minimizing invest-
ment requirements for inventory
or bricks-and-mortar distribution facilities.
THE LFC ADVANTAGE
A recent further hybridization of our distribu-
tion system is the creation of local fulfillment
centers, or LFCs. These are a cross
between the production room of a
large floral shop and a sophisticat-
ed but small distribution center.
These facilities are typically 5-to-
15,000 square feet of warehouse
and production space located away
from higher-cost retail locations
designed to handle a high volume of
local floral gift deliveries. Each LFC
runs a small fleet of 1-800-FLOW-
ERS.COM branded delivery vans that
H e l p i n g
p e o p l e
i n
c o n n e c t ,
re a l t i m e
floral gifts. During fiscal 2003 we plan
to test customer demand for same-day
delivery of such great gifts as Lenox®
and Waterford® vases, Godiva®
chocolates, gourmet fruit baskets,
serve the dual purposes of quick deliveries in-market
popcorn, plush stuffed animals and potentially much
and “billboard effect” for increased brand awareness.
more, representing a great competitive advantage and yet
another way we can help our customers connect with the
At fiscal 2002 year end, in addition to the seven original
important people in their lives.
company-owned LFCs that we built to develop and test
the concept, we had extended the concept to our
You’re in a taxi on the way to the airport when
independent BloomNet® members, who have opened an
you realize you should send a thank you to your
additional 33 facilities in key markets throughout the
marketing department for the great presentation
country. These BloomNet®-owned LFCs provide our
they created that just helped you land that new
9
E x c e p t i o n a l C u s t o m e r S e r v i c e
account. Your nephew is heading off to college and
“every-day” average of 1,100 gift advisors to as many
you have no idea what kind of gift is appropriate
as 3,000 or more during peak holiday periods.
for a teenage boy these days. The niece you just
sent flowers to in the hospital for her new baby has
already been discharged and you need to re-route
the flowers to her home. It’s times like these that
the voice of a 1-800-FLOWERS.COM gift advisor
can make all the difference in the world.
The “human touch” is one of the keys to our efforts
in deepening our relationship with our customers. Even
as growing numbers of customers come to us online
versus the telephone, many still need to hear a reassur-
ing voice or utilize the expert gift giving advice of one
of our customer service agents. Our focus on provid-
NEW INITIATIVES
■ Order Status
Checks: order
information
is available
online at
our websites,
allowing
customers
to check
on their
orders
ing helpful, personable and well-informed gift
advisors to service our customers whenever
they are needed continues to set us apart and
enhance our customers’ shopping experience.
During fiscal 2002, we completed the re-engi-
neering of our customer service platform, con-
solidating several of our smaller facilities that had
been located in high-cost markets with shrinking
labor pools into newer, larger centers in
Ardmore, Oklahoma and Alamogordo, New
P rov i d i n g
p e rs o n a l ,
k n o w l e d ge ab l e
g i f t i n g a s s i s t a n c e
whenever they wish, thereby
significantly reducing telephone
status checks.
■ Delivery Confirmation
e-mails: a unique capability
lets customers know via e-mail
when their gifts have been delivered,
Mexico. Combined with our existing facilities in
thereby eliminating frantic “did it get there yet?”
Westbury, New York and Madison,Virginia, we now have
phone calls.
four customer service centers, all tied together by
■ Capacity Sharing: working with partner companies,
state-of-the-art computer-telephony integration software
such as Choice Hotels, that have different seasonal
that enables us to provide flexible and cost efficient
peak business periods, we can cross-train agents to
24-by-7, year-round service coverage. In addition, we
handle either company’s customer inquiries. This
have a fifth,“virtual” service center in the form of several
increases overall productivity and enables us to retain
hundred agents who work from their homes through
high-speed Internet connections that tie them directly
a deeper year-round workforce of trained agents.
■ Q-Force Training: during fiscal 2002, more than
into our service grid.
1,000 associates underwent comprehensive training
on customized quality tools.They also learned com-
As a result of this re-engineering, we have significantly
pany history and philosophy to enable them to
enhanced the cost efficiency and flexibility of our cus-
focus on relentless process improvement.The result
tomer service network enabling us to go from an
is a significant reduction in customer service issues.
10
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following tables summarize the Company’s consolidated statement of operations and balance sheet data.
The Company acquired The Popcorn Factory in May 2002, The Children’s Group in June 2001, disposed of Floral Works
in January 2000, acquired GreatFood.com and TheGift.com in November 1999 and acquired Plow & Hearth in April 1998.
The following financial data reflects the results of operations of these subsidiaries since their respective dates of
acquisition and up through the date of disposition. 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.
Years Ended
June 30, July 1, July 2, June 27, June 28,
2002 2001 2000 1999 1998
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues:
Telephonic
Online
Retail/fulfillment
Total net revenues
Gross profit
$248,931
218,179
30,095
497,205
203,936
$230,723
182,924
28,592
442,239
174,460
$227,380
116,810
35,338
379,528
142,035
$201,467
52,668
38,717
292,852
113,155
Operating (loss) income (3,665)
(45,473)
(75,581)
(8,171)
Net (loss) income
(1,511)
(41,321)
(66,830)
(6,846)
$159,715
26,684
31,813
218,212
81,246
6,415
5,074
Net (loss) income applicable to
common stockholders
Net (loss) income per common share
applicable to common stockholders:
Basic
Diluted
$ (1,511)
$ (41,321)
$ (66,830)
$ (12,061)
$ 3,466
$ (0.02)
$ (0.02)
$ (0.64)
$ (0.64)
$ (1.10)
$ (1.10)
$ (0.27)
$ (0.27)
$
$
0.08
0.07
As of
June 30, July 1, July 2, June 27, June 28,
2002 2001 2000 1999 1998
(in thousands)
Consolidated Balance Sheet Data:
Cash and equivalents
and short term investments
Working capital
Investments
Total assets
Long-term liabilities
Redeemable class C common stock
Total stockholders’ equity
$ 63,399
23,301
9,591
207,157
15,939
––
123,908
$ 63,896
27,409
16,284
195,257
16,029
––
117,816
$111,624
82,129
1,918
224,641
12,947
––
158,918
$ 99,183
85,619
984
182,355
37,766
––
109,003
$ 8,873
1,950
1,383
81,746
35,359
17,692
672
11
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Overview
1-800-FLOWERS.COM, Inc. is a leading gift retailer,
providing a broad range of thoughtful gift products
including an extensive array of flowers, plants, gourmet
food, gift baskets, candies, home décor, garden mer-
chandise, unique children’s toys and other specialty
products. With one of the most recognized brands in
retailing and a history of successfully integrating tech-
nologies and business innovations, the Company has
become the trusted guide to gifting for our customers,
providing convenient, multi-channel access for custom-
ers via the Internet, telephone, catalogs and retail stores.
The Company’s product offering reflects a carefully
selected assortment of high quality merchandise chosen
for its unique “thoughtful gifting” qualities which accommo-
date customer needs in celebrating a special occasion or
conveying a personal sentiment. Many products are
available for same-day or overnight delivery and all come
with the Company’s 100% satisfaction guarantee. In
addition to the Company’s selection of thoughtful gifts,
the Company’s product line is extended by its other brands
which include Plow & Hearth, home décor and garden
merchandise, (www.plowandhearth.com), GreatFood.com,
gourmet food products, (www.greatfood.com), The
Popcorn Factory, premium popcorn and specialty food
gifts (www.thepopcornfactory.com) and HearthSong
(www.hearthsong.com) and Magic Cabin Dolls
(www.magiccabindoll.com), unique and educational
children’s toys and games.
A majority of the Company’s floral orders are fulfilled
through BloomNet® (comprised of independent florists
operating retail flower shops and Local Fulfillment
Centers (“LFC’s”), Company-owned stores and fulfillment
centers and franchise stores). The Company transmits
its orders either through BloomLink, its proprietary
Internet-based electronic communication system, or the
communication system of a third-party. A portion of the
Company’s floral and gift merchandise as well as its
home and garden merchandise, non-floral gift products
and gourmet food merchandise are shipped by the
Company, members of BloomNet® or third parties
directly to the customer using common carriers. Most
of the Company’s home and garden products are fulfilled
from its Madison, Virginia fulfillment center or its
Vandalia, Ohio distribution facility, while the Company’s
children’s merchandise is fulfilled from its Vandalia
facility. The Company’s gourmet popcorn and related
merchandise is fulfilled primarily from its Lake Forest,
Illinois manufacturing facility.
As of June 30, 2002 the Company owned retail
fulfillment operations consisted of 28 retail stores and
7 fulfillment centers. Retail fulfillment revenues also
include revenues attributable to the Company’s Floral
Works wholesale floral subsidiary through the date of its
disposition in January 2000, fees paid to the Company
by members of its BloomNet® network and royalties,
fees and sublease rent paid to the Company by its 83
franchise stores. Company owned stores serve as local
points of fulfillment and enable the Company to test new
products and marketing programs. As such, a significant
percentage of the revenues derived from Company
owned stores and fulfillment centers represent fulfillment
of its telephonic and online sales channel floral orders
and are eliminated as inter-company revenues.
12
After a period of significant investment in the
Company’s systems and infrastructure, as well as
brand name building and product line extensions, the
Company expects to return to profitability during fiscal
2003. However, the Company has incurred losses in
recent years, and no assurances can be made that
positive net income can be achieved on this schedule or
in the foreseeable future. In order to achieve and maintain
profitability, the Company will need to generate revenues
exceeding historical levels and/or reduce operating
expenditures. The Company’s prospects for achieving
profitability must be considered in light of the risks,
uncertainties, expenses, and difficulties encountered
by companies in the rapidly evolving market of online
commerce, including those more fully described in the
Company’s SEC filings.
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
2002 and 2001, which ended on June 30, 2002 and July 1,
2001, respectively, consisted of 52 weeks, while fiscal year
2000, which ended July 2, 2000, consisted of 53 weeks.
As such, the Company’s fiscal year 2000 revenues, and
associated variable expenses, contained an additional week
of activity in comparison to fiscal year 2001 or 2002.
Net Revenues
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Net Revenues:
Telephonic
$248,931
7.9% $230,723
1.5% $227,380
Online
218,179 19.3% 182,924
56.6% 116,810
Retail/fulfillment
30,095
5.3%
28,592
(19.1%)
35,338
$497,205
12.4% $442,239
16.5% $379,528
Net revenues consist primarily of the selling price of
the merchandise, service or outbound shipping charges,
less discounts, returns and credits. The Company’s
combined telephonic and online revenue growth during
the fiscal years ended June 30, 2002 and July 1, 2001
was due primarily to an increase in order volume and
average order value, which resulted from efficient market-
ing efforts, strong brand name recognition and the
Company’s continued expansion of its non-floral product
offerings, including a broad range of items such as
plants, candies and gourmet foods, as well as items for
the home and garden, children’s toys and other specialty
gifts. Non-floral gift products accounted for 45.8%, 40.7%
and 32.4% of total combined telephonic and online net
revenues during the fiscal years ended June 30, 2002,
July 1, 2001 and July 2, 2000, respectively.
The Company fulfilled approximately 7,172,000,
6,520,000, and 5,616,000 orders through its combined
telephonic and online sales channels during the fiscal
years ended June 30, 2002, July 1, 2001, and July 2,
2000, respectively, representing increases of 10.0%, and
16.1% over the respective prior fiscal years. The growth
was primarily the result of increases in online order
volume driven by traffic both directly to the Company’s
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
URL’s (“Universal Resource Locators”) and through third-
party portals and Websites, and telephonic order volume
resulting primarily from the addition of the Company’s
children’s gifts product line in June 2001. Additionally, the
Company’s combined telephonic and online sales chan-
nel average order value increased 2.5% to $65.02 and
3.6% to $63.42 during the fiscal years ended June 30,
2002 and July 1, 2001. The Company intends to continue
to drive revenue growth through its online business, and
continue the migration of its customers from the tele-
phone to the Web for several important reasons: (i) online
orders are less expensive to process than telephonic
orders, (ii) online customers can view the Company’s full
range of gift offerings – including non-floral gifts, which
yield higher gross margin opportunities, (iii) online
customers can utilize all of the Company’s services,
such as the various gift search functions, order status
check and reminder service, thereby deepening its
relationship with them and leading to increased order
rates, and (iv) when customers visit the Company online,
it provides an opportunity to engage them in an electronic
dialog via cost efficient e-mail marketing programs.
Revenues derived from The Popcorn Factory, which is
included in the Company’s results of operations since it
was acquired on May 3, 2002, was immaterial in relation
to consolidated revenues for the fiscal year ended June
30, 2002.
Retail/fulfillment revenues for the fiscal year ended
June 30, 2002 increased in comparison to the prior fiscal
year primarily due to the November 2001 opening of a new
home and garden outlet store in Williamsburg, VA, and an
increase in same store sales, offset in part by the reduc-
tion in retail stores late in the fiscal year. The decrease in
retail/fulfillment revenues for the fiscal year ended July 1,
2001 was primarily due to a reduction in floral wholesale
net revenues of $7.2 million as a result of the Company’s
disposition of its Floral Works subsidiary in January 2000,
partially offset by an increase in net revenues resulting
from the addition of three company-owned retail locations.
Gross Profit
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Gross profit
$203,936 16.9% $174,460
22.8% $142,035
Gross margin % 41.0% 39.4%
37.4%
Gross profit consists of net revenues less cost of
revenues which is comprised primarily of florist fulfillment
costs (fees paid directly to florists and fees paid to wire
services that serve as clearinghouses for floral orders, net
of wire service rebates), 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
merchandise production operations, as well as facility
costs on properties that are sublet to the Company’s
franchisees. Gross profit increased during the fiscal years
ended June 30, 2002 and July 1, 2001 as a result of
increased order volume, and an improved gross margin
percentage. Gross margin percentage increased by 160
basis points and 200 basis points during the fiscal years
13
ended June 30, 2002 and July 1, 2001, respectively,
primarily as a result of the continued growth in non-floral
product sales, which in fiscal 2002, was further comple-
mented by the addition of the Company’s children’s gifts
product line, which generate a higher gross margin, and
an increase in online service and shipping charges,
aligning them with industry norms. In addition, the
Company’s continued focus on customer service and
operational efficiencies further enhanced the gross margin
percentage through the implementation of stricter quality
control standards and enforcement methods which
reduced the rate of credits/returns and replacements.
As the Company continues to expand its higher margin,
non-floral business, the Company expects that gross
margin percentage, while varying by quarter due to sea-
sonal changes in product mix, will continue to increase.
Marketing and Sales Expense
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Marketing and
sales
$150,638 (2.4%)
$154,321 (0.7%) $155,353
Percentage of
sales
30.3%
34.9%
40.9%
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal agreements, 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 activi-
ties. Marketing and sales expenses decreased to 30.3%
of net revenues during the fiscal year ended June 30,
2002, compared to 34.9% (33.3%, exclusive of the non-
recurring charge discussed below) during the prior fiscal
year, as a result of volume related cost, operating
efficiencies and cost-effective advertising, coupled with
the Company’s strong brand name and savings realized
from successful renegotiations of certain of its portal
agreements. In fiscal 2001, the Company incurred a non-
recurring charge of $7.3 million ($0.11 per share), as a
result of the modification of an interactive marketing
agreement with one of the Company’s portal providers.
As a result of the Company’s cost efficient customer
retention programs, of the 4,934,000 customers who
placed orders during the fiscal year ended June 30, 2002,
approximately 39.2% represented repeat customers
compared to 33.5% in the prior fiscal year. In addition,
despite the overall reduction in spending, as a result of
the strength of the Company’s brands, combined with its
cost effective marketing programs, the Company added
approximately 3.0 million new customers during each of
the fiscal years ended June 30, 2002 and July 1, 2001.
Although the Company incurred a non-recurring charge
of $7.3 million (as discussed above) during fiscal 2001,
marketing and sales expense during the fiscal year ended
July 1, 2001, decreased to 34.9% of net revenues, com-
pared to 40.9% of net revenues during the fiscal year ended
July 2, 2000 as a result of volume related efficiencies and
cost effective advertising, coupled with the Company’s
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
strong brand name and savings realized from successful
renegotiations of certain of its portal agreements.
In order to continue to execute its business plan, the
Company expects to continue to invest in its marketing and
sales efforts to acquire new customers, while also leverag-
ing its already significant customer base through cost
effective, customer retention initiatives. Such spending will
be within the context of the Company’s overall marketing
plan, which is continually evaluated and revised to reflect
the results of the Company’s most recent market research,
including changing economic conditions, and seeks to
determine the most cost-efficient use of the Company’s
marketing dollars. Such evaluation includes the ongoing
review of the Company’s strategic relationships with its
internet portal providers to ensure that such relationships
continue to generate cost-effective incremental volume.
As such, although the Company expects spending will
increase due to the incremental marketing efforts associ-
ated with the acquisition of The Popcorn Factory in May
2002, and volume related expenses associated with the
Company’s customer service operations, spending as a
percentage of net revenues is expected to continue to
decrease in comparison to prior fiscal years.
Technology and Development Expense
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Technology and
development
Percentage of
$13,723
(18.6%)
$16,853 0.3%
$16,809
sales
2.8%
3.8%
4.4%
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs associ-
ated with its Web sites, including hosting, design, content
development and maintenance and support costs related
to the Company’s order entry, customer service, fulfill-
ment and database systems. Technology and develop-
ment expense decreased during the fiscal year ended
June 30, 2002 in comparison to the prior year as a result
of cost efficiencies realized by bringing Web-hosting and
development capabilities in-house during the latter half of
fiscal 2001. Internalizing the Company’s hosting and
development functions has enabled the Company to cost
effectively enhance the content and functionality of its
Web sites, including the September 2001 relaunch of its
Plow & Hearth Web site (www.plowandhearth.com), and
improve the performance of the Company’s fulfillment
and database systems, while adding improved opera-
tional flexibility, capacity and system redundancy. During
the fiscal years ended June 30, 2002, July 1, 2001,
and July 2, 2000, the Company expended $24.5 million,
$30.7 million, and $35.3 million on technology and
development, of which $10.8 million, $13.8 million,
and $18.5 million, respectively, has been capitalized.
Although the Company believes that continued
investment in technology and development is critical to
attaining its strategic objectives, the Company expects
that its spending in comparison to prior fiscal years,
particularly in the areas of Website hosting and develop-
ment and database management, will continue to de-
crease as a percentage of net revenues, as the ongoing
benefits from previous investments in the Company’s
current technology platform will reduce the effect of
incremental costs expected to be incurred as a result
of the acquisition of The Popcorn Factory in May 2002.
General and Administrative Expenses
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
General and
administrative
$28,179
4.2%
$27,043
(6.7%) $28,975
Percentage of
sales
5.7% 6.1%
7.6%
General and administrative expense consists of
payroll and other expenses in support of the Company’s
executive, finance and accounting, legal, human re-
sources and other administrative functions, as well as
professional fees and other general corporate expenses.
General and administrative expenses increased during
the fiscal year ended June 30, 2002, in comparison to the
prior fiscal year as a result of the incremental costs
associated with an increase in insurance resulting from
overall market conditions and the acquisitions of The
Children’s Group and The Popcorn Factory, in June 2001
and May 2002, respectively. The decrease in general
and administrative expenses during the fiscal year ended
July 1, 2001, in comparison to the prior fiscal year, was
primarily the result of a $1.5 million charge recorded in
fiscal 2000 to account for the increase in the manage-
ment put liability associated with the Company’s acquisi-
tion of the minority shareholders’ interest in Plow &
Hearth. Exclusive of such charge, general and adminis-
trative expense decreased by $0.4 million over the prior
fiscal year due to various cost reduction initiatives, offset
in part by increased insurance costs.
The Company believes that its current general and
administrative infrastructure is sufficient to support
existing requirements and, as such, while increasing in
absolute dollars due primarily to the incremental costs
associated with the acquisition of The Popcorn Factory
in May 2002, general and administrative expenses is
expected to continue to decline as a percentage of net
revenues, on a seasonally adjusted basis.
Depreciation and Amortization
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Depreciation and
amortization
Percentage of
sales
$15,061 (30.6%) $21,716 31.8% $16,479
3.0%
4.9%
4.3%
The decrease in depreciation and amortization
expense during the fiscal year ended June 30, 2002 in
comparison to the prior fiscal year, was primarily the
result of the Company’s early adoption of SFAS No. 142,
Goodwill and Other Intangible Assets, which requires the
14
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
discontinuance of amortization of goodwill and other
intangible assets with indefinite useful lives. As a result,
depreciation and amortization expense for the years
ended July 1, 2001 and July 2, 2000 include $7.5 million
($0.12 per share) and $4.7 million ($0.08 per share),
respectively, of goodwill amortization which is not
included in fiscal 2002. Increases in depreciation and
amortization, net of the aforementioned goodwill amorti-
zation over the past two years resulted from incremental
capital expenses, primarily in information systems
hardware and software.
Other Income (Expense)
Years Ended
June 30, July 1, July 2,
2002 % Change 2001 % Change 2000
(in thousands)
Interest income
$ 2,688 (55.0%)
$5,971
(30.9% ) $ 8,645
Interest expense (1,245) 1.5% (1,264) 12.5% (1,444)
Other, net
5 100.9% (555) (351.1%) 221
$ 1,448 (65.1%)
$4,152
(44.1%) $ 7,422
Other income (expense) consists primarily of interest
income earned on the Company’s investments and
available cash balances, offset by interest expense,
primarily attributable to the Company’s capital leases
and other long-term debt. The decrease in interest
income during the fiscal years ended June 30, 2002 and
July 1, 2001 was primarily due to the decline in invested
cash balances which were used to fund the Company’s
capital expenditures (and operations during fiscal 2001),
as well as a decline in the Company’s average rate of
return on its investments. Additionally, during fiscal 2001,
the Company recorded a non-recurring charge of $1.0
million (included above in “Other, net”) associated with
the write-down of the Company’s minority investment in
a technology partner, purchased in fiscal 2000. Offsetting
this write-down was a gain of $0.3 million, recognized by
the Company in November 2000, on the sale of its
investment in American Floral Services, Inc. (“AFS”).
Income Taxes
As a result of recent tax law changes, which extended
the period for which companies are allowed to carry-back
losses, the Company was able to recover previously paid
income taxes, thereby resulting in an income tax benefit
of $0.7 million during the fiscal year ended June 30,
2002. The Company has provided a full valuation allow-
ance on its deferred tax assets, consisting primarily of
net operating loss carryforwards.
Liquidity and Capital Resources
At June 30, 2002, the Company had working capital of
$23.3 million, including cash and equivalents and short-
term investments of $63.4 million, compared to working
capital of $27.4 million, including cash and equivalents
and short-term investments of $63.9 million, at July 1,
2001. The decrease in working capital resulted primarily
from the funding of capital expenditures and the acquisi-
tion of The Popcorn Factory in May 2002, offset in part
by the cash provided by operations.
Net cash provided by operating activities of $11.6 million
for the fiscal year ended June 30, 2002 was primarily
attributable to income, before depreciation and amortization
and other non-cash charges of $14.1 million, partially offset
by changes in working capital, primarily associated with the
addition of The Popcorn Factory in May 2002.
Net cash used in investing activities of $34.6 million
for the fiscal year ended June 30, 2002 was principally
comprised of purchases of short-term investment grade
government and corporate securities, capital expendi-
tures for computer hardware and software, including
those associated with the construction of a new 300
seat service center in Alamogordo, New Mexico, and
the acquisition of The Popcorn Factory in May 2002.
The Popcorn Factory purchase price of $12.6 million
was funded through the issuance of 353,003 shares of
the Company’s Class A common stock and $7.6 million
in cash, $7.3 million of which was used to retire The
Popcorn Factory’s outstanding debt, while the remaining
$0.3 million was used to pay for costs of the transaction.
The Company expects that as it continues its return to
positive cash flow, it will reallocate available cash
balances into longer term securities in order to maximize
the return on its investments.
Net cash used in financing activities was $0.3 million for
the fiscal year ended June 30, 2002, resulting primarily from
the repayment of amounts outstanding under the Company’s
credit facilities, offset in part by the net proceeds received
upon the exercise of employee stock options.
The Company’s material capital commitments consist of:
(cid:127) obligations outstanding under capital and operating
leases (including guarantees of $0.5 million) as well as
commercial notes related to obligations arising from,
and collateralized by, the underlying assets of the
Company’s warehousing/fulfillment facility in Madison,
Virginia ($12.2 million – 2003, $10.2 million – 2004, $8.9
million – 2005, $5.2 million – 2006, $3.2 million – 2007,
$11.0 million – thereafter);
(cid:127) online marketing agreements ($8.9 million); and
(cid:127) i nventory commitments for the upcoming Thanks-
giving through Christmas holiday season ($17.4
million).
At June 30, 2002, the Company’s significant known
commitments for the subsequent twelve months totaled
approximately $38.5 million and were comprised of fees
related to online marketing agreements, rent and other
expenses under its operating leases, interest expense
and the current portion of long term debt and capital
lease obligations.
On September 16, 2001, the Company’s Board of
Directors approved the repurchase of up to $10.0 million
of the Company’s Class A common stock. Although no
repurchases have been made as of September 23, 2002,
any such purchases could be made from time to time in
the open market and through privately negotiated transac-
tions, subject to general market conditions. The repur-
chase program will be financed utilizing available cash.
The Company intends to continue to invest in support
of its growth strategy. These investments include
continued advertising and marketing programs designed
to enhance the Company’s brand name recognition, retain
and acquire new customers, expand its current product
offerings and further develop its Web site and operating
infrastructure. The Company expects to be cash flow
15
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
positive in fiscal 2003 and believes that current cash and
investments will be sufficient to meet these anticipated
cash needs for at least the next twelve months. However,
any projection of future cash needs and cash flows are
subject to substantial uncertainty. If current cash and
equivalents that may be generated from operations are
insufficient to satisfy the Company’s liquidity require-
ments, the Company may seek to sell additional equity
or debt securities or to increase its lines of credit. The
sale of additional equity or convertible debt securities
could result in additional dilution to the Company’s
stockholders. In addition, the Company will, from time
to time, consider the acquisition of, or investment in,
complementary businesses, products, services and
technologies, which might impact the Company’s liquidity
requirements or cause the Company to issue additional
equity or debt securities. There can be no assurance that
financing will be available in amounts or on terms accept-
able to the Company, if at all.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its finan-
cial statements and results of operations are based upon
1-800-FLOWERS.COM’s consolidated financial state-
ments, which have been prepared in accordance with
accounting principles generally accepted in the United
States. The preparation of these financial statements
requires management to make estimates and assump-
tions that affect the reported amount of assets, liabilities,
revenue and expenses, and related disclosure of contin-
gent assets and liabilities. On an ongoing basis, man-
agement 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 online, telephonic
and retail fulfillment operations 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.
Accounts Receivable
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of its customers to make required payments. If the
financial condition of the Company’s customers 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. Prior to fiscal 2002,
goodwill was amortized over periods not exceeding 20
years. 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 periodically evaluates acquired busi-
nesses for potential impairment indicators. 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.
Recently Issued Accounting Pronouncements
On July 2, 2001, the Company adopted Financial
Accounting Standards Board Statements No. 141,
Business Combinations (“SFAS 141”), and No. 142,
Goodwill and Other Intangible Assets (“SFAS 142”).
SFAS 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-
interests method of accounting for business combina-
tions completed on or after July 1, 2001 and further
clarifies the criteria for recognition of intangible assets
separately from goodwill. SFAS 142 eliminates the
amortization of goodwill and indefinite-lived intangible
assets and initiates an annual review for impairment.
Identifiable intangible assets with determinable useful
lives will continue to be amortized. Beginning July 2,
2001, the Company ceased amortizing goodwill. During
2002, the Company has completed its assessment of
the assets impacted by the adoption of SFAS 142, and
based upon such review no impairment to the carrying
value of goodwill was identified.
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations (“SFAS
143”), which addresses the financial accounting and
reporting for obligations associated with the retirement of
long-lived assets and the associated retirement costs.
In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (“SFAS 144”), which addresses the financial
accounting and reporting for the impairment or disposal
of long-lived assets. The Company will adopt both SFAS
143 and SFAS 144 on July 1, 2002, and does not expect
these statements to materially impact the Company’s
financial statements.
In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (“SFAS 146”). This pronouncement is effective
for exit or disposal activities that are initiated after
December 31, 2002, and requires these costs to be
recognized when the liability is incurred and not at project
initiation. The Company does not expect this statement
to have a material impact on its financial statements.
16
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 and, secondarily, certain of its
financing arrangements. Under its current policies, the
Company does not use interest rate derivative instru-
ments to manage exposure to interest rate changes.
Cautionary Note Regarding Forward-Looking
Statements
Certain of the matters and subject areas discussed in
this Annual Report contain “forward-looking statements”
within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than state-
ments of historical information provided herein are
forward-looking statements and may contain information
about financial results, economic conditions, trends and
known uncertainties based on the Company’s current
expectations, assumptions, estimates and projections
about its business and the Company’s industry. These
forward-looking statements involve risks and uncertain-
ties. The Company’s actual results could differ materially
from those anticipated in these forward-looking state-
ments as a result of several factors, including those
more fully described in the Company’s SEC filings.
Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect
management’s analysis, judgment, belief or expectation
only as of the date hereof. The forward-looking state-
ments made in this Annual Report relate only to events
as of the date on which the statements are made. The
Company undertakes no obligation to publicly update
any forward-looking statements for any reason, even if
new information becomes available or other events
occur in the future.
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years
2002 and 2001. 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
June 30, Mar. 31, Dec. 30, Sept. 30, July 1, Apr. 1, Dec. 31, Oct. 1,
2002 2002 2001 2001 2001 2001 2000 2000
(in thousands)
Net revenues:
Telephonic
Online
Retail fulfillment
Total net revenues
Cost of revenues
Gross Profit
Operating expenses:
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income (expense), net
Income tax benefit
$ 63,699
68,468
8,120
140,287
83,076
$ 50,715
56,874
7,835
115,424
70,690
$ 93,550
60,497
8,278
162,325
91,626
57,211
44,734
70,699
37,529
3,279
7,353
3,912
52,073
31,533
3,222
6,847
3,788
45,390
54,945
3,532
7,065
3,767
69,309
$ 40,967
32,340
5,862
79,169
47,877
31,292
26,631
3,690
6,914
3,594
40,829
$ 61,607
62,655
7,997
132,259
79,569
$ 48,642
47,139
7,440
103,221
64,020
$ 79,182
47,708
7,353
134,243
79,099
52,690
39,201
55,144
36,715
3,492
6,062
6,012
52,281
32,251
4,253
6,969
5,383
48,856
50,827
4,482
6,617
5,280
67,206
$ 41,292
25,422
5,802
72,516
45,091
27,425
34,528
4,626
7,395
5,041
51,590
5,138
(656)
1,390
(9,537)
409
(9,655)
(12,062)
(24,165)
322
––
115
706
420
––
591
––
(183)
––
1,145
––
1,526
––
1,664
––
Net income (loss)
$ 5,460 $ 165 $ 1,810 $ (8,946) $ 226 $ (8,510) $ (10,536) $(22,501)
Net income (loss) per share
$ 0.08 $ 0.00 $ 0.03 $ (0.14) $ 0.00 $ (0.13) $ (0.16) $ (0.35)
The Company’s quarterly results may experience seasonal fluctuations. Due to the Company’s expansion into gift,
home, gourmet and other related products, the Thanksgiving through Christmas holiday season, which fall within the
Company’s second fiscal quarter, generate 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, in relation to its fiscal first and third quarters.
17
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
June 30, July 1,
2002 2001
Assets
Current Assets:
Cash and equivalents
Short-term investments
Receivables, net
Inventories
Prepaid and other
Total current assets
Property, plant and equipment, net
Investments
Capitalized investment in leases
Goodwill
Other intangibles, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Current maturities of long-term debt and obligations under capital leases
Total current liabilities
Long-term debt and obligations under capital leases
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
$ 40,601
22,798
9,345
15,647
2,220
90,611
51,002
9,591
465
37,772
4,074
13,642
$ 207,157
$ 64,156
3,154
67,310
12,244
3,695
83,249
$ 63,896
––
8,209
14,885
1,831
88,821
49,861
16,284
706
25,632
4,152
9,801
$ 195,257
$ 58,481
2,931
61,412
12,519
3,510
77,441
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued in
2002 and 2001
Class A common stock, $.01 par value, 200,000,000 shares authorized,
28,319,677 and 26,586,875 shares issued in 2002 and 2001, respectively
Class B common stock, $.01 par value, 200,000,000 shares authorized,
––
283
––
266
42,480,925 and 43,028,525 shares issued in 2002 and 2001, respectively
430
238,906
Additional paid-in capital
Retained deficit
(120,189) (118,678)
Treasury stock, at cost – 52,800 Class A and 5,280,000 Class B shares (3,108) (3,108)
123,908 117,816
$195,257
$ 207,157
Total stockholders’ equity
425
246,497
Total liabilities and stockholders’ equity
See accompanying notes.
18
Consolidated Statements of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
Years Ended
June 30, July 1, July 2,
2002 2001 2000
Net revenues
Cost of revenues
Gross profit
$442,239
267,779
174,460
$497,205
293,269
203,936
$379,528
237,493
142,035
Operating expenses:
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
155,353
16,809
28,975
16,479
217,616
Operating loss (3,665) (45,473) (75,581)
154,321
16,853
27,043
21,716
219,933
150,638
13,723
28,179
15,061
207,601
Total operating expenses
Other income (expense):
Interest income
8,645
Interest expense (1,245) (1,264) (1,444)
221
Other, net
7,422
(555)
4,152
5
1,448
Total other income
2,688
5,971
Loss before income taxes and minority interests (2,217) (41,321) (68,159)
1,286
Benefit from income taxes
––
706
Loss before minority interests (1,511) (41,321) (66,873)
43
Minority interests in operations of consolidated subsidiaries
––
––
Net loss
$ (1,511)
$ (41,321)
$ (66,830)
Basic and diluted net loss per common share
$ (0.02)
$ (0.64)
$ (1.10)
Shares used in the calculation of basic and diluted net loss
per common share
64,703
64,197
60,889
See accompanying notes.
19
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Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
June 30, July 1, July 2,
2002 2001 2000
Operating activities:
Net loss
Reconciliation of net loss to net cash provided by (used in)
$(41,321)
$ (1,511)
$ (66,830)
operations:
Depreciation and amortization
Deferred income taxes
Management put liability
Bad debt expense
Minority interests
Credit to/amortization of deferred compensation
Loss on disposal of equipment and other
Changes in operating items, excluding the effects of
acquisitions:
Receivables
Inventories
Prepaid and other
Accounts payable and accrued expenses
Other assets
Other liabilities
15,061
––
––
107
––
––
425
21,716
––
––
377
16,479
1,321
1,451
221
–– (43)
367
(156)
560
743
(1,031)
(204)
(1,622)
(7)
(215) 2,499
7,226
2,264
(3,544)
(1,875)
59 (13)
(838)
(3,574)
166
20,663
(4,699)
344
(12,630) (34,412)
Net cash provided by (used in) operating activities
11,608
Investing activities:
Acquisitions, net of cash acquired
Capital expenditures, net of non-cash expenditures –
$2,894, $4,176 and $1,445 in 2002, 2001 and 2000,
respectively
Purchases of investments
Proceeds from sales of investments
Proceeds from sale of business
Other
Net cash used in investing activities
Financing activities:
Proceeds from issuance of common stock, net
Proceeds from bank borrowings
Repayment of notes payable and bank borrowings
Payments of capital lease obligations
Net cash (used in) provided by financing activities
(7,037)
(4,892) (25,515)
(11,994)
(22,798)
6,693
––
495
(34,641)
2,618
––
(826)
(2,054)
(262)
(15,791)
(16,284)
1,194
––
76
(21,901)
(1,000)
15
2,488
222
(35,697) (45,691)
375
16,510
(14,827)
(1,459)
599
115,899
21,717
(43,568)
(1,504)
92,544
Net change in cash and equivalents
Cash and equivalents:
Beginning of year
End of year
(23,295)
(47,728)
12,441
63,896
$ 40,601
111,624
$ 63,896
99,183
$111,624
Supplemental Cash Flow Information:
- Interest paid amounted to $1,245, $1,264 and $1,457 for the years ended June 30, 2002, July 1, 2001 and July 2, 2000, respectively.
- The Company received tax refunds, net of income taxes paid of approximately $706, $1,613 and $472 for the years ended June 30, 2002,
July 1, 2001 and July 2, 2000, respectively.
See accompanying notes.
21
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
June 30, 2002
Note 1. Description of Business
1-800-FLOWERS.COM, Inc. (“1-800-FLOWERS.COM”)
is a leading gift retailer, providing a broad range of
thoughtful gift products including flowers, plants,
gourmet foods, candies, gift baskets, and other unique
gifts to our customers around the world. The Company
has extended its product offerings through several of its
subsidiaries, including The Plow & Hearth, Inc. (“Plow &
Hearth”), a direct marketer of home decor and garden
merchandise, GreatFood.com, Inc. (“Greatfood.com”), a
source for gourmet products, The Popcorn Factory, Inc.,
a manufacturer and direct marketer of premium popcorn
and specialty food gifts, and the Children’s Group, Inc.,
a direct marketer of unique children’s toys and games
operating under the HearthSong and Magic Cabin Dolls
brand names. The Company operates in one business
segment, providing its customers with convenient,
multi-channel access via the Internet, telephone,
catalogs and retail stores.
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 30th. Fiscal
years 2002 and 2001, which ended on June 30, 2002
and July 2, 2001, respectively, consisted of 52 weeks,
while fiscal year 2000, which ended on July 2, 2000,
consisted of 53 weeks.
Basis of Presentation
The consolidated financial statements include
the accounts of 1-800-FLOWERS.COM and its
wholly-owned and majority-owned subsidiaries
(collectively, the “Company”). All significant intercom-
pany accounts and transactions have been eliminated
in consolidation.
The accompanying financial statements and foot-
notes thereto have been retroactively adjusted for a
ten-for-one stock split effected in the form of a stock
dividend on July 28, 1999.
Use of Estimates
The preparation of the consolidated financial state-
ments 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.
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.
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. Estimated useful
lives are based on Company averages ranging from 3 to
10 years for furniture, fixtures and equipment and 40
years for buildings. Amortization of leasehold improve-
ments, which range from 5 to 20 years, is 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.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price
over the fair value of the net assets acquired and is evalu-
ated annually for impairment. Prior to fiscal 2002, goodwill
was amortized over periods not exceeding 20 years.
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.
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 correspond-
ing catalog over a period not to exceed 26-weeks.
Included within other assets was $2.7 million and $2.2
million at June 30, 2002 and July 1, 2001, respectively,
relating to prepaid catalog costs.
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. Avail-
able-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 30, 2002, July 1, 2001 and July 2, 2000, 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.
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 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 obliga-
tions was not significantly different than the carrying
values at June 30, 2002 and July 1, 2001.
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
22
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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. Allow-
ances relating to accounts receivable ($1.0 million and
$1.1 million at June 30, 2002 and July 1, 2001, respec-
tively) have been recorded based upon previous experi-
ence and management’s evaluation.
Revenue Recognition
Net revenues are generated by online, telephonic and
retail fulfillment operations 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.
Cost of Revenues
Cost of revenues consists primarily of florist fulfill-
ment costs (fees paid directly to florists and fees paid
to wire services that serve as clearinghouses for floral
orders, net of wire service rebates), 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 direct-to-consumer merchandise production
operations, as well as facility costs on properties that
are sublet to the Company’s franchisees.
Marketing and Sales
Marketing and sales expenses consist primarily of
advertising and promotional expenditures, catalog
costs, online portal agreements, retail store and fulfill-
ment 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 mer-
chandising activities.
The Company expenses all advertising costs at the
time the advertisement is first shown. Advertising
expense (including the amortization of catalog costs of
$37.8 million, $26.9 million and $21.8 million for the
years ended June 30, 2002, July 1, 2001 and July 2,
2000, respectively) was $69.6 million, $71.0 million and
$79.5 million for the years ended June 30, 2002, July 1,
2001 and July 2, 2000, respectively.
Technology and Development
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs associ-
ated 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. 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
years. Costs associated with repair, maintenance or the
development of Web site content are expensed as
incurred as the useful life of such software modifica-
tions are less than one year.
Stock-Based Compensation
The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and
complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation.
Comprehensive Income (Loss)
For the years ended June 30, 2002, July 1, 2001 and
July 2, 2000, the Company’s comprehensive losses
were equal to the respective net losses for each of the
periods presented.
Loss Per Share
Net loss per common share is computed using the
weighted-average number of common shares outstand-
ing. Shares associated with stock options and warrants
prior to exercise, are not included in the computation as
their inclusion would be antidilutive. The shares of the
Company’s preferred stock were converted into com-
mon stock upon completion of its initial public offering,
and were excluded from the diluted loss per share
computation until such date, as this effect would have
been antidilutive.
Recent Accounting Pronouncements
On July 2, 2001, the Company adopted Financial
Accounting Standards Board Statements No. 141,
Business Combinations (“SFAS 141”), and No. 142,
Goodwill and Other Intangible Assets (“SFAS 142”).
SFAS 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-
interests method of accounting for business combina-
tions completed on or after July 1, 2001 and further
clarifies the criteria for recognition of intangible assets
separately from goodwill. SFAS 142 eliminates the
amortization of goodwill and indefinite-lived intangible
assets and initiates an annual review for impairment.
Identifiable intangible assets with determinable useful
lives will continue to be amortized. During fiscal 2002,
the Company completed its assessment of the assets
impacted by the adoption of SFAS 142. Based upon
such review, no impairment to the carrying value of
goodwill was identified, and the Company ceased
amortizing goodwill effective July 2, 2001. (See Note 4)
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations (“SFAS
143”), which addresses the financial accounting and
reporting for obligations associated with the retirement
of long-lived assets and the associated retirement
costs. In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (“SFAS 144”), which addresses the financial
accounting and reporting for the impairment or disposal
of long-lived assets. The Company will adopt both
SFAS 143 and SFAS 144 on July 1, 2002, and does
not expect these statements to materially impact the
Company’s financial statements.
In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (“SFAS 146”). This pronouncement is effec-
23
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
tive for exit or disposal activities that are initiated after
December 31, 2002, and requires these costs to be
recognized when the liability is incurred and not at project
initiation. The Company does not expect this statement
to have a material impact on its financial statements.
Reclassifications
Certain balances in the prior fiscal years have been
reclassified to conform to the presentation in the current
fiscal year.
Note 3. Acquisitions and Disposition
Acquisition of Selected Assets of
The Popcorn Factory
On May 3, 2002, the Company extended its gourmet
food product assortment when it completed the acquisi-
tion of selected operating assets and liabilities of The
Popcorn Factory, a manufacturer and direct marketer of
premium popcorn and specialty food gifts. The purchase
price of approximately $12.6 million, including $0.3 million
of transaction costs, was comprised of $7.3 million used
to retire The Popcorn Factory’s outstanding debt and the
issuance of 353,003 shares of the Company’s Class A
common stock, valued at approximately $5.0 million,
based upon the average closing price of the Company’s
common stock on the date of and the two days preceding
and following the closing of the transaction. The acquisi-
tion was accounted for as a purchase and, accordingly,
acquired assets and liabilities are recorded at their fair
values, and the operating results of The Popcorn Factory
have been included in the Company’s consolidated
results of operations since the date of acquisition.
The initial purchase price allocation of The Popcorn
Factory business resulted in the following condensed
balance sheet of assets acquired and liabilities assumed.
The Popcorn Factory
Initial Purchase Price Allocation
(in thousands)
$ 1,704
Current assets
1,061
Property, plant and equipment
1,120
Intangible assets
12,081
Goodwill(*)
15,966
3,200
142
3,342
$12,624
Total liabilities assumed
Net assets acquired
Current liabilities
Non-current liabilities
Total assets acquired
(*) Approximately $12.1 million is expected to be deductible for tax purposes.
The Popcorn Factory acquisition resulted in $1.1 million
in total intangible assets acquired, other than goodwill, with
$0.2 million allocated to trademarks with indefinite lives.
The remaining $0.9 million of acquired intangibles were
allocated to customer list, and is being amortized over the
asset’s determinable useful life of 3 years.
Acquisition of Selected Assets of
The Children’s Group
On June 8, 2001, the Company completed its
acquisition of selected assets from subsidiaries of
Foster & Gallagher, Inc., adding unique and educational
children’s toys and games to the Company’s product
24
offering, sold under the HearthSong and Magic Cabin
Dolls brand names. The purchase price of approxi-
mately $4.9 million, paid in cash, included the acquisi-
tion of a fulfillment center located in Vandalia, Ohio,
inventory, and certain other assets, as well as, the
assumption of certain related liabilities. The acquisition
was accounted for as a purchase and, accordingly,
acquired assets and liabilities are recorded at their fair
values, which approximated the purchase price, and the
operating results of The Children’s Group have been
included in the Company’s consolidated results of
operations since the date of acquisition.
Acquisition of GreatFood.com, Inc.
On November 24, 1999, the Company completed
its acquisition of GreatFood.com, an online retailer of
specialty and gourmet food products. The purchase
price of approximately $18.9 million was funded with a
portion of the net proceeds available from the
Company’s initial public offering. The acquisition has
been accounted for as a purchase and, accordingly, the
operating results of GreatFood.com have been included
in the Company’s consolidated results of operations
since the date of acquisition. The excess of the pur-
chase price over the fair market value of the net assets
acquired, $18.9 million, was allocated to goodwill and
was being amortized over three years. In accordance
with the provisions of SFAS 142, effective July 2, 2001,
the Company ceased amortizing the goodwill associ-
ated with this acquisition, which at such time had a
remaining balance of $8.9 million.
Acquisition of TheGift.com, Inc.
On November 12, 1999, the Company completed its
acquisition of TheGift.com, an online retailer of specialty
gift products. The purchase price of approximately $1.5
million was funded through the issuance of 117,379
shares of the Company’s common stock, as determined
based upon the average closing price of the Company’s
common stock for the five days prior to the date of
acquisition. The acquisition has been accounted for as a
purchase and, accordingly, the operating results of
TheGift.com have been included in the Company’s
consolidated results of operations since the date of
acquisition. The excess of the purchase price over the
fair market value of the net assets acquired, approxi-
mating $1.7 million, was allocated to intangible assets
and is being amortized over the asset’s determinable
useful life of 3 years.
Disposition of Floral Works, Inc.
On January 12, 2000, the Company completed the
sale of its Floral Works, Inc. (Floral Works) subsidiary to
a private investment firm. Floral Works is a provider of
wholesale floral bouquets to supermarkets and grocery
store chains. The sales price of $3.1 million approxi-
mated the Company’s carrying value of the subsidiary’s
net assets at the time of divestiture.
Pro forma Results of Operation
The following unaudited pro forma consolidated
financial information has been prepared as if the acqui-
sitions of The Popcorn Factory, The Children’s Group,
GreatFood.com, TheGift.com and the sale of Floral
Works had taken place at the beginning of fiscal year
2000. The following unaudited pro forma information is
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
not necessarily indicative of the results of operations in
future periods or results that would have been achieved
had the acquisitions of The Popcorn Factory, The
Children’s Group, GreatFood.com and TheGift.com
and the disposition of Floral Works taken place at the
beginning of the periods presented.
Years Ended
June 30, July 1, July 2,
2002 2001 2000
(in thousands, except per share data)
Net revenues(*)
Loss from operations
Net loss
Net loss per
$528,103
$509,214 $443,090
$ (6,407) $ (50,392) $ (85,823)
$ (4,688) $ (46,671) $ (78,676)
common share
$ (0.07) $ (0.73) $ (1.29)
(*) Pre-acquisition operations related to the Children’s Group include revenues
derived from six retail stores which were discontinued by the previous owners
at various times during fiscal 2001. Operating results associated with these
retail stores were not material to the consolidated operations of the Company
during such time. Pre-acquisition net revenues for GreatFood.com and
TheGift.com were not material to the Company’s results of operations.
Disposition of Minority Interest in
American Floral Services, Inc.
On November 21, 2000, the Company sold its minority
investment in American Floral Services, Inc., a floral wire
service, to Teleflora, Inc. The Company received cash
proceeds of $1.2 million and recorded a gain on sale of
$0.3 million as a result of this transaction.
Acquisition of The Plow & Hearth, Inc.
In April 1998, 1-800-FLOWERS.COM acquired 88%
of the issued and outstanding shares of common stock
(70% of the fully diluted equity due to the existence of
outstanding management stock options) of Plow &
Hearth for approximately $16.1 million. Upon comple-
tion of the Company’s initial public offering in August
1999, the Company satisfied its obligation under the
Plow & Hearth management put liability when it ac-
quired the remaining outstanding shares of common
stock and stock options from the minority shareholders
of Plow & Hearth for cash of approximately $7.9 million,
net of Plow & Hearth stock option exercise proceeds of
approximately $0.5 million. Accordingly, the incremental
amount of funding required to satisfy the management
put liability, which was $6.3 million at June 27, 1999,
was recorded in fiscal 2000 as general and administra-
tive expense and goodwill in the amounts of $1.5 million
and $0.1 million, respectively.
The purchase price has been allocated to the assets
acquired and the liabilities assumed based on fair
values at the date of acquisition. The excess of the
purchase price over the estimated fair values of the net
assets acquired, $18.9 million, was allocated to goodwill
and was being amortized over 20 years. In accordance
with the provisions of SFAS 142, effective July 2, 2001,
the Company ceased amortizing the goodwill associ-
ated with this acquisition, which at such time had a
remaining balance of $15.9 million.
Note 4. Goodwill and Intangible Assets
The change in the net carrying amount of goodwill
for the year ended June 30, 2002 is as follows:
June 30,
2002
(in thousands)
Goodwill, net, beginning of year
Acquisition of The Popcorn Factory
Other
Goodwill, net, end of year
$ 25,632
12,081
59
$ 37,772
Identifiable intangible assets as of June 30, 2002
and July 1, 2001 are comprised as follows:
June 30, July 1,
2002 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Intangible Assets with Determinable Lives:
Investments in
licenses(*)
Customer lists
Technology
Other
Trademarks with
indefinite lives:
Total identifiable
intangible
assets
$4,927
910
1,659
171
7,667
$2,468
51
1,428
122
4,069
$4,927
$2,145
1,659
641
7,227
875
306
3,326
480
4
255
4
$8,147
$4,073
$7,482
$3,330
(*) Investment in licenses represent the fair value of franchise agreements
acquired in 1-800-FLOWERS.COM’s acquisition of Amalgamated Consolidated
Enterprises, Inc. and are amortized on a straight-line basis over the franchise
estimated lives ranging from 14 to 16 years.
The amortization of intangible assets for the years
ended June 30, 2002, July 1, 2001 and July 2, 2000 was
$0.7 million, $0.9 million and $0.8 million, respectively.
Estimated amortization expense over the next five years
is as follow: 2003-$0.9 million, 2004 - $0.6 million, 2005 -
$0.6 million, 2006 - $0.3 million and 2007 - $0.3 million.
The following table provides pro forma disclosure of
net loss and net loss per share for the years ended July
1, 2001 and July 2, 2000, as if goodwill and indefinite-
lived intangibles had not been amortized:
July 1, July 2,
2001 2000
(in thousands, except per share data)
Reported net loss
Amortization
Adjusted net loss
Reported net loss per
common share
Amortization per common share
Adjusted net loss per
$(41,321)
7,458
$(33,863)
$(66,830)
4,732
$(62,098)
$ (0.64)
0.11
$ (1.10)
0.08
common share
$ (0.53)
$ (1.02)
25
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 5. Redeployment Charge
In June 2000, in connection with management’s plan
to reduce costs and improve operating efficiencies, the
Company recorded a redeployment charge of approxi-
mately $2.1 million. The principal actions of the charge
relate to the Company’s plan to close certain retail stores
in connection with its strategic redeployment of its retail
network as direct fulfillment centers and the relocation of
certain customer service centers, enabling the Company
to meet increasing call volume requirements, while
reducing costs per call. The major components of the
redeployment charge include the estimated unrecover-
able book value of abandoned fixtures, equipment and
leasehold improvements in the amount of approximately
$1.1 million, and the estimated provision for the future
lease obligations and related facility shut down costs in
the amount of approximately $1.0 million.
As part of the redeployment plan, in November 2000,
the Company opened a new service center in Ardmore,
Oklahoma to replace its Marietta, Georgia facility, which
was closed in October 2000. An additional service
center, located in Alamagordo, New Mexico became
operational in November 2001, replacing its Phoenix,
Arizona and San Antonio, Texas service centers, which
were closed in June 2001. In addition, in fiscal 2001 the
Company completed the planned conversion of certain
retail stores into direct fulfillment centers, while closing
certain other non-performing retail stores. During fiscal
2002 and fiscal 2001, $0.2 million and $1.6 million
respectively was charged against the accrual, leaving a
balance of $0.3 million, consisting primarily of accruals
for future lease commitments related to the closed
service center facilities.
Note 6. Property, Plant and Equipment
June 30, July 1,
2002 2001
(in thousands)
$33,989
Computer equipment
27,451
Software development costs
6,059
Telecommunication equipment
Leasehold improvements
11,588
Building and building improvements 11,489
6,253
Equipment
3,576
Furniture and fixtures
666
Land
101,071
Accumulated depreciation and
amortization
50,069
$51,002
$27,853
23,659
5,559
11,333
8,439
5,732
3,207
637
86,419
36,558
$49,861
Note 7. Long-Term Debt
June 30, July 1,
2002 2001
(in thousands)
Commercial notes and
revolving credit line (1-5)
Seller financed acquisition
obligations (6-7)
Obligations under capital
leases (see Note 13)
Less current maturities of
long-term debt and obligations
under capital leases
$ 7,380 $ 8,153
202
256
7,816
15,398
7,041
15,450
3,154
2,931
$12,244 $12,519
The following notes and credit lines relate to obliga-
tions arising from, and collateralized by, the underlying
assets of the Company’s Plow & Hearth facility in
Madison, Virginia:
(1) $5,000,000 revolving credit line dated May 31,
2002, renewable on September 30, 2002 (none out-
standing at June 30, 2002 and July 1, 2001) bearing
interest equal to the monthly LIBOR Index plus 1.75%
per annum (3.59% at June 30, 2002).
(2) $2,400,000 note dated June 13, 1997 ($2,001,000
outstanding at June 30, 2002), bearing interest at 8.19%
per annum. The note is payable in 203 equal monthly
installments of principal and interest commencing
July 13, 1997.
(3) $1,460,000 note dated July 1, 1998 ($1,222,000
outstanding at June 30, 2002), bearing interest equal to
the monthly Treasury Bill rate plus 2.1% per annum
(3.78% at June 30, 2002). The note is payable in 180
equal monthly installments of principal and interest
commencing November 1, 1998.
(4) $2,980,000 note dated May 12, 1999 ($2,653,000
outstanding at June 30, 2002), bearing interest at 7.61%
per annum. The note is payable in 180 equal monthly
installments of principal and interest commencing
October 15, 1999.
(5) $2,300,000 note dated August 8, 2000
($1,504,000 outstanding June 30, 2002) bearing interest
at a fixed rate of 8.83% per annum. The note is payable
in 60 equal monthly installments of principal and interest
commencing September 10, 2000.
The following notes relate to seller-financed acquisi-
tion obligations, all of which have been collateralized by
either the stock or assets of various subsidiaries of the
Company:
(6) $275,000 promissory note dated November 1,
1994 ($88,000 outstanding at June 30, 2002), bearing
interest at 8% per annum. The note is payable in 120
equal monthly installments of principal and interest
commencing December 1, 1994.
(7) $160,000 non-interest bearing promissory note
dated September 30, 1999 ($114,000 outstanding at
June 30, 2002). The note is payable in 84 monthly
installments commencing January 1, 2001.
26
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
As of June 30, 2002, long-term debt maturities,
excluding amounts relating to capital leases, are as
follows:
Year Debt Maturities
(in thousands)
significant components of the Company’s deferred tax
assets (liabilities) are as follows:
June 30, July 1, July 2,
2002 2001 2000
(in thousands)
2003
2004
2005
2006
2007
Thereafter
Note 8. Income Taxes
$ 820
890
942
441
448
4,041
$ 7,582
Deferred tax assets:
Net operating loss
carryforwards
Accrued expenses
and reserves
$37,946
$37,097 $ 20,909
3,086
3,031
Valuation allowance (38,242) (37,447) (22,098)
2,946
Deferred tax liabilities:
Installment sales (54) (61) (70)
Tax in excess of
book depreciation (2,681) (2,535) (1,827)
Significant components of the benefit for income
Net deferred tax assets
$
$ $
taxes are as follows:
Years Ended
June 30, July 1, July 2,
2002 2001 2000
(in thousands)
Current:
Federal (*)
State and local
$ 706
$
$ 2,607
2,607
Deferred (1,321)
$1,286
$ 706
706
$
(*) As a result of tax law changes enacted in fiscal 2002, which extended the
period for which companies are allowed to carry-back losses, the Company
was able to recover previously paid income taxes, thereby resulting in an
income tax benefit of $0.7 million.
The reconciliation of income tax computed at the
U.S. federal statutory tax rates to income tax benefit is
as follows:
Years Ended
June 30, July 1, July 2,
2002 2001 2000
34.0%
Tax at U.S. statutory rates
State income taxes, net
of federal tax benefit
Goodwill amortization
Change in deferred
tax asset valuation
3.6
(13.8)
4.9
(6.8)
3.9
(2.6)
34.0%
34.0%
8.6 (33.0) (32.0)
(1.4)
0.9
(0.6)
1.9%
0.0%
31.8%
Other
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
At June 30, 2002, the Company’s U.S. federal and
state net operating loss carryforwards for income tax
purposes were approximately $94.9 million. If not
utilized, these net operating loss carryforwards will begin
to expire in fiscal year 2020. To the extent that net
operating losses, when realized, relate to stock option
deductions of approximately $6.8 million, the resulting
benefits will be credited to additional paid-in capital.
Note 9. Capital Stock Transactions
Initial Public Offering
On August 6, 1999, the Company closed its initial
public offering of its Class A common stock, issuing
6,000,000 shares at a price of $21.00 per share. The
Company raised proceeds of approximately $114.8
million, net of underwriting discounts, commissions and
other offering costs of approximately $11.2 million.
In anticipation of its IPO, the Company amended and
restated its certificate of incorporation on July 7, 1999
to provide that all previously outstanding shares of
Class A common stock, of which the holders were
entitled to one vote per share, and Class B common
stock, which contained no voting rights, convert into a
new series of Class B common stock entitled to 10
votes per share. Additionally, a new series of Class A
common stock was established that entitles the holders
to one vote per share. Each share of new Class B
common stock shall automatically convert into one
share of new Class A common stock upon transfer,
with limited exceptions, and at the option of the holder.
Preferred Stock and Class C
Common Stock Conversion
On May 20, 1999, the Company completed a private
placement of 984,493 shares of preferred stock, yielding
net proceeds of $101.6 million. In connection with this
private placement, and pursuant to the terms of its 1995
investment agreement with the Company’s venture
capital partner, the Company redeemed the Class C
common stock held by the venture capital partner for
approximately $14.9 million and issued to it 263,452
27
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
shares of Class A common stock. The venture capital
partner used the redemption proceeds to purchase
143,053 shares of the Company’s preferred stock.
In accordance with the preferred stock purchase
agreement, and effective with the Company’s IPO, each
issued and outstanding share of preferred stock was
converted into ten shares of Class A common stock,
resulting in the issuance of 11,275,460 shares of Class
A common stock.
Exercise of Class A Common Stock Warrant
On February 22, 2000, the Company issued
2,370,607 shares of Class A common stock, upon the
exercise, for a nominal price per share, of a warrant
issued to the aforementioned venture capital partner
pursuant to the terms of its 1995 investment agreement.
Stock Repurchase Plan
On September 16, 2001, the Company’s Board of
Directors approved the repurchase of up to $10.0 million
of the Company’s Class A common stock. 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. No
repurchases have been made as of June 30, 2002.
Note 10. Stock Option Plan
In January 1997, the Company’s board of directors
approved 1-800-FLOWERS.COM’s 1997 Stock Option
Plan which authorized the granting to key employees,
officers, directors and consultants of the Company
options to purchase an aggregate of 5,985,440 shares
of 1-800-FLOWERS.COM’s Class B common stock. On
July 7, 1999, the 1-800-FLOWERS.COM, Inc. 1999
Stock Incentive Plan was adopted by the Company’s
board of directors. Pursuant to the terms of the plan,
9,900,000 shares of Class A common stock have been
authorized for issuance, inclusive of any unissued
shares from the 1997 Stock Option Plan. Additionally,
the shares authorized automatically increase on the first
trading day in January of each calendar year, by an
amount equal to 3% (1,933,702 shares, 1,925,615
shares and 1,852,172 shares during fiscal 2002, 2001
and 2000, respectively) of the total number of shares of
common stock outstanding on the last trading day in
December in the preceding calendar year, but in no
event will this annual increase exceed 2,000,000
shares. The components of the plan include a discre-
tionary option grant program, an automatic option grant
program, a stock issuance program, and a salary
investment option grant program.
Options granted under the plans may be either
incentive stock options or non-qualified stock options.
The exercise price of an option shall be determined by
the Company’s board of directors or compensation
committee of the board at the time of grant, provided,
however, that in the case of an incentive stock option
the exercise price may not be less than 100% of the fair
market value of such stock at the time of the grant, or
less than 110% of such fair market value in the case of
options granted to a 10% owner of the Company’s
stock. The vesting and expiration periods of options
issued under the stock option plans are determined by
the Company’s board of directors or compensation
committee as set forth in the applicable option agree-
ment, provided that the expiration date shall not be later
than ten years from the date of grant.
In January 1999, the Company issued stock options
to employees to purchase 200,000 shares of common
stock at $2.00 per share, which was considered to be
the fair value of the common stock at that time. Such
options vested at the rate of 25% per year on the
anniversary of the grant date. Soon thereafter, the
Company entered into discussions with an investor to
purchase shares of common stock at $10.43 per share.
Accordingly, for accounting purposes, the Company
used such per share value to record a deferred compen-
sation charge of $1.7 million associated with the
January 1999 option grants, of which $0.4 million was
amortized during the year ended July 2, 2000. During
the year ended July 1, 2001, the Company reversed
$0.2 million of amortization, representing previously
amortized deferred compensation expense associated
with unvested stock options which were forfeited upon
the employee’s separation from the Company.
The following table summarizes activity in stock
options:
Years Ended
June 30, July 1, July 2,
2002 2001 2000
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
Balance,
beginning of year
6,455,262
Grants
2,897,950
Exercises (788,008)
Forfeitures (452,060)
Balance, end of year
8,113,144
Weighted-average
fair value of options
issued during the year
5,788,171
$ 6.64
$12.43
2,143,925
$ 2.72 (97,175)
$ 9.94 (1,379,659)
6,455,262
$ 8.95
1,237,500
$ 8.53
$ 3.91
5,099,550
$ 3.83 (61,250)
$10.52 (487,629)
5,788,171
$ 6.64
$ 7.32
$ 2.21
28
$ 1.73
$10.57
$ 2.00
$13.38
$ 8.53
$ 6.33
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following table summarizes information about stock options outstanding at June 30, 2002:
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Average Average Average
Options Remaining Exercise Options Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Price
$ 1.61 - 3.65
4.02 - 5.50
5.63 - 12.44
12.63 - 15.77
17.38 - 23.10
2,175,142
1,747,575
1,632,544
1,863,309
694,574
8,113,144
7.9 years
7.7 years
8.6 years
9.4 years
7.0 years
8.3 years
$ 3.30
$ 4.56
$ 11.40
$ 12.98
$ 21.08
$ 8.95
869,367
570,245
213,837
108,428
408,014
2,169,891
$ 2.82
$ 4.55
$ 11.81
$ 13.40
$ 21.04
$ 8.11
At June 30, 2002, the Company has reserved approximately 15,903,000 shares of common stock for issuance
under common stock option plans.
Fair Value Disclosures
Pro forma information regarding net income (loss) is
required by SFAS No. 123, Accounting For Stock-Based
Compensation, which also requires that the information
be determined as if the Company had accounted for its
stock options under the fair value method of that
statement. The fair value of these options was esti-
mated at the date of grant using the minimum value
option pricing model prior to the Company’s initial public
offering, and the Black-Scholes option pricing model
thereafter, with the following assumptions: risk free
interest rate of 4.50%, 5.35% and 6.15% in 2002, 2001
and 2000, respectively; no dividend yield; 66%, 60%
and 70% volatility in 2002, 2001 and 2000 respectively,
and a weighted-average expected life of the options of
5 years at date of grant.
For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over
the options’ vesting period. The Company’s pro forma
financial information is as follows:
Years Ended
June 30, July 1, July 2,
2002 2001 2000
(in thousands, except per share data)
Net loss:
As reported
Pro forma
Basic and diluted
$(1,511)
$(41,321) $(66,830)
(6,958) (46,272) (71,766)
net loss per share:
As reported
$ (0.64) $ (1.10)
$ (0.02)
Pro forma (0.11) (0.72) (1.18)
Note 11. Employee Stock Purchase Plan
In December 2000, the Company’s board of director’s
approved the 1-800-FLOWERS.COM, Inc. 2001 Em-
ployee Stock Purchase Plan (ESPP), a non-compensa-
tory employee stock purchase plan under Section 423
of the Internal Revenue Code, to provide substantially
all employees who have completed six months of
service, an opportunity to purchase shares of the
Company’s Class A common stock. Employees may
contribute a maximum of 15% of eligible compensation,
29
but in no event can an employee purchase more than
500 shares on any purchase date. Offering periods
have a duration of six months, and the purchase price
per share will be the lower of: (i) 85% of the fair market
value of a share of Class A common stock on the last
trading day of the applicable offering period, or (ii) 85%
of the fair market value of a share of Class A common
stock on the last trading day before the commencement
of the offering period. The maximum number of shares
of Class A common stock that may be issued under the
ESPP is 1,300,000 shares. The share pool shall be
increased on the first trading day of each calendar year,
beginning in 2002, by a number equal to the lesser of (i)
1% of the total number of shares of common stock then
outstanding, or (ii) 750,000 shares of Class A common
stock. At June 30, 2002, the Company has reserved
approximately 1,886,000 shares of common stock for
issuance under its ESPP.
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 $0.3 million, $0.2
million and $0.1 million, for the years ended June 30
2002, July 1, 2001 and July 2, 2000, respectively.
Note 13. 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
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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.
At June 30, 2002, 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)
2003
2004
2005
2006
2007
Thereafter
$ 2,829 $ 2,816
2,398
1,870
1,521
1,100
2,667
$12,445 $12,372
2,413
1,879
1,528
1,106
2,690
In addition to the above, the Company has agreed to
provide rent guarantees for leases entered into by
certain franchisees with third party landlords. At June
30, 2002, the aggregate minimum rent payable by
franchisees guaranteed by the Company was approxi-
mately $0.5 million.
Rent expense was approximately $8.7 million, $8.4
million, and $10.2 million for the years ended June 30,
2002, July 1, 2001, and July 2, 2000 respectively.
Online Marketing Agreements
The Company has commitments under online
marketing agreements with various portal providers.
Such online marketing costs are capitalized and amor-
tized on a straight-line basis over the term of the
agreements. On September 1, 2000, the Company
entered into a five-year $22.1 million online marketing
agreement with an Internet company commencing
October 1, 2001 and ending August 31, 2005. As a
result of the modification of the previous agreement, the
Company recorded a one-time charge of approximately
$7.3 million during fiscal 2001.
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.
The Company leases certain computer, telecommu-
nication and related equipment under capital leases,
which are included in property and equipment with a
capitalized cost of approximately $18.4 million and
$15.5 million at June 30, 2002 and July 1, 2001, respec-
tively, and accumulated amortization of $12.4 million
and $9.8 million, respectively. In addition, the Company
subleases land and buildings (which are leased from
third parties) to certain of its franchisees. Certain of the
leases, other than land leases which have been classi-
fied as operating leases, are classified as capital leases
and have initial lease terms of approximately 20 years
(including option periods in some cases).
The Company has a $10.0 million equipment lease
line of credit with a bank. Interest under this line, which
is renewable annually, is determined on the date of each
commitment to borrow and is based on the bank’s base
rate on such date. At June 30, 2002, the Company had
financed $7.1 million of equipment purchases through
such lease line. The borrowings, which bear interest at
rates ranging from 5.39% to 6.36% annually, are
payable in 60 monthly installments of principal and
interest commencing in February 2001. Borrowings
under the line are collateralized by the underlying
equipment purchased and an equal amount of pledged
investments.
As of June 30, 2002, future minimum payments
under non-cancelable capital lease obligations, lease
receipts due from franchisees (shown as Capitalized
Investment in Leases) and operating leases with initial
terms of one year or more consist of the following:
Obligations
Under Capitalized
Capital Investment Operating
Leases In Leases Leases
(in thousands)
2003
2004
2005
2006
2007
Thereafter
Total minimum lease
payments
Less amounts
$ 2,887
2,144
1,857
1,438
353
20
$ 244
134
53
29
20
20
$ 4,606
4,275
3,739
1,402
942
3,176
8,699
500
$18,140
representing interest (883) (35)
Present value of net
minimum lease
payments
$ 7,816
$ 465
30
Report of Independent Auditors
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 30, 2002 and
July 1, 2001, and the related consolidated statements
of operations, stockholders’ equity and cash flows for
each of the three years in the period ended June 30,
2002. These financial statements 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 auditing
standards generally accepted in the 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 consoli-
dated financial position of 1-800-FLOWERS.COM, Inc.
and Subsidiaries at June 30, 2002 and July 1, 2001,
and the consolidated results of their operations and their
cash flows for each of the three years in the period
ended June 30, 2002, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of
accounting for goodwill and other indefinite-lived intan-
gible assets effective July 2, 2001 to conform with the
provisions of Financial Accounting Standards Board
Statement No. 142, “Goodwill and Other Intangible
Assets.”
Melville, New York
August 2, 2002
31
Market for Common Equity
and Related Stockholder Matters
Market Information
1-800-FLOWERS.COM’s Class A common stock
trades on The Nasdaq National 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 com-
mon stock for each of the fiscal quarters during the
fiscal years ended June 30, 2002 and July 1, 2001.
High Low
Year ended June 30, 2002
July 2, 2001 – September 30, 2001
October 1, 2001 – December 30, 2001
December 31, 2001 – March 31, 2002
April 1, 2002 – June 30, 2002
Year ended July 1, 2001
July 3, 2000 – October 1, 2000
October 2, 2000 – December 31, 2000
January 1, 2001 – April 1, 2001
April 2, 2001 – July 1, 2001
$ 14.78
$ 16.50
$ 17.86
$ 14.68
$ 9.90
$ 8.20
$ 10.72
$ 9.85
$ 6.13
$ 5.13
$ 8.13
$ 15.50
$ 4.50
$ 2.55
$ 4.13
$ 5.96
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 24, 2002, there were approxi-
mately 100 shareholders 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 24, 2002, there
were approximately 17 shareholders of record of the
Company’s Class B common stock.
Dividend Policy
The Company has never declared or paid any cash
dividends on its Class A or Class B common stock,
and intends to retain future earnings, if any, to provide
funds to finance the expansion of its business. As a
result, the Company does not anticipate paying any
cash dividends in the foreseeable future.
Resales of Securities
45,730,302 shares of Class A and Class B com-
mon stock are “restricted securities” as that term is
defined in Rule 144 under the Securities Act. Re-
stricted 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 24, 2002,
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.
Stock Repurchase Plan
On September 16, 2001, the Company’s Board of
Directors approved the repurchase of up to $10.0
million of the Company’s Class A common stock.
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. No repurchases have been made as
of June 30, 2002.
Equity Compensation Plan Information
The following table gives information about the
Company’s common stock that may be issued upon
the exercise of options under all of the Company’s
equity compensation plans as of June 30, 2002. The
table includes the 1-800-FLOWERS.COM 1997 Stock
Option Plan and the 1-800-FLOWERS.COM, Inc. 1999
Stock Incentive Plan.
Number of
securities
remaining
available for
future issuance
Number of under equity
securities to be Weighted- compensation
issued upon average plans (excluding
exercise of exercise price securities
Plan outstanding of outstanding reflected
Category options options in column (a))
(a) (b) (c)
Equity
compensation
plans
approved
by security
holders
8,113,144
Equity
compensation
plans
not approved
by security
holders
$8.95
7,789,412
Total
8,113,144
$8.95
7,789,412
32
Company Information
BOARD OF DIRECTORS
CORPORATE OFFICERS
STOCK EXCHANGE LISTING
James F. McCann
Chairman and Chief Executive Officer
1-800-FLOWERS.COM
James F. McCann
Chairman and Chief Executive Officer
1-800-FLOWERS.COM
NASDAQ National Market
Ticker Symbol: FLWS
T. Guy Minetti
Vice Chairman
1-800-FLOWERS.COM
Christopher G. McCann
President
1-800-FLOWERS.COM
Kevin J. O’Connor
Chairman
DoubleClick, Inc.
Jeffrey C.Walker
Managing Director
JPMorgan Partners
Lawrence V. Calcano
Managing Director
Goldman Sachs & Company
Mary Lou Quinlan
CEO
JUST ASK A WOMAN
John J. Conefry
Vice Chairman
Astoria Financial Corporation
T. Guy Minetti
Vice Chairman
Corporate Development
1-800-FLOWERS.COM
Christopher G. McCann
President
1-800-FLOWERS.COM
William E. Shea
Senior Vice President of Finance
and Administration,Treasurer and
Chief Financial Officer
1-800-FLOWERS.COM
Gerard M. Gallagher
Senior Vice President/General
Counsel/Secretary
1-800-FLOWERS.COM
Thomas G. Hartnett
Senior Vice President of Retail
and Fulfillment
1-800-FLOWERS.COM
Vincent J. McVeigh
Senior Vice President
1-800-FLOWERS.COM
Pamela Knox
Senior Vice President of Marketing
1-800-FLOWERS.COM
Peter G. Rice
President
Plow & Hearth
Enzo J. Micali
Senior Vice President of
Information Technology
1-800-FLOWERS.COM
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
(718) 921-8200
INDEPENDENT AUDITORS
Ernst & Young LLP
395 North Service Road
Melville, New York 11747
(631) 752-6100
SEC COUNSEL
Cahill Gordon and Reindel
80 Pine Street
New York, NY 10005
(212) 701-3000
SHAREHOLDER INQUIRIES
Copies of the Company’s reports on
Forms 10-K and 10-Q as filed with
the Securities and Exchange Commission
and additional information about
1-800-FLOWERS.COM may
be obtained without charge by
calling 516-237-4714.
Information is also available via the
Internet in the Investor Relations
section at www.1800flowers.com,
or by writing to:
Investor Relations
1-800-FLOWERS.COM
1600 Stewart Avenue
Westbury, New York 11590
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1-800-FLOWERS.COM, Inc.
1600 Stewart Avenue
Westbury, NY 11590