1-800-FLOWERS.COM, Inc.
2 0 0 6 A n n u a l R e p o r t
2 0 0 6 A n n u a l R e p o r t
Special Bonus
2007 Desk Diary & Gift Planner
About 1-800-FLOWERS.COM, Inc.
For more than 30 years, 1-800-FLOWERS.COM Inc. – “Your Florist of Choicesm” – has been providing customers
around the world with the freshest flowers and finest selection of plants, gift baskets, gourmet foods and confections,
and plush stuffed animals perfect for every occasion. 1-800-FLOWERS.COM® offers the best of both worlds:
exquisite, florist-designed arrangements individually created by some of the nation(cid:144)s top floral artists and hand-
delivered the same day, and spectacular flowers shipped overnight “Fresh From Our Growerssm”. Customers can
“call, click or come in” to shop 1-800-FLOWERS.COM twenty four hours a day, 7 days a week at 1-800-356-9377
or www.1800flowers.com. Sales and Service Specialists are available 24/7, and fast and reliable delivery is offered
same day, any day. As always, 100 percent satisfaction and freshness are guaranteed. The 1-800-FLOWERS.COM
collection of brands also includes home decor and children(cid:144)s gifts from Plow & Hearth® (1-800-627-1712 or
www.plowandhearth.com), Problem Solvers® (www.problemsolvers.com), Wind & Weather® (www.windandweather.com),
Madison Place® (www.madisonplace.com), HearthSong® (www.hearthsong.com) and Magic Cabin®(www.magiccabin.com);
gourmet gifts including popcorn and specialty treats from The Popcorn Factory® (1-800-541-2676 or
www.thepopcornfactory.com); exceptional cookies and baked gifts from Cheryl&Co.® (1-800-443-8124 or
wwwcherylandco.com); premium chocolates and confections from Fannie May Confections Brands® (www.fanniemay.com
and www.harrylondon.com); gourmet foods from GreatFood.com® (www.greatfood.com); wine gifts from
Ambrosia.com (www.ambrosia.com); gift baskets from 1-800-BASKETS.COM® (www.1800baskets.com) and the
BloomNet® international floral wire service providing quality products and diverse services to a select network of
florists. 1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ market under ticker symbol FLWS.
1-800-FLOWERS COM Inc
Floral
Specialty Brands
Home & Children(cid:144)s Gifts
Food, Wine & Gift Baskets
The 1-800-FLOWERS.COM business model encompasses two primary categories: Floral and Specialty Brands. In the Floral
category, 1-800-FLOWERS.COM is the world(cid:144)s largest florist and is expanding its leadership position. The Company(cid:144)s BloomNet®
wire service has grown rapidly since its launch in January 2005, tripling in size to approximately 9,000 florist members at fiscal
2006 year end. Within the Company(cid:144)s Specialty Brands category is a growing collection of leading brands in home and children(cid:144)s
gifts as well as the fast growing gourmet food, wine and gift baskets business.
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 applicable statements. These risks and uncertainties include, but
are not limited to: the Company(cid:144)s ability to achieve 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 customer orders; its ability to cost
effectively acquire and retain customers; its ability to continue growing revenues; its ability to compete against existing and new
competitors; its ability to manage expenses associated with necessary general and administrative and technology investments;
its ability to cost effectively manage inventories; its ability to improve its bottom line results; its ability to leverage its operating
infrastructure; its ability to achieve its stated results guidance for fiscal 2007 and general consumer sentiment and economic
conditions that may affect levels of discretionary customer purchases of the Company(cid:144)s products. For a more detailed description
of these and other risk factors, please refer to the Company(cid:144)s SEC filings including the Company(cid:144)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.
Financial Highlights
Years Ended
July 2,
2006
July 3,
2005
June 27,
2004
(in thousands, except percentages and per share data)
June 29,
2003
June 30,
2002
Total Net Revenues
Online Revenues
Telephonic Revenues
Non-floral Revenues*
Gross Profit Margin Percentage
EPS
$781,741
430,285
275,716
49%
41.7%
0.10**
$670,679
360,902
259,929
47%
41.1%
0.12
$603,978
307,470
263,039
48%
41.9%
0.60***
$565,618
265,278
271,071
49%
42.6%
0.18
$497,205
218,179
248,931
46%
41.0%
(0.02)
*As a percentage of combined online and telephonic net revenues.
**Excludes impact of stock-based compensation of $3.2 million or ($0.05) per share.
***For the year ended June 27, 2004, EPS included a net income tax benefit of $19.2 million, or $0.28 per share.
Financial Report Insert
See inside rear-cover pocket.
Fiscal 2006 Achievements
• Grew total revenues 16.6 percent, or $111.1 million, to $781.7 million driven by online revenue growth
of 19.2 percent, or $69.4 million, to $430.3 million.
• Grew our BloomNet B2B Florist business significantly, increasing florist membership three-fold since
inception to approximately 9,000 members.
• Completed the acquisition of Fannie May Confections Brands, Inc., a leading multi-channel retailer
and manufacturer of chocolate and other confections under the well-known Fannie May®, Harry London®
and Fanny Farmer® brands.
• Utilized strength and flexibility of our balance sheet to close on a new credit facility including an
$85 million term loan used to finance the acquisition of Fannie May Confections Brands, Inc. and a
$50 million revolving line of credit for working capital and other future needs.
Total Revenues
(in $ millions)
$781.7
$670.7
$604.0
$565.6
$497.2
Online Revenue Growth
(in $ millions)
$430.3
$360.9
$307.5
$265.3
$218.2
FY02
FY03
FY04
FY05
FY06
FY02
FY03
FY04
FY05
FY06
To Our Shareholders
• In terms of product margins, we are
expanding our product sourcing efforts in
Asia while concurrently consolidating our
sourcing agents. This will enable us to con-
centrate larger order volumes and thereby
improve pricing across all of our brands. We
are also consolidating raw material vendors
to similarly improve pricing as well as
enhance quality.
• We have underway a number of pricing
initiatives, including development of new,
higher-margin signature products, such as
the Happy Hour Bouquetssm collection
(those whimsical floral arrangements in
oversized margarita glasses that you may have
seen advertised on billboards and buses in
major markets around the country); programs
to increase order add-on rates, and an aggres-
sive SKU rationalization effort to eliminate
low-margin products throughout the com-
pany. We have also introduced a new cus-
tomer loyalty program in our consumer floral
category that has seen excellent early results.
• In terms of third-party shipping costs, by
leveraging the scale of our collection of gift
brands with our third-party shippers, we
expect to achieve substantial cost savings
in this area during fiscal 2007 and beyond.
Business Process Improvement =
Enhanced Leverage
W e have grown our business through
a combination of organic efforts,
new business development and
M&A activities. By leveraging the scale that
we have achieved, we believe we can signifi-
cantly enhance our bottom line performance.
In addition to focusing on gross margin
improvement, we believe we can significantly
enhance operating leverage across all of our
businesses by reducing costs in a number of
specific areas. Toward this end, we have added
new management talent at the senior level
whose sole job is to extract cost savings and
achieve business process improvements. This
new team has already launched several programs
leveraging the growing scale of our business and
expanded collection of gift brands, including:
• Consolidation of our catalog paper buying
and printing across all brands, enabling us
to negotiate more favorable long-term rates,
and the consolidation of all non-catalog
printing utilizing a specialized sourcing agent
whose compensation is tied directly to the
level of cost savings they can achieve for us.
• Consolidation of our email programs
onto a uniform platform to both enhance
effectiveness and reduce costs.
• And, continued optimization of our award-
winning Service Center operations, most
recently expanding our home agent program
to provide maximum coverage flexibility while
reducing recruiting and training expenses.
New Business Contributions
During fiscal 2007, we also expect signif-
icant bottom-line contributions from
our new business efforts. The Fannie
May acquisition gives us excellent brand posi-
tioning in the important chocolate gift catego-
ry and significantly expands our offering in the
Food, Wine and Gift Basket business where we
are rapidly becoming a market leader. Fannie
May offers us excellent growth potential by
building on its tremendous customer affinity.
In addition to its solid organic growth, going
forward we will focus on growing new sales
channels, particularly through the leveraging
of our assets and capabilities in the online
and direct marketing space where the Fannie
May® and Harry London® brands are currently
underdeveloped. In addition, we can provide
unique access to a new sales channel into our
BloomNet florist membership for fulfillment
of 1-800-FLOWERS.COM orders as well as sales
of high-quality chocolate and confections
through their retail stores. Combined with
its strong operating margins, we expect
Fannie May to contribute significantly to our
operating results in fiscal 2007 and beyond.
Our BloomNet wire service is also expected
to contribute strongly to fiscal 2007 results.
With the roll-out investment phase for this
business now completed, we expect to see a
significant contribution to our enterprise
profitability in fiscal 2007. Based on industry
standards, we expect BloomNet(cid:144)s business of
selling products and services to florists nation-
wide will provide strong operating profit margins
of 20-to-25 percent as the business matures.
Importantly, BloomNet(cid:144)s superior value propo-
sition for florists compared with competitors
has been very well received. This is illustrated
by the fact that BloomNet membership
increased three-fold since its launch at the
start of January, 2005 reaching approximately
9,000 florist members at the end of fiscal 2006.
As we(cid:144)ve stated in the past, in growing
During fiscal 2006 we achieved several
important strategic objectives, most
notably the acquisition of Fannie May
Confections Brands, Inc., a leading, multi-channel
chocolatier, and the continued strong devel-
opment of our BloomNet wire service.
These developments significantly strengthened
our business in two key growth areas for the
future. In addition, we achieved overall revenue
growth of 16.6 percent, or $111.1 million, to
$781.7 million, driven by online revenue
growth of 19.2 percent, or $69.4 million, to
$430.3 million. While we achieved strong
top-line growth, our bottom-line performance
for the year was below our expectations.
We attribute this to several factors.
(cid:2) While revenue growth was strong, it was
below the level that we targeted with our
increased marketing spending during the year.
For fiscal 2007, we have made a number of
important adjustments in this area, including
reductions in catalog prospecting for certain of
our brands as well as reallocation of spending
within our interactive marketing programs to
highlight the best performing properties within
search, portals and other online efforts. As a
result, we anticipate enhanced leverage from
our marketing programs in terms of both new
customer acquisition and deepening relation-
ships with our existing customers across all
of our brands and businesses.
(cid:2) Also, during fiscal 2006 our gross margin
improvement of 60 basis points was below our
target and insufficient to offset the increase in
marketing costs. This reflected a combination of
competitive promotional pricing as well as rising
fuel surcharges from third-party shippers. For
fiscal 2007, we have put in place a number of
initiatives designed specifically to enhance gross
margins across all of our businesses. For example:
BloomNet we are committed to maintaining
our industry-highest quality standards while
providing our florists with the products and
services that they need to grow their businesses
and enhance their profitability.
Providing Increased
Transparency
As we continue to grow and evolve our
business, we are also evolving the way
we report our financial results and
provide guidance for the future. Beginning
with our fiscal 2007 first quarter, we will provide
specific results and operating metrics for our four
business categories: Consumer Floral, BloomNet,
and our Specialty Gift Brands categories,
including Home and Children(cid:144)s Gifts, and
Food, Wine and Gift Baskets. For each of these
categories, we will provide revenues, gross
profit margin, and a contribution margin
(excluding corporate allocation), along with
comparisons to the prior year period results.
This new reporting format will enable us to
provide more visibility for the specific growth
and profitability characteristics of each
category and thereby provide a better under-
standing of how we will reach our overall
company goals.
To provide you with a baseline for these
business categories:
• In our Consumer Floral business we are the
world(cid:144)s leading florist. Importantly, we are
expanding our market-leading position by
growing organically in a range of 7-to-10 per-
cent annually on the largest base of business
in the industry. Fiscal 2006 revenues in this
category were approximately $450 million.
• As I mentioned earlier in this letter, our
BloomNet business has emerged from its
investment/rollout phase and we expect it
now to begin generating increasing prof-
itability. BloomNet revenues in fiscal
2006 were nearly $30 million and we expect
compound revenue growth for this business
during the next three years will be in excess
of 50 percent.
• In Specialty Gift Brands, our Home and
Children(cid:144)s Gifts category achieved revenues
in excess of $190 million in fiscal 2006.
Going forward, we are managing this cate-
gory to achieve sustainable mid-single digit
growth and enhanced profit contribution.
• Our Food, Wine and Gift Baskets category
includes such great gifts as Cheryl&Co.®(cid:144)s
incredible cookies and bakery gifts, deli-
cious and fun popcorn and specialty items
from The Popcorn Factory®, unique gour-
met gifts from GreatFood.com®, premium
wine gifts from Ambrosia® and towers of
goodies from 1-800-Baskets.com®. In fiscal
Notes & Reminders
In fiscal 2006, the 1-800-flowers.com®
brand launched one of its most
innovative advertising campaigns
ever, introducing a new signature line
of “Happy Hour” Bouquetssm floral
arrangements in whimsical oversized
margarita glasses. The campaign,
conducted in partnership with CBS
Outdoor, exclusively utilized, signs on
buses and other outdoor media. The
result was the most successful new
floral product introduction in the
30-year history of the Company.
J
ANUARY
2007
Tu e s d a y
M o n d a y
S u n d a y
7
14
21
28
1
New Years Day
8
2
9
15
Martin Luther King Jr.(cid:144)s Birthday
16
22
29
23
30
3
10
17
24
31
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
4
11
18
25
5
12
19
26
6
13
20
27
I n keeping with our tradition of
customer-centric innovation, our
fiscal 2006 annual report once again
incorporates a special, value-added feature:
the 2007 Desk Diary & Gift Planner. Inside,
you(cid:144)ll find insights into how our company
is growing its business and working to build
long-term shareholder value. You will also
find a broad range of thoughtful gifting
ideas perfect for celebratory occasions
throughout the year for all the important
people in your life.
2006, these businesses provided more than
$100 million in revenues. Combined with
organic growth, we expect the addition of
Fannie May will help us grow revenues in
this category to $200 million for fiscal 2007.
Going forward, we expect organic revenue
growth in the teens for this category,
excluding any additional acquisition
opportunities.
On a consolidated basis, these four categories
all leverage the assets and infrastructure of our
Enterprise Services Platform. Our goal is to
improve this leverage throughout the company
and enhance not only revenue growth but also
profitability for the enterprise.
Evolving Our Guidance
In terms of our overall guidance going for-
ward, we have changed the format of the
guidance we provide to place an emphasis
on long-term growth objectives for both rev-
enue and profitability. Because fiscal 2007 will
include the first significant contributions from
our BloomNet operations and the Fannie May
acquisition, we provided additional detail for
the year, including:
(cid:2) Revenue growth, including incremental
contributions from our recent acquisitions, in
a range of 17-to-20 percent, and Earnings
Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and EPS growth of
more than 100 percent.
(cid:2) Longer term, for fiscal years 2008 and 2009,
we anticipate achieving annual growth rates for
revenues in a range of 7-10 percent, before
acquisitions, and EBITDA and EPS in a range of
20-to-25 percent.
Outlook: Solid Growth and
Enhanced Profitability
Over the past several years, through a com-
bination of organic efforts and strategic
acquisitions, we have demonstrated a
proven ability to grow revenues at very attractive
rates. Having established a solid base of business,
fast approaching $1 billion dollars, our manage-
ment team is now laser-focused on improving
our bottom-line performance in fiscal 2007 and
beyond. As I have discussed throughout this
letter, toward this end we have put in place a
number of initiatives specifically designed to
enhance profitability and reduce operating costs
throughout the enterprise. Overall, we believe
we are well positioned to achieve our goals for
solid top line and significantly enhanced bottom
line growth this year and going forward and
thereby build long-term shareholder value. For
their continued support we thank all those respon-
sible for our past and future success including our
customers, associates, investors, vendors and
business partners throughout the world.
Sincerely,
Jim McCann
Chairman and CEO
Chris McCann
President
Notes & Reminders
In fiscal 2006, the 1-800-flowers.com®
brand launched one of its most
innovative advertising campaigns
ever, introducing a new signature line
of “Happy Hour” Bouquetssm floral
arrangements in whimsical oversized
margarita glasses. The campaign,
conducted in partnership with CBS
Outdoor, exclusively utilized signs on
buses and other outdoor media. The
result was the most successful new
floral product introduction in the
30-year history of the Company.
J
ANUARY
2007
Tu e s d a y
M o n d a y
S u n d a y
7
14
21
28
1
New Years Day
8
2
9
15
Martin Luther King Jr.(cid:144)s Birthday
16
22
29
23
30
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
4
11
18
25
5
12
19
26
6
13
20
27
3
10
17
24
31
Notes & Reminders
Growing profitable businesses is a key
strategy at 1-800-FLOWERS.COM as
illustrated by the Company(cid:144)s
BloomNet wire service. BloomNet is
an international floral service
provider offering quality products
and diverse services to a select
network of professional retail florists
who utilize BloomNet(cid:144)s resources to
grow their businesses profitably.
From its launch in January 2005
BloomNet tripled in size to approxi-
mately 9,000 florist members at
fiscal 2006 year end.
FEBRUARY
2007
Tu e s d a y
M o n d a y
S u n d a y
4
11
18
25
5
12
6
13
19
Presidents(cid:144) Day
20
26
27
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
2
Groundhog Day
3
9
16
23
10
17
24
1
8
7
14
Valentine(cid:144)s Day
15
22
21
28
Notes & Reminders
1-800-FLOWERS.COM is rapidly
growing into a leading player in the
Food, Wine and Gift Basket category
generating more than $100 million in
revenues in this area during fiscal 2006.
The Company(cid:144)s collection of well-known
brands includes Cheryl&Co® bakery
gifts, The Popcorn Factory® and the
Company(cid:144)s latest acquisition, Fannie
May Confections Brands, Inc., one of
the world(cid:144)s foremost manufacturers
and retailers of chocolate and other
confections under the Fannie May®
and Harry London® brands.
M
ARCH
2007
Tu e s d a y
M o n d a y
S u n d a y
4
11
18
25
5
12
19
26
6
13
20
27
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
1
8
15
7
14
21
First Day of Spring
22
28
29
2
9
16
23
30
3
10
17
St. Patrick(cid:144)s Day
24
31
Notes & Reminders
For Easter and other gift-giving
occasions throughout the year,
1-800-FLOWERS.COM offers the 24/7
assistance of its knowledgeable customer
service professionals. In 2006, the
Company was awarded the prestigious
Call Center of the Year award from the
International Customer Management
Institute (ICMI), underscoring the quality
of 1-800-FLOWERS.COM(cid:144)s call center
operations and the vital role that
its customer service team plays in
retaining customers long-term.
APRIL
2007
Tu e s d a y
S u n d a y
M o n d a y
1
April Fool(cid:144)s Day
2
Passover Begins at Sunset
3
8
Easter
15
22
29
9
16
10
17
23
Administrative Professionals(cid:144)
Week Begins
24
30
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
4
11
18
5
12
19
25
Administrative Professionals(cid:144) Day
26
6
13
20
27
7
14
21
28
Notes & Reminders
AYM 2007
Tu e s d a y
M o n d a y
S u n d a y
In fiscal 2006, 1-800-FLOWERS.COM
furthered its position as the world(cid:144)s
leading consumer floral gift company
offering such services as same-day,
any-day delivery and introducing
new customer loyalty initiatives
including the Company(cid:144)s Fresh
Rewards® program. As Fresh Rewards®
members, customers earn Reward
points they can use toward discounts
on future purchases, encouraging
more order frequency and enhanced
customer retention.
6
7
13
Mother(cid:144)s Day
14
1
8
15
22
20
27
21
28
Memorial Day (observed)
29
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
4
National Bring Your Mom to Work Day
5
Cinco de Mayo
11
18
25
12
19
26
2
9
16
23
30
3
10
17
24
31
Notes & Reminders
JUNE 2007
Tu e s d a y
M o n d a y
S u n d a y
Father(cid:144)s Day has become a growing
gifting occasion for 1-800-FLOWERS.COM.
During fiscal 2006, the Company
increased its gift offering geared toward
men – widening its line of outdoor
furnishings and unique gadgetry from
the Plow & Hearth®, Wind & Weather®
and Problem Solvers® brands while
expanding the assortment of gourmet
foods from GreatFood.com® and gift
baskets from 1-800-BASKETS.COM®.
Also expanded was the collection of
delicious bakery gifts from Cheryl&Co.®
as well as sports themed tins of
treats from the Popcorn Factory®.
Furthermore, a diverse assortment of
chocolates and confections from Fannie
May Confections Brands was added.
3
10
4
11
17
Father(cid:144)s Day
18
24
25
5
12
19
26
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
1
8
7
14
Flag Day
15
21
First Day of Summer
22
28
29
2
9
16
23
30
6
13
20
27
Notes & Reminders
J
ULY 2007
Tu e s d a y
M o n d a y
S u n d a y
1
8
1-800-FLOWERS.COM attracts
more than 3 million new customers
annually and grew its customer
database to more than 25 million in
fiscal 2006. One of the reasons is the
convenience of purchasing gifts from
the Company. For example, by visiting
www.1800flowers.com, customers can
sign up for a personalized Gift Reminder
Service. This enables them to automat-
ically receive emails throughout the year
reminding them of important gifting
occasions in their lives, including
appropriate gift suggestions.
2
9
15
16
22
Parents(cid:0) Day
23
29
30
3
10
17
24
31
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
4
Independence Day
5
11
18
25
12
19
26
6
13
20
27
7
14
Bastille Day
21
28
Notes & Reminders
Building market share in Specialty
Brands was a benchmark of success for
1-800-FLOWERS.COM during fiscal
2006. In 2007, the Company will
continue its strategic vision for home
and children(cid:1)s gifts and for food, wine
and gift baskets by deepening the
relationships it has with customers.
Specifically, 1-800-FLOWERS.COM will
focus on what it calls “increasing
Enterprise Customer Value” by
serving an expanding range of their
customers(cid:1) celebratory needs.
AUGUST2007
Tu e s d a y
M o n d a y
S u n d a y
5
12
19
26
6
7
13
National Friendship Week Begins
14
20
27
21
28
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
1
8
15
22
29
2
9
16
23
30
3
10
17
24
31
4
11
18
25
Notes & Reminders
S
EPTEMBER
2007
Tu e s d a y
M o n d a y
S u n d a y
3
Labor Day
4
The BloomNet wire service
represented one of the strongest
growth areas for 1-800-FLOWERS.COM
in fiscal 2006. BloomNet leverages
(cid:3)s leadership
1-800-FLOWERS.COM
position in the consumer floral category
as the largest generator of direct-able
floral gift orders. In turn, BloomNet is
able to offer a superior value proposition
to florists by providing access to greater
order volume, a highly competitive pricing
structure and lower operating costs as
well as extensive marketing and
merchandising support.
2
9
Grandparents(cid:4) Day
16
10
17
11
Patriot Day
18
25
23
First Day of Fall
24
30
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
5
6
12
Rosh Hashanah Begins at Sunset
13
7
14
1
8
15
19
26
20
27
21
Yom Kippur Begins at Sunset
22
28
29
Notes & Reminders
During fiscal 2006, 1-800-FLOWERS.COM
expanded not only its product line but
also its multi-channel customer access.
The Company annually mails more
than 125 million catalogs across all of
its brands. Each brand also benefits
from the Company(cid:5)s industry-leading
experience and expertise in interactive
marketing – enabling brands such as
Cheryl&Co®, Plow & Hearth® and The
Popcorn Factory® to significantly widen
their online presence as well as their
revenue potential.
OCTOBER2007
Tu e s d a y
M o n d a y
S u n d a y
1
7
8
Columbus Day (observed)
2
9
14
National Children(cid:6)s Day
15
16
National Bosses(cid:6)
Day
21
28
22
29
23
30
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
5
12
19
26
6
13
20
Sweetest Day
27
4
11
18
25
3
10
17
24
31
Halloween
Notes & Reminders
1-800-FLOWERS.COM strengthened
its position as the leading consumer
floral business in fiscal 2006 through
its unique good/better/best merchan-
dising strategy. Complementing its
“Fresh From Our Growerssm” collection
and its florist fulfilled floral products,
the Company offers customers a
high- end, exclusive line of hand-crafted
floral gifts created by renowned
designers such as Jane Carroll,
Jane Packer, Julie Mulligan, Preston
Bailey and Nico De Swert as well as
confections from Sam Godfrey
and Joseph Schmidt.
N
S u n d a y
OVEMBER2007
Tu e s d a y
M o n d a y
4
5
6
Election Day
11
Veteran(cid:8)s Day
12
18
25
19
26
13
20
27
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
1
8
2
9
15
16
22
Thanksgiving Day
23
29
30
7
14
21
28
3
10
17
24
Notes & Reminders
The concept of customer engagement
continued to be a key focus at
1-800-FLOWERS.COM during fiscal
2006. The Company has extensively
utilized input directly from its
customers, gaining valuable feedback
through online panels and discussion
forums. These efforts are used in
developing new products and even
marketing campaigns that more
succinctly meet customer demands –
helping to enhance customer satisfac-
tion and contributing to an annual
repeat order rate greater than 50%.
DECEMBER
2007
Tu e s d a y
M o n d a y
S u n d a y
2
9
16
23
30
3
10
17
24
31
4
Hanukkah Begins at Sunset
11
18
25
Christmas Day
W e d n e s d a y
T h u r s d a y
F r i d a y
S a t u r d a y
5
12
19
6
13
20
26
First Day of Kwanzaa
27
7
14
21
28
1
8
15
22
First Day of Winter
29
Board of Directors
James F. McCann
Chairman and Chief
Executive Officer
1-800-FLOWERS.COM
Christopher G. McCann
President
1-800-FLOWERS.COM
Kevin J. O(cid:9)Connor
Principal
O(cid:9)Connor Ventures
Jeffrey C. Walker
Chairman & CEO
CCMP Capital Advisors, LLC
Mary Lou Quinlan
CEO
JUST ASK A WOMAN
Leonard J. Elmore
Senior Counsel
LeBoeuf, Lamb,
Green and MacRae, LLP
John J. Conefry
Vice Chairman
Astoria Financial Corporation
Deven Sharma
Executive Vice President
The McGraw-Hill Companies
Corporate Officers
James F. McCann
Chairman and Chief Executive Officer
1-800-FLOWERS.COM
Gerard M. Gallagher
Senior Vice President of Business Affairs,
General Counsel and Corporate Secretary
1-800-FLOWERS.COM
Enzo J. Micali
Chief Information Officer
1-800-FLOWERS.COM
Christopher G. McCann
President
1-800-FLOWERS.COM
William E. Shea
Senior Vice President,
Treasurer and Chief Financial Officer
1-800-FLOWERS.COM
Thomas G. Hartnett
Chief Operating Officer
of Consumer Floral
1-800-FLOWERS.COM
Timothy J. Hopkins
President
Specialty Brands
1-800-FLOWERS.COM
David Taiclet
Chief Executive Officer
Fannie May Confections Brands, Inc.
Monica L. Woo
President of Consumer Floral
1-800-FLOWERS.COM
Mary McCormack
Vice President of Corporate
Development
1-800-FLOWERS.COM
Fiscal Year 2006
Financial Report
1-800-FLOWERS.COM, Inc.
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following tables summarize the Company’s consolidated statement of income and balance sheet data.
The Company acquired Fannie May Confections Brands, Inc. in May 2006, Wind & Weather in October 2005,
Cheryl & Co. in March 2005, The Winetasting Network in November 2004 and The Popcorn Factory, Inc. in May 2002.
The following financial data reflects the results of operations of these subsidiaries since their respective dates of
acquisition. 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 (1)
July 2,
2006 (2)
July 3, June 27, June 29, June 30,
2005 2004 2003 2002
(in thousands, except per share data)
Consolidated Statement of Income Data:
Net revenues:
Online
Telephonic
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, net
Income (loss) before income taxes
Income taxes (benefit)
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Shares used in the calculation of net
income (loss) per common share:
Basic
Diluted
$430,285
275,716
75,740
781,741
456,097
325,644
239,573
19,819
43,978
15,765
319,135
6,509
(141)
6,368
3,181
3,187
0.05
0.05
$
$
$
$360,902
259,929
49,848
670,679
395,028
275,651
198,935
14,757
35,572
14,489
263,753
11,898
1,349
13,247
5,398
7,849
$
$
$
$307,470
263,039
33,469
603,978
351,111
252,867
172,251
13,799
30,415
14,992
231,457
21,410
320
21,730
(19,174)
$ 40,904
$265,278
271,071
29,269
565,618
324,565
241,053
170,013
13,937
29,593
15,389
228,932
$218,179
248,931
30,095
497,205
293,269
203,936
150,638
13,723
28,179
15,061
207,601
12,121 (3,665)
117
1,448
12,238 (2,217)
––
(706)
$ 12,238
$ (1,511)
0.12
0.12
$
$
0.62
0.60
$
$
0.19
0.18
$
(0.02)
$
(0.02)
65,100
66,429
66,038
67,402
65,959
68,165
65,566
67,670
64,703
64,703
Note (1): The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to June 30. Fiscal years ended July 2, 2006,
June 27, 2004, June 29, 2003 and June 30, 2002, consisted of 52 weeks, while the fiscal year ended July 3, 2005 consisted of 53 weeks.
Note (2): Effective July 4, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123(R) using the modified
prospective application method. The impact of the adoption, which reduced net income per common share for the fiscal year ended
July 2, 2006 by $0.04 is described in further detail in Note 2 of the Company’s Annual Financial Statements.
Consolidated Balance Sheet Data:
Cash and equivalents
and short-term investments
Working capital
Investments-non current
Total assets
Long-term liabilities
Total stockholders’ equity
July 2,
2006
July 3, June 27, June 29, June 30,
2005 2004 2003 2002
As of
(in thousands)
$ 24,599
41,182
––
346,634
80,437
193,183
$ 46,608
41,692
––
251,952
5,900
186,334
$103,374
83,704
8,260
261,552
8,874
186,390
$ 61,218
26,875
19,471
214,796
12,820
137,288
$ 63,399
23,301
9,591
207,157
15,939
123,908
2
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Overview
For more than 30 years, 1-800-FLOWERS.COM Inc. –
“Your Florist of Choice®” – has been providing customers
around the world with the freshest flowers and finest
selection of plants, gift baskets, gourmet foods and confec-
tions, and plush stuffed animals perfect for every occasion.
1-800-FLOWERS.COM® offers the best of both worlds:
exquisite, florist-designed arrangements individually
created by some of the nation’s top floral artists and hand-
delivered the same day, and spectacular flowers delivered
through its “Fresh From Our Growers(SM)” program.
Customers can shop 1-800-FLOWERS.COM
24 hours a day, 7 days a week via the phone or Internet
(1-800-356-9377 or www.1800flowers.com) or by visiting
a Company-operated or franchised store. Sales and
Service Specialists are available 24/7, and fast and
reliable delivery is offered same day, any day. As always,
100 percent satisfaction and freshness is guaranteed. The
1-800-FLOWERS.COM collection of brands also includes
home decor and garden merchandise from Plow &
Hearth® (1-800-627-1712 or www.plowandhearth.com);
weather-themed gifts from Wind & Weather® (1-800-922-
9463 or www.windandweather.com)popcorn and spe-
cialty treats from The Popcorn Factory® (1-800-541-2676
or www.thepopcornfactory.com); exceptional cookies and
baked gifts from Cheryl&Co. ® (1-800-443-8124 or
wwwcherylandco.com); premium chocolates and
confections from Fannie May Confections Brands, Inc.
(www.fanniemay.com and www.harrylondon.com);
gourmet foods from GreatFood.com®
(www.greatfood.com); children’s gifts from HearthSong®
(www.hearthsong.com) and Magic Cabin®
(www.magiccabin.com); wine gifts from the WineTasting
Network® (www.ambrosiawine.com and
www.winetasting.com); and gift baskets from 1-800-
BASKETS.COM® (www.1800baskets.com).
1-800-FLOWERS.COM, Inc. stock is traded on the
NASDAQ market under ticker symbol FLWS.
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
2006 and 2004, which ended on July 2, 2006 and June 27,
2004, respectively, consisted of 52 weeks, while fiscal year
2005, which ended on July 3, 2005, consisted of 53 weeks.
Net Revenues
Years Ended
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
(in thousands)
Net revenues:
Online
$430,285
19.2% $360,902
17.4% $307,470
Telephonic
275,716
6.1%
259,929
(1.2%)
263,039
Retail/fulfillment
75,740
51.9%
49,848
48.9%
33,469
$781,741
16.6% $670,679
11.0% $603,978
3
Net revenues consist primarily of the selling price of
the merchandise, service or outbound shipping charges,
less discounts, returns and credits. The Company’s
revenue growth of 16.6% during the fiscal year ended
July 2, 2006 was due to a combination of organic growth,
as well as the acquisitions of Cheryl & Co., a manufac-
turer and direct marketer of cookies and baked gifts,
acquired on March 28, 2005, Wind & Weather, a direct
marketer of weather-themed gifts, acquired on October
31, 2005, and Fannie May Confections Brands, Inc., a
manufacturer and multi-channel retailer of premium
chocolates and other confections, acquired on May 1,
2006. Excluding the impact of acquisitions, and adjusted
for the additional week of sales during fiscal 2005 which
consisted of 53 weeks, compared to fiscal 2006 which
consisted of 52 weeks, total revenue growth during fiscal
2006 was 9.3%, reflecting: (i) the Company’s strong brand
name recognition, (ii) continued leveraging of its existing
customer base, and (iii) increased spending on its
marketing and selling programs, designed to improve
customer acquisition and accelerate top-line growth. Total
revenue growth during fiscal 2005 was 11.0%, reflecting:
(i) organic growth of approximately 8%, (ii) the aforemen-
tioned acquisition of Cheryl & Co., and the acquisition of
The Winetasting Network on November 15, 2004, as well
as the inclusion of an additional week of sales, due to its
53 week year.
The Company fulfilled approximately 11,315,000,
10,213,000, and 9,322,000 orders through its combined
online and telephonic sales channels during the fiscal
years ended July 2, 2006, July 3, 2005, and June 27,
2004, respectively, representing increases of 10.8% and
9.6% over the respective prior fiscal years. Order volume
through the Company’s online sales channel, which
contributed 60.9%, 58.1% and 53.9% of the total com-
bined online and telephonic revenues during the fiscal
years ended July 2, 2006, July 3, 2005 and June 27,
2004, increased 14.7% and 17.5%, during the fiscal
years ended July 2, 2006 and July 3, 2005, respectively,
as a result of increased marketing efforts through search
engines and affiliates, and the incremental online
revenue generated by Cheryl & Co., which was acquired
in March 2005 and Wind & Weather acquired in October
2005. During fiscal 2006 the Company’s telephonic
channel order volume increased 4.6%, which was
primarily attributable to the additional revenue from
Cheryl & Co. and Wind & Weather, whereas fiscal 2005
telephonic order volume decreased 1.1%, due to
continued migration of customers to the Company’s
online sales channel. During fiscal 2006 the Company’s
combined online and telephonic sales channel average
order value increased 2.6% to $62.39, as a result of
increased service and shipping charges implemented to
align them with industry norms, and to partially offset the
impact of increased fuel costs passed on from freight
carriers. During fiscal 2005, the Company’s average sale
from its combined online and telephonic sales channel of
$60.79 declined slightly as a result of product mix,
compared with $61.20 in fiscal 2004.
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
During the fiscal year ended July 2, 2006, non-floral
gift products accounted for 49.4% of total combined
telephonic and online net revenues, compared to 47.3%
and 47.8% during the years ended July 3, 2005 and June
27, 2004, respectively.
comparison to the prior fiscal year, due to a combination
of product mix, increased promotional pricing, and
increased carrier fuel surcharges and shipping costs
associated with the Monday placement of the Valentine’s
Day Holiday.
Retail/fulfillment revenues for the fiscal years ended
July 2, 2006 and July 3, 2005 increased in comparison to
the prior years, primarily as a result of its recent acquisi-
tions of The Winetasting Network, Cheryl & Co, and
Fannie May Confections Brands, Inc. as well as increased
membership and sales of products to the Company’s
BloomNet members.
At the start of the second half of fiscal 2005, the
Company initiated a strategy designed to extend the
Company’s leadership position in the floral and thoughtful
gift marketplace, and implemented plans to increase its
marketing spending to drive increased customer acquisi-
tion, particularly in the core floral gift category. While the
Company was successful in achieving strong revenue
growth during this period, the growth was below the level
that the Company targeted to achieve with its increased
marketing spend, resulting in lower than anticipated
earnings. Having now achieved a solid base of business,
through a combination of organic efforts and strategic
acquisitions, management’s current focus is on improving
the Company’s earnings performance. As such, the
Company expects that its organic revenue growth may
decrease slightly from its current rate of greater than 9%,
but result in improved profitability.
Gross Profit
Years Ended
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
Gross profit
$325,644 18.1% $275,651
9.0% $252,867
Gross margin %
41.7%
41.1%
41.9%
(in thousands)
Gross profit consists of net revenues less cost of
revenues, which is comprised primarily of florist fulfillment
costs (primarily fees paid directly to florists), the cost of
floral and non-floral merchandise sold from inventory or
through third parties, and associated costs including
inbound and outbound shipping charges. Additionally,
cost of revenues include labor and facility costs related to
direct-to-consumer merchandise operations. Gross profit
increased during the fiscal year ended July 2, 2006, as a
result of the revenue growth described above, and
improved gross margin percentage, which increased 60
basis points to 41.7% in comparison to prior year. The
improved gross margin percentage during fiscal 2006
resulted from a combination of product mix, including the
additions of the Cheryl & Co. and Wind & Weather
product lines, which have higher gross margins and
pricing initiatives related to both delivery surcharges
during the Valentine’s Day holiday and increases in base
service/shipping charges. During fiscal 2005, gross
margin percentage declined by 80 basis points in
During fiscal 2007, although varying by quarter due to
seasonal changes in product mix, the Company expects
that its gross margin percentage will continue to improve
primarily through: (i) growth of its higher margin non-floral
gift lines, including Cheryl & Co., Wind & Weather, and
most recently, Fannie May Confections Brands, Inc. (ii)
improved product sourcing, pricing initiatives and
customer service and fulfillment enhancements which are
expected to substantially mitigate continued pressure on
shipping costs, and (iii) the contribution of the BloomNet
florist business, which has completed its roll-out invest-
ment phase, including the absorption of incremental
sales and technology personnel in order to develop a
member directory, increase Bloomlink penetration and
expand membership, which increased from approxi-
mately 3,000 members as of June 27, 2004 to over
9,000 members as of July 2, 2006.
Marketing and Sales Expense
Years Ended
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
Marketing and
sales
$239,573 20.4% $198,935 15.5% $172,251
(in thousands)
Percentage of
sales
30.6%
29.7%
28.5%
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal and search 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
activities. Marketing and sales expense increased as a
percentage of net revenues during the fiscal years ended
July 2, 2006 and July 3, 2005, as a result of several
factors including: (i) the Company’s efforts to increase
new customer acquisition and accelerate top-line growth
through increased marketing efforts both online and via
broadcast advertising, (ii) investments required to expand
its BloomNet business-to-business floral operations, (iii)
incremental expenses associated with the Company’s
recent acquisitions, which, while contributing to revenue
growth and achieving higher gross product margins, also
incur higher marketing expenses, and (iv) the impact of
adopting SFAS No. 123(R), “Share-Based Payment” –
refer to Footnote 2 of the Company’s Annual Financial
Statements for further details. During the fiscal year
ended July 2, 2006, the Company added 3,556,000
new customers, compared with 3,311,000 and 3,141,000
in fiscal 2005 and fiscal 2004, respectively. Of the
6,631,000 customers who placed orders during the fiscal
4
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
year ended July 2, 2006, approximately 46.4% repre-
sented repeat customers, consistent with the prior year.
Repeat customers represented 45.0% of total customers
during fiscal 2004.
Company expended $33.6 million, $24.0 million, and
$22.8 million, respectively, on technology and develop-
ment, of which $13.8 million, $9.2 million, and $9.0
million, respectively, has been capitalized.
As referenced above, while the Company’s marketing
programs achieved strong revenue growth in fiscal 2006
and 2005, this growth has been below the level that was
targeted with the Company’s increased level of marketing
spend. During fiscal 2007, the Company is focused on
improving its operating expense ratio through a number of
cost saving initiatives, including catalog printing and e-mail
pricing improvements, as well as a review of the type,
quantity and effectiveness of its marketing programs. In
addition to the improved operating results expected now
that the Company has completed the investment phase of
its BloomNet florist business, the Company expects that
marketing and sales expense, as a percentage of revenue,
will decrease in comparison to the prior year.
The Company believes that continued investment in
technology and development is critical to attaining its
strategic objectives. While many of its acquisition-related
integration projects are complete, as a result of incremen-
tal expenses associated with it most recently acquired
businesses, the Company expects that its spending in
fiscal 2007 will remain consistent or decrease slightly as
a percentage of net revenues.
General and Administrative Expenses
Years Ended
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
(in thousands)
Technology and Development Expense
General and
Years Ended
administrative $43,978
23.6% $35,572 17.0% $30,415
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
Percentage of
sales
5.6%
5.3%
5.0%
(in thousands)
Technology and
development
Percentage of
sales
$19,819 34.3% $14,757 6.9% $13,799
2.5%
2.2%
2.3%
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. Technology and development
expense increased as a percentage of net revenues
during the fiscal year ended July 2, 2006, primarily as a
result of: (i) incremental expenses associated with system
improvements required by The Winetasting Network, and
integration projects for Wind & Weather, which was
absorbed into the Company’s Madison, Virginia opera-
tions, (ii) content development for the upgrade of the
Company’s 1-800-Flowers.com branded website which
was launched in the fourth quarter of fiscal 2006, (iii)
increases in the cost of maintenance and license
agreements required to support the Company’s technol-
ogy platform, and (iv) the impact of adopting SFAS No.
123(R), “Share-Based Payment” – refer to Footnote 2 of
the Company’s Annual Financial Statements for further
details. Technology and development expenses in-
creased by 6.9% during fiscal 2005 in comparison to prior
year, but decreased as a percentage of net revenues
primarily as a result of the incremental expenses of The
Winetasting Network and Cheryl & Co., both of which
were acquired during fiscal 2005. During the fiscal years
ended July 2, 2006, July 3, 2005, and June 27, 2004, the
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 expense increased during the
fiscal year ended July 2, 2006 in comparison to the prior
year, primarily as a result of: (i) incremental expenses
associated with the Company’s acquired businesses, (ii)
expenses associated with the Company’s corporate
headquarters relocation, and (iii) the impact of adopting
SFAS No. 123(R), “Share-Based Payment” – refer to
Footnote 2 of the Company’s Annual Financial State-
ments for further details.
General and administrative expense increased during
the fiscal year ended July 3, 2005 in comparison to the prior
year, due to: (i) incremental expenses associated with the
Company’s wine gift product line and additional overhead
added during a seasonally slow period for Cheryl & Co.,
which was acquired in March 2005, (ii) an increase in
professional fees associated with Sarbanes-Oxley compli-
ance, and (iii) increased travel and entertainment related to
the Company’s BloomNet business-to-business expansion.
Although the Company believes that its current
general and administrative infrastructure is sufficient to
support existing requirements and drive operating
leverage, as a result of the incremental expenses
associated with the recently acquired businesses, as well
as the impact of the adoption of SFAS 123(R), the Com-
pany expects that its general and administrative expenses
as a percentage of net revenue during fiscal 2007 will be
consistent with the prior year period.
5
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Depreciation and Amortization
Years Ended
July 2,
July 3,
2006 % Change 2005 % Change 2004
June 27,
Depreciation and
amortization $15,765
8.8% $14,489 (3.4)% $14,992
(in thousands)
Percentage of
sales
2.0%
2.2%
2.5%
Depreciation and amortization expense increased
during the fiscal year ended July 2, 2006 in comparison
to the prior year period, due primarily to the incremental
amortization expense related to the intangibles established
as a result of the acquisitions of Cheryl & Co., Wind &
Weather, and more recently, Fannie May Confections
Brands, Inc. Depreciation and amortization expense
decreased slightly during the fiscal year ended July 3, 2005
in comparison to the prior year period, as a result of the
Company’s then declining rate of capital additions. During
both fiscal 2006 and 2005, depreciation and amortization
expense, as a percentage of revenue, decreased over their
respective prior year periods, reflecting the Company’s
leverage of its existing infrastructure.
The Company believes that continued investment in its
infrastructure, primarily in the areas of technology and
development, including the improvement of the technology
platforms are critical to attaining its strategic objectives. As
a result of these improvements, but primarily as a result of
an increase in amortization expense associated with
intangibles established as a result of recent acquisitions,
the Company expects that depreciation and amortization
for fiscal 2007 will increase slightly as a percentage of net
revenues in comparison to the prior year.
Other Income (Expense)
Years Ended
July 2,
July 3, June 27,
2006 % Change 2005 % Change 2004
(in thousands)
Interest income $1,260
(25.4)% $1,690
27.6% $ 1,324
Interest expense (1,407) (192.5)%
(481)
27.5% (663)
Other, net
6
(95.7)% 140
141.1%
(341)
$ (141) (110.5)% $1,349 321.6% $
320
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, long-
term debt, and revolving line of credit. In order to finance
the acquisition of Fannie May Confections Brands, Inc., on
May 1, 2006, the Company entered into a $135.0 million
secured credit facility with JPMorgan Chase Bank, N.A., as
administrative agent, and a group of lenders (the “2006
Credit Facility”). The 2006 Credit Facility includes an $85.0
million term loan and a $50.0 million revolving facility,
which bear interest at LIBOR plus 0.625% to 1.125%, with
pricing based upon the Company’s leverage ratio. At
6
closing, the Company borrowed $85.0 million of the term
facility to acquire all of the outstanding capital stock of
Fannie May Confections Brands, Inc.
The decrease in other income (expense) during the
fiscal year ended July 2, 2006, in comparison to fiscal
2005 was the result of higher interest expense on the
Company’s 2006 Credit Facility, as well as lower interest
income, resulting from a decrease in average cash
balances, due to the acquisitions of the The Winetasting
Network in November 2004, Cheryl & Co. in March 2005,
Wind & Weather in November 2005, and Fannie May
Confections Brands, Inc. in May 2006, which was partially
funded from the Company’s existing cash balances, as
well as the Company’s stock buy-back program.
The increase in other income (expense) during the
fiscal years ended July 3, 2005, in comparison to the
fiscal 2004 was primarily attributable to higher interest
income resulting from an increase in interest rate returns,
as well as lower interest expense due to maturing debt
and capital lease obligations.
Income Taxes
During the fiscal years ended July 2, 2006 and July 3,
2005, the Company recorded income tax expense of $3.2
million and $5.4 million, respectively. The Company’s
effective tax rate for the fiscal years ended July 2, 2006
and July 3, 2005 was 50.0% and 40.7%, respectively.
The effective tax rate during the fiscal year ended July 2,
2006 includes the impact of share-based compensation
recognized in accordance with SFAS No. 123(R), and
resulted in an increase in the annual effective income tax
rate for fiscal 2006 of approximately 8.5%, resulting
primarily from the associated book/tax differences in
accounting for incentive stock options. Additionally, the
Company’s effective tax rate for the fiscal years ended
July 2, 2006 and July 3, 2005 differed from the U.S.
federal statutory rate of 35% primarily due to state income
taxes, partially offset by various tax credits.
During the fiscal year ended June 27, 2004, the
Company recorded an income tax benefit of approxi-
mately $19.2 million (net) due to the removal of the
Company’s valuation allowance on its deferred tax assets
which consisted primarily of net operating loss
carryforwards (see below), offset in part by income tax
expense for federal alternative minimum tax and various
state taxes resulting from state tax law changes that
deferred the use of available net operating losses for
state purposes.
At June 27, 2004, management of the Company
reassessed the valuation allowance previously estab-
lished against its net deferred tax assets. Based on the
Company’s earnings history and projected future taxable
income, management determined that it was more likely
than not that the deferred tax assets would be realized.
Accordingly, the Company removed the valuation allow-
ance of approximately $30.0 million from its deferred tax
assets resulting in the recognition of an income tax benefit
of approximately $20.8 million, a reduction of goodwill of
approximately $3.1 million, related to the acquired net
operating losses of GreatFood.com, and an increase in
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
additional paid-in-capital of approximately $6.1 million
related to income tax benefits associated with employee
stock option exercises. The favorable impact of the income
tax benefit has distorted the trends in our net income and
will impact the comparability of our net income with other
periods.
At July 2, 2006, the Company’s federal and state net
operating loss carryforwards were approximately $63.4
million, which, if not utilized, will begin to expire in fiscal
year 2020.
Liquidity and Capital Resources
At July 2, 2006, the Company had working capital of
$41.2 million, including cash and equivalents of $24.6
million, compared to working capital of $41.7 million,
including cash and equivalents and short-term invest-
ments of $46.6 million, at July 3, 2005.
Net cash provided by operating activities of $14.7
million for the fiscal year ended July 2, 2006 was prima-
rily attributable to earnings, adjusted for depreciation and
amortization, share-based compensation expense,
deferred income taxes and other non-cash charges,
which in total amounted to $26.1 million, offset in part by
increases in inventory due to lead times required to
source lower cost foreign products, and decreases in
accounts payable and accrued expenses.
Net cash used in investing activities of $110.7 million
for the fiscal year ended July 2, 2006 was primarily
attributable to funding acquisitions ($96.9 million),
including Wind & Weather ($5.0 million) and Fannie May
Confections Brands, Inc. ($91.9 million), as well as capital
expenditures, primarily related to the Company’s technol-
ogy infrastructure, offset in part by net proceeds from the
sale of the Company’s short-term investments.
Net cash provided by financing activities of $80.6
million for the fiscal year ended July 2, 2006, was due
primarily to bank borrowings against the Company’s 2006
Credit Facility which was used to fund the acquisition of
Fannie May Confections Brands, Inc. in May 2006, as well
as net proceeds received upon the exercise of employee
stock options, offset in part by cash used to repay
outstanding debt and long-term capital lease obligations,
as well as repurchase 182,000 shares of the Company’s
Class A common stock, which were placed in treasury, for
approximately $1.3 million.
On May 1, 2006, the Company entered into a $135.0
million secured credit facility with JPMorgan Chase Bank,
N.A., as administrative agent, and a group of lenders (the
“2006 Credit Facility”). The 2006 Credit Facility includes an
$85.0 million term loan and a $50.0 million revolving credit
facility, which bear interest at LIBOR plus 0.625% to
1.125%, with pricing based upon the Company’s leverage
ratio. At closing, the Company borrowed $85.0 million of
the term facility to acquire all of the outstanding capital
stock of Fannie May Confections Brands, Inc. The Com-
pany is required to pay the outstanding term loan in
quarterly installments, with the final installment payment
due on May 1, 2012. The 2006 Credit Facility contains
various conditions to borrowing, and affirmative and
negative financial covenants. Concurrent with the 2006
Credit Facility, the Company’s previous $25.0 million
revolving credit facilities were terminated. The Company
expects to draw down on its revolving credit facility towards
the end of its fiscal first quarter in order to fund pre-holiday
manufacturing and inventory purchases.
The Company has historically utilized cash generated
from operations to meet its cash requirements, including
all operating, investing and debt repayment activities.
Due to the Company’s continued expansion into non-
floral products, including the aforementioned acquisitions
of Fannie May Confections Brands, Inc., the Company
expects to utilize its existing $50.0 million line of credit
during its fiscal first and second quarter to fund working
capital requirements, which have increased during this
time period as a result of increased inventory and pre-
holiday manufacturing requirements.
At July 2, 2006, the Company’s contractual
obligations consist of:
Payments due by period
Total 1 year 1 - 3 years 3 - 5 years 5 years
Less than More than
Long-term debt (including interest) $107,871
489
Capital lease obligations
62,437
Operating lease obligations
6,776
Sublease obligations
2,000
Other cash obligations (*)
27,491
Purchase commitments (**)
Total
$207,064
$ 15,673
409
9,666
2,120
2,000
27,491
$ 57,359
(in thousands)
$ 30,922
36
15,774
2,780
––
––
$ 49,512
$
34,836
26
9,344
1,302
––
––
$
45,508
$ 26,440
18
27,653
574
––
––
$ 54,685
(*) Other cash obligations consist primarily of online marketing contractual agreements.
(**) Purchase commitments consist primarily of inventory and equipment purchase orders made in the ordinary course of business.
7
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
On May 12, 2005, the Company’s Board of Directors
increased the Company’s authorization to repurchase the
Company’s Class A common stock up to $20 million, from
the previous authorized limit of $10 million. Any such
purchases could be made from time to time in the open
market and through privately negotiated transactions,
subject to general market conditions. The repurchase
program will be financed utilizing available cash. As of July
2, 2006, the Company had repurchased 1,510,050 shares
of common stock for $11.1 million, of which $1.3 million
and $9.8 million was repurchased during the fiscal years
ending July 2, 2006 and July 3, 2005, respectively.
Critical Accounting Policies and
Estimates
The Company’s discussion and analysis of its
financial position and results of operations are based
upon the consolidated financial statements of 1-800-
FLOWERS.COM, Inc., which have been prepared in
accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements
requires management to make estimates and assump-
tions that affect the reported amount of assets, liabilities,
revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those
related to revenue recognition, inventory and long-lived
assets, including goodwill and other intangible assets
related to acquisitions. Management bases its estimates
and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for
making judgments about the carrying values of assets
and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting
policies, among others, affect its more significant judg-
ments and estimates used in preparation of its consoli-
dated 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. Shipping terms are
FOB shipping point.
Accounts Receivable
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of its customers or franchisees to make required pay-
ments. If the financial condition of the Company’s
customers or franchisees were to deteriorate, resulting in
an impairment of their ability to make payments, addi-
tional 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 require-
ments and compare that with inventory levels. It is
possible that changes in consumer demand could cause
a reduction in the net realizable value of inventory.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price
over the fair value of the net assets acquired and is
evaluated annually for impairment. The cost of intangible
assets with determinable lives is amortized to reflect the
pattern of economic benefits consumed, on a straight-line
basis, over the estimated periods benefited, ranging from
3 to 16 years.
The Company performs an annual impairment test as
of the first day of its fiscal fourth quarter, or earlier if
indicators of potential impairment exist, to evaluate
goodwill. Goodwill is considered impaired if the carrying
amount of the reporting unit exceeds its estimated fair
value. In assessing the recoverability of goodwill, the
Company reviews both quantitative as well as qualitative
factors to support its assumptions with regard to fair value.
Judgment regarding the existence of impairment indica-
tors is based on market conditions and operational
performance of the Company. Future events could cause
the Company to conclude that impairment indicators exist
and that goodwill and other intangible assets associated
with our acquired businesses is impaired.
Capitalized Software
The carrying value of capitalized software, both
purchased and internally developed, is periodically
reviewed for potential impairment indicators. Future
events could cause the Company to conclude that
impairment indicators exist and that capitalized software
is impaired.
Stock-based Compensation
SFAS No. 123R requires the measurement of stock-
based compensation expense based on the fair value of
the award on the date of grant. The Company determines
the fair value of stock options issued by using the Black-
Scholes option-pricing model. The Black-Scholes option-
pricing model considers a range of assumptions related
to volatility, dividend yield, risk-free interest rate and
employee exercise behavior. Expected volatilities are
based on historical volatility of the Company’s stock price.
The dividend yield is based on historical experience and
future expectations. The risk-free interest rate is derived
from the US Treasury yield curve in effect at the time of
grant. The Black-Scholes model also incorporates
expected forfeiture rates, based on historical behavior.
Determining these assumptions are subjective and
complex, and therefore, a change in the assumptions
utilized could impact the calculation of the fair value of the
Company’s stock options. Prior to July 3, 2005, the
Company followed APB No. 25, and related interpreta-
tions. Under APB No. 25, no stock-based compensation
expense was recognized related to the Company’s stock
option program, as all options granted had an exercise
price equal to the market value of the underlying common
stock price on the date of grant.
Income Taxes
The Company has established deferred income tax
assets and liabilities for temporary differences between
8
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
the financial reporting bases and the income tax bases of
its assets and liabilities at enacted tax rates expected to
be in effect when such assets or liabilities are realized or
settled. The Company has recognized as a deferred tax
asset the tax benefits associated with losses related to
operations, which are expected to result in a future tax
benefit. Realization of this deferred tax asset assumes
that we will be able to generate sufficient future taxable
income so that these assets will be realized. The factors
that we consider in assessing the likelihood of realization
include the forecast of future taxable income and avail-
able tax planning strategies that could be implemented to
realize the deferred tax assets.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”).
FIN 48 applies to all tax positions accounted for under
SFAS no. 109, “Accounting for Income Taxes” and defines
the confidence level that a tax position must meet in order
to be recognized in the financial statements. The interpre-
tation requires that the tax effects of a position be
recognized only if it is “more-likely-than-not” to be
sustained by the taxing authority as of the reporting date.
If a tax position is not considered “more-likely-than-not” to
be sustained then no benefits of the position are to be
recognized. FIN 48 requires additional disclosures and is
effective as of the beginning of the first fiscal year
beginning after December 15, 2006. The Company is
currently evaluating the effect that the adoption of FIN 48
will have on its consolidated results of operations and
financial condition.
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. Under its current policies, the
Company does not use interest rate derivative instru-
ments to manage exposure to interest rate changes.
Cautionary Statements Under the Private
Securities Litigation Reform Act of 1995
Our disclosures and analysis in this Annual Report
contain some forward-looking statements that set forth
anticipated results based on management’s plans and
assumptions. From time to time, we also provide forward-
looking statements in other statements we release to the
public as well as oral forward-looking statements. Such
statements give our current expectations or forecasts of
future events; they do not relate strictly to historical or
current facts. We have tried, wherever possible, to identify
such statements by using words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan, “believe” and
similar expressions in connection with any discussion of
future operating or financial performance. We cannot
guarantee that any forward-looking statement will be
realized, although we believe we have been prudent in
our plans and assumptions. Achievement of future results
is subject to risk, uncertainties and potentially inaccurate
assumptions. Should known or unknown risks or uncer-
tainties materialize, or should underlying assumptions
prove inaccurate, actual results could differ materially
from past results and those anticipated, estimated or
projected. You should bear this in mind as you consider
forward looking statements. We undertake no obligation
to publicly update forward-looking statements, whether as
a result of new information, future events or otherwise.
You are advised, however, to consult any further disclo-
sures we make on related subjects in our 10-K, 10-Q and
8-K reports to the SEC. Risk factors discussed in these
and other documents filed by the Company with the SEC
are noted for investors as permitted by the Private
Securities Litigation Reform Act of 1995. You should
understand that it is not possible to predict or identify all
such factors. Consequently, you should not consider the
factors noted to be a complete discussion of all potential
risks and uncertainties.
9
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years
2006 and 2005. 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
Jul. 2,
Apr. 2, Jan. 1, Oct. 2, Jul. 3, Mar. 27, Dec. 26, Sep. 26,
2006 2006 2006 2005 2005 2005 2004 2004
(in thousands, except per share data)
Net revenues:
Online $124,372 $110,278 $133,362 $ 62,273
38,382
60,670
Telephonic
12,110
26,088
Retail/fulfillment
112,765
211,130
Total net revenues
66,739
126,778
Cost of revenues
Gross Profit
46,062
84,352
Operating expenses:
125,122
19,345
277,829
152,837
124,992
51,542
18,197
180,017
109,743
70,274
$108,492
60,349
17,277
186,118
111,737
74,381
$91,638 $107,686
109,570
12,758
230,014
127,402
102,612
52,424
12,971
157,033
97,947
59,086
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
87,874
4,797
10,357
3,809
106,837
Total operating expenses
18,155
Operating income (loss)
515 (115)
Other income (expense), net
18,040
Income (loss) before income taxes
Income taxes (benefit)
7,704
Net income (loss) $ 1,017 $ (1,540) $ 10,336
Basic and diluted net income (loss)
60,287
5,083
11,804
4,555
81,729
2,623
(678)
1,945
928
53,188
5,170
11,181
3,877
73,416
(3,142)
(2,627)
(1,087)
38,224
4,769
10,636
3,524
57,153
(11,127)
137
(10,990)
(4,364)
50,389
4,201
10,152
3,473
68,215
6,166
423
6,589
2,688
$ (6,626) $ 3,901
45,813
4,160
9,864
3,350
63,187
(4,101)
509
(3,592)
(1,546)
72,841
3,292
7,954
3,770
87,857
14,755
172
14,927
6,223
$ (2,046) $ 8,704
$53,086
37,586
6,842
97,514
57,942
39,572
29,892
3,104
7,602
3,896
44,494
(4,922)
245
(4,677)
(1,967)
$ (2,710)
per share: $
0.02 $
(0.02) $
0.16 $
(0.10) $
0.06
$ (0.03) $
0.13
$ (0.04)
The Company’s quarterly results may experience seasonal fluctuations. Due to the Company’s expansion into
non-floral products, including the acquisitions of The Winetasting Network and Cheryl & Co. during fiscal 2005 as
well as Wind & Weather and Fannie May Confections Brands, Inc. during fiscal 2006, the Thanksgiving through
Christmas holiday season, which falls within the Company’s second fiscal quarter, generates the highest proportion
of the Company’s annual revenues. Additionally, as the result of a number of major floral gifting occasions, including
Mother’s Day, Administrative Professionals Week and Easter, revenues also rise during the Company’s fiscal fourth
quarter. Results during the Company’s fiscal first quarter will be negatively impacted by the aforementioned acquisi-
tions due to their seasonal nature and the incremental overhead incurred during this slow period. Also, it should be
noted that the operating expenses for their respective quarterly periods in fiscal 2006 reflect the impact of adopting
SFAS No. 123(R), “Share-Based Payment” – refer to audited financial statement Note (2) for further details.
10
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
Assets
Current Assets:
Cash and equivalents
Short-term investments
Receivables, net
Inventories
Deferred income taxes
Prepaid and other
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles, net
Deferred income taxes
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:
July 2,
2006
July 3,
2005
$ 24,599
13,153
52,954
17,427
6,063
114,196
59,732
131,141
29,822
6,224
5,519
$ 346,634
$ 62,654
10,360
73,014
78,063
2,374
153,451
$ 39,961
6,647
10,619
28,675
10,219
5,289
101,410
50,474
63,219
14,215
17,161
5,473
$ 251,952
$ 57,121
2,597
59,718
3,347
2,553
65,618
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Class A common stock, $.01 par value, 200,000,000 shares authorized,
29,872,183 and 29,888,603 shares issued in 2006 and 2005, respectively
299
300
Class B common stock, $.01 par value, 200,000,000 shares authorized,
42,138,465 and 42,144,465 shares issued in 2006 and 2005
Additional paid-in capital
Retained deficit
Deferred compensation
Treasury stock, at cost – 1,555,350 and 1,380,850 Class A shares in 2006 and
2005, respecitively, and 5,280,000 Class B shares
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
11
421
262,667
(56,011)
(14,193)
193,183
$ 346,634
421
258,848
(59,198)
(1,116)
(12,921)
186,334
$ 251,952
Consolidated Statements of Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
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
July 2,
2006
$781,741
456,097
325,644
239,573
19,819
43,978
15,765
319,135
6,509
Other income (expense):
1,260
Interest income
Interest expense (1,407)
6
Other, net
(141)
Total other income, net
Years Ended
July 3, June 27,
2005
$670,679
395,028
275,651
198,935
14,757
35,572
14,489
263,753
11,898
1,690
(481)
140
1,349
2004
$603,978
351,111
252,867
172,251
13,799
30,415
14,992
231,457
21,410
1,324
(663)
(341)
320
Income before income taxes
Income taxes (benefit)
6,368
3,181
13,247
21,730
5,398 (19,174)
Net income
$ 3,187
$ 7,849
$ 40,904
Net income per common share:
Basic
Diluted
Weighted average shares used in the calculation of
net income per common share:
Basic
Diluted
$
$
0.05
0.05
$
$
0.12
0.12
$
$
0.62
0.60
65,100
66,429
66,038
67,402
65,959
68,165
See accompanying notes.
12
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Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Operating activities:
Net income
Reconciliation of net income to net cash
provided by operations:
Depreciation and amortization
Deferred income taxes
Bad debt expense
Share-based compensation
Other non-cash items
Changes in operating items, excluding the effects of
acquisitions:
Receivables
Inventories
Prepaid and other
Accounts payable and accrued expenses
Other assets
Other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of investments
Proceeds from sales of investments
Acquisitions, net of cash acquired
Capital expenditures
Other
Net cash used in investing activities
Financing activities:
Acquisition of treasury stock
Proceeds from employee stock options/stock purchase plan
Proceeds from bank borrowings and revolving line of credit
Repayment of notes payable and bank borrowings
Repayments of capital lease obligations
Other
Net cash provided by (used in) financing activities
Years Ended
July 2,
2006
July 3, June 27,
2005
2004
$
3,187
$
7,849
$ 40,904
15,765
2,175
476
4,336
125
1,316
(9,106)
685
(2,262)
(1,380)
(579)
14,738
6,647
(96,874)
(20,491)
2
(110,716)
(1,324)
558
105,000
(22,482)
(1,228)
92
80,616
14,489
4,702
270
192
(655)
(6,345)
(3,445)
(10,953)
4,584
(259)
10,429
(93,946)
118,109
(50,965)
(13,334)
192
(39,944)
(9,813)
1,533
(1,391)
(1,677)
14,992
(20,776)
437
250
(1,683)
745
691
1,624
5,829
(884)
42,129
(62,584)
63,384
(10,576)
217
(9,559)
2,126
(1,176)
(1,775)
(11,348)
(825)
Net change in cash and equivalents
Cash and equivalents:
Beginning of year
End of year
(15,362)
(40,863)
31,745
39,961
24,599
$
80,824
$ 39,961
49,079
$ 80,824
Supplemental Cash Flow Information:
- Interest paid amounted to $1,407, $481, and $663 for the years ended July 2, 2006, July 3, 2005 and June 27, 2004, respectively.
- The Company paid income taxes of approximately $23 and $762, net of tax refunds received for the years ended July 2, 2006 and
July 3, 2005. The Company received tax refunds, net of income taxes paid of approximately $1,476 for the year ended June 27, 2004.
See accompanying notes.
14
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
July 2, 2006
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, cookies, cakes, candies, wine, gift baskets, and
other unique gifts to our customers around the world.
The 1-800-FLOWERS.COM family of brands also includes
Plow & Hearth, a direct marketer of home décor and
garden merchandise, GreatFood.com, a source for
gourmet products, The Popcorn Factory, a manufacturer
and direct marketer of premium popcorn and specialty
food gifts, HearthSong and Magic Cabin, direct marketers
of unique children’s toys and games, The Winetasting
Network, a distributor and direct-to-consumer wine
marketer, Cheryl&Co., a manufacturer and direct marketer
of premium cookies and baked gift items and Fannie May
Confections Brands, Inc., a manufacturer, direct marketer
and retailer of premium chocolates and confections. The
Company operates in one business segment, providing its
customers with convenient, multi-channel access via the
Internet, telephone, catalogs and retail stores. During
fiscal 2006, approximately 61% of total revenues were
derived from floral and floral-related products.
Note 2. Significant Accounting Policies
Fiscal Year
The Company’s fiscal year is a 52- or 53-week period
ending on the Sunday nearest to June 30. Fiscal years
2006 and 2004, which ended on July 2, 2006 and June
27, 2004, respectively, consisted of 52 weeks, while fiscal
2005, which ended on July 3, 2005, consisted of 53
weeks.
Basis of Presentation
The consolidated financial statements include the
accounts of 1-800-FLOWERS.COM and its wholly-owned
subsidiaries (collectively, the “Company”). All significant
intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with U.S. generally accepted accounting principles
requires management to make estimates and assump-
tions 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. Amortization of
leasehold improvements and capital leases are calcu-
lated 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 improve-
ments. Estimated useful lives are periodically reviewed,
and where appropriate, changes are made prospectively.
The Company’s property plant and equipment is depreci-
ated using the following estimated lives:
Buildings
Leasehold improvements
Furniture, Fixtures and Equipment
Software
40 years
3 - 10 years
3 - 10 years
3 - 5 years
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangibles are not
amortized, but are evaluated annually in the Company’s
fiscal fourth quarter for impairment. To date, there has
been no impairment of these assets.
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 corresponding
catalog over a period not to exceed 26-weeks. Included
within other assets was $4.3 million and $3.7 million at
July 2, 2006 and July 3, 2005, 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
July 2, 2006, July 3, 2005 and June 27, 2004, 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
15
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 obligations
was not significantly different than the carrying values at
July 2, 2006 and July 3, 2005.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist
principally of cash and equivalents, investments and
accounts receivable. The Company maintains cash and
equivalents and investments with high credit, quality
financial institutions. Concentration of credit risk with
respect to accounts receivable are limited due to the
Company’s large number of customers and their disper-
sion throughout the United States, and the fact that a
substantial portion of receivables are related to balances
owed by major credit card companies. Allowances relating
to consumer, corporate and franchise accounts receivable
($2.3 million and $1.5 million at July 2, 2006 and July 3,
2005, respectively) have been recorded based upon
previous experience 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. Shipping terms
are FOB shipping point.
Cost of Revenues
Cost of revenues consists primarily of florist fulfillment
costs (fees paid directly to florists), the cost of floral and
non-floral merchandise sold from inventory or through
third parties, and associated costs including inbound and
outbound shipping charges. Additionally, cost of revenues
includes labor and facility costs related to direct-to-
consumer merchandise production operations.
Marketing and Sales
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal and search expenses, retail store and
fulfillment operations (other than costs included in cost of
revenues), and customer service center expenses, as
well as the operating expenses of the Company’s
departments engaged in marketing, selling and merchan-
dising activities.
The Company expenses all advertising costs, with the
exception of catalog costs (see Deferred Catalog Costs
above) at the time the advertisement is first shown. Advertis-
ing expense was $127.4 million, $107.8 million and $91.1
million for the years ended July 2, 2006, July 3, 2005 and
June 27, 2004, 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, content devel-
16
opment 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 capital-
ized 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 lives of
such software modifications are less than one year.
Stock-Based Compensation
The Company’s employee stock based compensation
plans are described more fully in Note 9. Prior to July 4,
2005, as permitted under SFAS No. 123, the Company
accounted for its stock option plans following the recognition
and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations. Accordingly, no
stock-based compensation had been reflected in net
income for stock options, as all options granted had an
exercise price equal to the market value of the underlying
common stock on the date of grant and the related number
of shares granted was fixed at that point in time.
In December 2004, the Financial Accounting Stan-
dards Board (FASB) issued SFAS No. 123(R), “Share-
Based Payment.” This Statement revised SFAS No. 123 by
eliminating the option to account for employee stock
options under APB No. 25 and requires companies to
recognize the cost of employee services received in
exchange for awards of equity instruments based on the
grant-date fair value of those awards (the “fair-value-
based” method).
Effective July 4, 2005, the Company adopted the fair
value recognition provisions of SFAS No. 123(R) using
the modified prospective application method. Under this
transition method, compensation cost recognized on a
straight-line basis during the year ended July 2, 2006
includes amounts of: (a) compensation cost of all stock-
based payments granted prior to, but not yet vested as of,
July 4, 2005 (based on grant-date fair value estimated in
accordance with the original provisions of SFAS No. 123,
and previously presented in the pro-forma footnote
disclosures), and (b) compensation cost for all stock-
based payments granted subsequent to July 3, 2005
(based on the grant-date fair value estimated in accor-
dance with the new provision of SFAS No. 123(R)). In
accordance with the modified prospective method, results
for prior periods have not been restated. Prior to the
Company’s adoption of SFAS No. 123(R), benefits of tax
deduction in excess of recognized compensation costs
were reported as operating cash flows. SFAS No. 123(R)
requires excess tax benefits be reported as a financing
cash inflow rather than as a reduction of taxes paid. There
were no significant excess tax benefits for the year ended
July 2, 2006.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following table summarizes the effect of adopting
SFAS No. 123(R) as of July 4, 2005:
Year Ended July 2, 2006
(in thousands, except per share data)
Stock-option compensation expense recognized (*):
Marketing and sales
Technology and development
General and administrative
Total
Related deferred income tax expense
Increase in net loss/decrease in
net income
Impact on basic and diluted net (loss)
income per common share
$1,301
556
1,853
3,710
869
$2,841
$ (0.04)
(*) Excludes the amortization of restricted stock awards in the amount of
$0.6 million during the year ended July 2, 2006 ($0.4 million, net of tax).
Compensation expense related to the amortization of
restricted stock awards was recognized prior to the
implementation of SFAS No. 123(R). Total stock based
compensation expense, which includes both expense
from stock options and restricted stock awards, totaled
$4.3 million ($3.2 million, net of tax, or $0.05 per diluted
share) during the year ended July 2, 2006.
Under the modified prospective application method,
results for prior periods have not been restated to reflect
the effects of implementing SFAS No. 123(R). The following
pro-forma information, as required by SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123,” is
presented for comparative purposes and illustrates the
effect on net income and net income per common share for
the periods presented as if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-
based employee compensation prior to July 4, 2005:
Years Ended
July 3, June 27,
2004 (2)
2005 (1)
Net income (loss) – As reported
$ 7,849
$40,904
(in thousands, except per share data)
Less: Stock Option
compensation expense
Net income (loss) – Pro forma
Net income (loss) per share:
Basic – As reported
Basic – Pro forma
Diluted – As reported
Diluted – Pro forma
10,499
$ (2,650)
1,339
$39,565
$
0.12
$ (0.04)
$
0.12
$ (0.04)
$
$
$
$
0.62
0.60
0.60
0.58
(1) During fiscal 2005, the Company accelerated the
vesting of all unvested stock options awarded to employees
and officers which had an exercise price greater than
$10.00 per share. Options to purchase approximately 0.8
million shares became exercisable immediately as a result
of the vesting acceleration. The Company sought to balance
the benefit of eliminating the requirement to recognize
compensation expense in future periods with the need to
continue to motivate employee performance through
previously issued, but currently unvested, stock option
grants. With those factors being considered, management
determined it to be appropriate to accelerate only those
unvested stock options where the strike price was reason-
ably in excess of the Company’s then current stock price.
The effect of the acceleration was an increase in pro-
forma stock based employee compensation expense for
the year ended July 3, 2005 of $3.0 million ($0.05 per
basic and diluted share). The decision to accelerate the
vesting of the identified stock options will reduce the
Company’s share-based compensation expense of
approximately $2.1 million in fiscal 2006 and $0.9 million
in fiscal 2007.
(2) During fiscal 2004, FAS 123 stock based compen-
sation is net of the income tax benefit of $6.1 million,
associated with the removal of the valuation allowance
on deferred tax assets arising from employee stock option
exercises.
Comprehensive Income
For the years ended July 2, 2006, July 3, 2005 and
June 27, 2004, the Company’s comprehensive income
was equal to the respective net income for each of the
periods presented.
Net Income Per Share
Basic net income per common share is computed
using the weighted-average number of common shares
outstanding during the period. Diluted net income per
share is computed using the weighted-average number
of common and dilutive common equivalent shares
(consisting primarily of employee stock options and
restricted stock awards) outstanding during the period.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”).
FIN 48 applies to all tax positions accounted for under
SFAS No. 109, “Accounting for Income Taxes” and defines
the confidence level that a tax position must meet in order
to be recognized in the financial statements. The interpreta-
tion requires that the tax effects of a position be recognized
only if it is “more-likely-than-not” to be sustained by the
taxing authority as of the reporting date. If a tax position is
not considered “more-likely-than-not” to be sustained then
no benefits of the position are to be recognized. FIN 48
requires additional disclosures and is effective as of the
beginning of the first fiscal year beginning after December
15, 2006. The Company is currently evaluating the effect
that the adoption of FIN 48 will have on its consolidated
results of operations and financial condition.
Reclassifications
Certain balances in the prior fiscal years have been
reclassified to conform with the presentation in the current
fiscal year.
17
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 3. Net Income Per Common Share
The following table sets forth the computation of basic
and diluted net income per common share:
Years Ended
July 2,
2006 (1)
July 3, June 27,
2005 2004 (2)
(in thousands, except per share data)
$ 3,187
$ 7,849
$40,904
Numerator:
Net income
Denominator:
Weighed average
shares outstanding
Effect of dilutive securities:
65,100
66,038
65,959
Employee stock
options (3)
Employee restricted
stock awards
1,282
1,364
2,206
47
1,329
––
1,364
––
2,206
Adjusted weighted-average
shares and assumed
conversions
66,429
67,402
68,165
Net income per common share:
Basic
Diluted
$
$
0.05
0.05
$
$
0.12
0.12
$ 0.62
$ 0.60
Note (1): Effective July 4, 2005, the Company adopted
the fair value recognition provisions of SFAS No. 123(R)
using the modified prospective application method. The
impact of the adoption, which reduced net income per
common share for the fiscal year ended July 2, 2006 by
$0.04 is described in further detail in Note 2.
Note (2): During the fiscal year ended June 27, 2004, the
Company recorded an income tax benefit of $19.2 million
($0.28 per share) due to the removal of the Company’s
valuation allowance on its deferred tax assets which
consisted primarily of net operating loss carryforwards.
Note (3): The effect of options to purchase 5.9 million, 3.8
million and 3.5 million shares for the years ended July 2,
2006, July 3, 2005 and June 27, 2004, respectively, were
excluded from the calculation of net income per share on a
diluted basis as their effect is anti-dilutive.
Note 4. Acquisitions
The Company accounts for its business combinations
in accordance with SFAS No. 141, “Business Combina-
tions,” which addresses financial accounting and report-
ing for business combinations and requires that all such
transactions be accounted for using the purchase
method. Under the purchase method of accounting for
business combinations, the aggregate purchase price for
the acquired business is allocated to the assets acquired
and liabilities assumed based on their estimated fair
values at the acquisition date.
Acquisition of Fannie May Confections Brands, Inc.
On May 1, 2006, the Company acquired all of the
outstanding common stock of Fannie May Confections
Brands, Inc. (hereafter referred to as “Fannie May
Confections Brands”), a manufacturer and multi-channel
retailer and wholesaler of premium chocolate and other
confections under the well-known Fannie May, Harry
London and Fanny Farmer brands. The acquisition, for a
purchase price of approximately $91.9 million in cash,
including estimated working capital adjustments and
transaction costs, includes a modern 200,000-square foot
manufacturing facility in North Canton, Ohio and 52
Fannie May retail stores in the Chicago area, where the
chocolate brand has been a tradition since 1920. The
purchase price is subject to “earn-out” incentives which
amount to a maximum of $4.5 million during the year
ending July 1, 2007 and $1.5 million during the year
ending June 29, 2008, upon achievement of specified
earnings targets. Fannie May Confections Brands
generated revenues of approximately $75.0 million in its
most recent fiscal year ended April 30, 2006.
As described further under “Long-Term Debt,” in order
to finance the acquisition, on May 1, 2006, the Company
entered into a $135.0 million secured credit facility with
JPMorgan Chase Bank, N.A., as administrative agent,
and a group of lenders (the “2006 Credit Facility”). The
2006 Credit Facility includes an $85.0 million term loan
and a $50.0 million revolving facility, which bear interest
at LIBOR plus 0.625% to 1.125%, with pricing based
upon the Company’s leverage ratio. At closing, the
Company borrowed $85.0 million of the term facility to
acquire all of the outstanding capital stock of Fannie May
Confections Brands.
Acquisition of Wind & Weather
On October 31, 2005, the Company acquired all of the
outstanding common stock of Wind & Weather, a Fort
Bragg, California based direct marketer of weather-themed
gifts, with annual revenues of approximately $14.4 million
during its then most recently completed fiscal year ended
March 31, 2005. The purchase price of approximately $5.2
million, including acquisition costs, was funded utilizing the
Company’s line of credit which was repaid during the
Company’s second quarter utilizing cash generated from
operations, and excludes the assumption of Wind &
Weather’s $1.2 million balance on its seasonal working
capital line. The Company has since relocated the
operations of Wind & Weather to its Madison, Virginia
facility, and terminated operations in California.
The Company is in the process of obtaining indepen-
dent appraisals for the purpose of allocating the purchase
price to individual assets acquired and liabilities as-
sumed as a result of the acquisition of Fannie May
Confections Brands. This will result in potential adjust-
ments to the carrying value of Fannie May Confections
Brands’ recorded assets and liabilities, the establishment
of certain additional intangible assets, revisions of useful
lives of intangible assets, some of which will have
indefinite lives not subject to amortization, and the
determination of any residual amount that will be allo-
18
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
cated to goodwill. The preliminary allocation of the
purchase price included in the current period balance
sheet is based on the best estimates of management and
is subject to revision based on final determination of
asset fair values and useful lives. The following table
summarizes the allocation of purchase price to the
estimated fair values of assets acquired and liabilities
assumed at the date of acquisitions of Fannie May
Confections Brands and Wind & Weather:
Fannie May
Confections Wind &
Brands Weather
Purchase Purchase
Price
Allocation
Price
Allocation
(in thousands)
Current assets
Property, plant and equipment
Intangible assets
Goodwill
Other
Total assets acquired
Current liabilities
Deferred tax liability
Other
Total liabilities assumed
Net assets acquired
$ 21,979
3,640
13,200
62,752
156
101,727
4,929
4,485
399
$ 9,813
$ 91,914
$ 4,014
67
2,560
2,703
20
9,364
3,810
265
39
4,114
$ 5,250
Of the $15.8 million of acquired intangible assets
related to the Fannie May Confections Brands and Wind &
Weather acquisitions, $1.9 million was assigned to
trademarks that are not subject to amortization, while the
remaining acquired intangibles of $13.9 million were
allocated primarily to customer related intangibles which
are being amortized over the assets’ determinable useful
life of 5 years.
Acquisition of Cheryl & Co.
On March 28, 2005, the Company acquired all of the
outstanding common stock of Cheryl & Co., a Westerville,
Ohio-based manufacturer and direct marketer of premium
cookies and related baked gift items, with annual
revenues of approximately $33 million during its then
most recent year ended January 29, 2005. The purchase
price of approximately $41.1 million, including acquisition
costs, was funded utilizing the Company’s available cash
and investment balance, and included $6.3 million used
to retire Cheryl & Co.’s outstanding debt.
Acquisition of The Winetasting Network
On November 15, 2004, the Company acquired all of
the outstanding common stock of The Winetasting
Network, a Napa, California based distributor and direct-
to-consumer wine marketer. The purchase price of
approximately $9.7 million, including acquisition costs
was funded utilizing the Company’s available cash and
investment balance and included $2.4 million used to
retire The Winetasting Network’s long-term debt.
Pro forma Results of Operation
The following unaudited pro forma consolidated
financial information has been prepared as if the acquisi-
tions of Fannie May Confections Brands, Wind & Weather,
Cheryl & Co. and The Winetasting Network had taken place
at the beginning of fiscal year 2005. The following unaudited
pro forma information is not necessarily indicative of the
results of operations in future periods or results that would
have been achieved had the acquisitions taken place at the
beginning of the periods presented.
Years Ended
July 2,
2006
July 3,
2005
Net revenues
Operating income
Net income
Basic and diluted net income
(in thousands, except per share data)
$854,333
$780,199
$ 14,844
$ 22,124
4,518
$
$ 11,443
per common share
$
0.07
$
0.17
Note 5. Inventory
The Company’s inventory, stated at cost, which is not in
excess of market, includes purchased and manufactured
finish goods for resale, packaging supplies, raw material
ingredients for manufactured products and associated
manufacturing labor, and is classified as follows:
Finished goods
Work-in-process
Raw materials
Years Ended
July 2,
2006
July 3,
2005
(in thousands)
$36,689
3,370
12,895
$52,954
$21,094
––
7,581
$28,675
Note 6. Goodwill and Intangible Assets
The change in the net carrying amount of goodwill
is as follows:
Years Ended
July 2,
2006
July 3,
2005
(in thousands)
Goodwill – beginning of year
Acquistion of Wind & Weather
Acquisition of Fannie May
Confections Brands
Acquisition of Cheryl & Co.
Acquisition of The Winetasting Network
Other
Goodwill – end of year
$ 63,219
2,703
62,752
2,461
––
6
$131,141
$34,529
––
––
20,245
8,202
243
$63,219
19
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The Company’s intangible assets consist of the following:
July 2,
2006
July 3,
2005
Gross Gross
Amortization Carrying Accumulated Carryin g Accumulated
Period Amount Amortization Net Amo unt Amortization Net
(in thousands)
Intangible assets with determinable lives:
Investment in
licenses
Customer lists
Other
14-16 years
3-6 years
5-8 years
Trademarks with
indefinite lives
Total intangible assets
––
$ 4,927
18,500
1,754
25,181
10,886
$36,067
$3,762
2,231
252
6,245
––
$6,245
$ 1,165
16,269
1,502
18,936
10,886
$29,822
$ 4,927
4,640
555
10,122
8,846
$18,968
$3,438
1,145
170
4,753
––
$4,753
$ 1,489
3,495
385
5,369
8,846
$14,215
The amortization of intangible assets for the years ended July 2, 2006, July 3, 2005 and June 27, 2004 was $1.6 million, $0.8
million, and $0.6 million, respectively. Future estimated amortization expense is as follows: 2007 - $4.0 million, 2008 - $4.0 million,
2009 - $3.9 million, 2010 - $3.8 million, and 2011 - $2.9 million, and thereafter - $0.3 million.
Note 7. Property, Plant and Equipment
Note 8. Long-Term Debt
July 2,
2006
July 3,
2005
(inthousands)
Land
Building and building improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Telecommunication equipment
Software
$
2,516
16,409
20,474
5,182
18,346
51,449
8,344
51,086
173,806
$
2,516
16,255
16,891
3,971
14,979
44,796
7,008
43,872
150,288
Accumulated depreciation and
amortization
114,074
$ 59,732
99,814
$ 50,474
Term loan and revolving
credit line (1)
Commercial note (2)
Other
Obligations under capital
leases (see Note 14)
Less current maturities of
long-term debt and obligations
under capital leases
July 2,
2006
July 3,
2005
(in thousands)
$85,000
2,942
23
458
88,423
$
––
4,152
46
1,746
5,944
10,360
$78,063
2,597
$3,347
(1) Term loan and revolving credit line - In order to
finance the acquisition of Fannie May Confections
Brands, on May 1, 2006, the Company entered into a
$135.0 million secured credit facility with JPMorgan
Chase Bank, N.A., as administrative agent, and a group
of lenders (the “2006 Credit Facility”). The 2006 Credit
Facility includes an $85.0 million term loan and a $50.0
million revolving facility, which bear interest at LIBOR
(5.33%) plus 0.625% to 1.125%, with pricing based upon
the Company’s leverage ratio (5.96% at July 2, 2006). At
closing, the Company borrowed $85.0 million of the term
facility to acquire all of the outstanding capital stock of
Fannie May Confections Brands. The Company is
required to pay the outstanding term loan in escalating
quarterly installments, with the final installment payment
due on May 1, 2012. The 2006 Credit Facility contains
various conditions to borrowing, and affirmative and
20
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
negative financial covenants. Concurrent with the
establishment of the 2006 Credit Facility, the Company’s
previous $25.0 million revolving credit facilities were
terminated. The obligations of the Company and its
subsidiaries under the 2006 Credit Facility are secured by
liens on all personal property of the Company and its
subsidiaries. No amounts were outstanding under the
revolving credit facility at July 2, 2006.
(2) Commercial note - Bank note relating to obligations
arising from, and collateralized by, the underlying assets of
the Company’s Plow & Hearth facility in Madison, Virginia.
The note, dated June 27, 2003, in the amount of $6.6
million, bears interest at 5.44% per annum, and resulted
from the consolidation and refinancing of a series of fixed
and variable rate mortgage and equipment notes. The note
is payable in 60 equal monthly installments of principal
and interest commencing August 1, 2003, of which $2.9
million is outstanding at July 2, 2006.
As of July 2, 2006, long-term debt maturities, exclud-
ing amounts relating to capital leases, are as follows:
Year Debt Maturities
2007
2008
2009
2010
2011
Thereafter
(inthousands)
$ 9,913
9,967
12,835
12,750
17,000
25,500
$87,965
Note 9. Income Taxes
Significant components of the income tax provision
(benefit) are as follows:
Years Ended
July 2,
2006
July 3, June 27,
2005 2004
(inthousands)
$
351
655
1,006
$
308
388
696
$
677
923
1,600
Current provision:
Federal
State
Deferred provision (benefit):
Federal
State
Income tax
2,120
55
2,175
3,313 (15,796)
(4,980)
1,389
(20,776)
4,702
provision (benefit)
$
3,181
$ 5,398
$ (19,174)
A reconciliation of the U.S. federal statutory tax rate to
the Company’s effective tax rate is as follows:
Years Ended
July 2,
2006
35.0%
July 3, June 27,
2005 2004
35.0%
35.0%
Tax at U.S. statutory rates
State income taxes, net
of federal tax benefit
Non-deductible share-based
compensation
Non-deductible goodwill
7.3
8.5
amortization
2.2
(5.0)
Tax credits
Tax settlements
––
Change in tax rates ––
Change in valuation
8.7
––
1.5
––
––
––
2.8
––
.5
––
2.7
4.2
allowance
Other, net
––
2.0
50.0%
––
(4.5)
40.7%
(140.1)
6.7
(88.2)%
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts
of assets and liabilities for financial reporting pur-
poses and the amounts used for income tax purposes.
The significant components of the Company’s
deferred income tax assets (liabilities) are as follows:
Years Ended
July 2,
2006
July 3, June 27,
2005 2004
(in thousands)
Deferred income tax assets:
Net operating loss
carryforwards
Accrued expenses
and reserves
$25,963
$23,742
$27,878
7,423
3,965
3,463
Deferred income tax liabilities:
Other intangibles
Installment sales
Tax in excess of
(9,285)
(25)
––
(34)
––
(39)
book depreciation
(425)
(293)
(1,291)
Net deferred
income tax assets
$23,651
$27,380
$30,011
At June 27, 2004, management of the Company
reassessed the valuation allowance previously estab-
lished against its net deferred income tax assets. Based on
the Company’s earnings history and projected future
taxable income, management determined that it is more
likely than not that the deferred income tax assets would
be realized. Accordingly, the Company removed the
valuation allowance of approximately $30.0 million from its
deferred income tax assets resulting in the recognition of
an income tax benefit of approximately $20.8 million, a
21
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
reduction of goodwill of approximately $3.1 million, related
to the acquired net operating losses of GreatFood.com,
and an increase in additional paid-in-capital of approxi-
mately $6.1 million related to income tax benefits associ-
ated with employee stock option exercises.
At July 2, 2006, the Company’s federal and state net
operating loss carryforwards were approximately $63.4
million, which, if not utilized, will begin to expire in fiscal
year 2020.
Note 10. Capital Stock
Holders of Class A common stock generally have
the same rights as the holders of Class B common
stock, except that holders of Class A common stock
have one vote per share and holders of Class B
common stock have 10 votes per share on all matters
submitted to the vote of stockholders. Holders of Class
A common stock and Class B common stock generally
vote together as a single class on all matters presented
to the stockholders for their vote or approval, except as
may be required by Delaware law. Class B common
stock may be converted into Class A common stock at
any time on a one-for-one share basis. Each share of
Class B common stock will automatically convert into
one share of Class A common stock upon its transfer,
with limited exceptions.
On May 12, 2005, the Company’s Board of Directors
increased the Company’s authorization to repurchase
the Company’s Class A common stock up to $20
million, from the previous authorized limit of $10 million.
Any such purchases could be made from time to time in
the open market and through privately negotiated
transactions, subject to general market conditions. The
repurchase program will be financed utilizing available
cash. As of July 2, 2006, the Company had repur-
chased 1,510,050 shares of common stock for $11.1
million, $1.3 million (182,000 shares) of which was
repurchased during the fiscal year ending July 2, 2006,
and $9.8 million (1,328,050 shares) was repurchased
during the fiscal year ending July 3, 2005.
Note 11. Stock Based Compensation
In December 2003, the Company’s Board of Directors
and shareholders approved the 1-800-FLOWERS.COM
2003 Long Term Incentive and Share Award Plan (the
“Plan”). The Plan is a broad-based, long-term incentive
program that is intended to attract, retain and motivate
employees, consultants and directors to achieve the
Company’s long-term growth and profitability objectives,
and therefore align stockholder and employee interests.
The Plan provides for the grant to eligible employees,
consultants and directors of stock options, share apprecia-
tion rights (“SARs”), restricted shares, restricted share
units, performance shares, performance units, dividend
equivalents, and other share-based awards (collectively
“Awards”). The Plan reserves 7,500,000 shares of
Common Stock, which is approximately the amount of
shares which had been previously available for issuance
under the Company’s 1999 Stock Incentive Plan. No further
awards will be issued under the 1999 Stock Incentive Plan.
During a calendar year i) the maximum number of shares
with respect to which options and SARs may be granted to an
eligible participant under the Plan will be 1,000,000 shares,
and ii) the maximum number of shares with respect to which
Awards intended to qualify as performance-based compen-
sation other than options and SARs may be granted to an
eligible participant under the Plan will be 500,000 shares.
The Plan is administered by the Compensation Commit-
tee or such other Board committee (or the entire Board) as
may be designated by the Board (the “Committee”). Unless
otherwise determined by the Board, the Committee will
consist of two or more members of the Board who are non-
employee directors within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934 and “outside directors”
within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended. The Committee will
determine which eligible employees, consultants and
directors receive awards, the types of awards to be received
and the terms and conditions thereof. The Chief Executive
Officer shall have the power and authority to make Awards
under the Plan to employees and consultants not subject to
Section 16 of the Exchange Act, subject to limitations
imposed by the Committee.
At July 2, 2006, the Company has reserved approxi-
mately 15.1 million shares of common stock for issuance,
including options previously authorized for issuance
under the 1999 Stock Incentive Plan.
Stock Options Plans
The weighted average fair value of stock options on the
date of grant, and the assumptions used to estimate the fair
value of the stock options using the Black-Scholes option
valuation model, were as follows:
Years Ended
July 2,
2006
July 3, June 27,
2005 2004
Weighted average fair
value of options granted
Expected volatility
Expected life (in years)
Risk-free interest rate
Expected dividend yield
$3.16
46%
5.3
4.6%
0.0%
$4.44
61%
5.0
3.8%
0.0%
$5.99
68%
5.0
3.6%
0.0%
The expected volatility of the option is determined
using historical volatilities based on historical stock
prices. The expected life of options granted in fiscal
2005 was based on the Company’s historical share
option exercise experience. Due to minimal exercising
of stock options, in fiscal 2006, the Company estimated
the expected life of options granted to be the average of
the Company’s historical expected term from vest date
and the midpoint between the average vesting term and
the contractual term. The risk-free interest rate is
determined using the yield available for zero-coupon
U.S. government issues with a remaining term equal to
the expected life of the option. The Company has never
paid a dividend, and as such the dividend yield is 0.0%.
22
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following table summarizes stock option activity during the year ended July 2, 2006:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price
Term
Value (000s)
Outstanding at July 3, 2005
Granted
Exercised
Forfeited/Expired
Outstanding at July 2, 2006
Options vested or expected to
vest at July 2, 2006
Exercisable at July 2, 2006
9,477,461
1,312,500
(124,162)
(562,308)
10,103,491
9,850,505
6,480,678
$8.35
$6.65
$4.50
$9.90
$8.09
$8.12
$8.74
5.8 years
0.5 years
4.7 years
$5,255
$5,254
$5,253
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between the company’s closing stock price on the last trading day of fiscal 2006 and the exercise price, multiplied
by the number of in-the-money options) that would have been received by the option holders had all option holders
exercised their options on July 2, 2006. This amount changes based on the fair market value of the company’s stock.
The total intrinsic value of options exercised for the year ended July 2, 2006 and July 3, 2005 was $0.3 million and
$0.7 million, respectively.
The following table summarizes information about stock options outstanding at July 2, 2006:
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 - 4.50
$
5.50 - 6.52
$
$
6.53 - 8.45
$ 8.47 - 12.87
$ 12.95 - 21.00
2,708,547
2,463,695
2,020,650
2,256,003
654,596
10,103,491
3.9 years
7.3 years
8.1 years
5.2 years
3.3 years
5.8 years
$ 3.83
$ 6.42
$ 7.42
$12.17
$19.97
$ 8.09
2,708,547
355,303
517,369
2,244,863
654,596
6,480,678
$ 3.83
$ 6.40
$ 6.84
$12.18
$19.97
$ 8.73
As of July 2, 2006, the total future compensation cost
related to nonvested options not yet recognized in the
statement of income was $7.2 million and the weighted
average period over which these awards are expected to
be recognized was 1.5 years.
The Company grants shares of Common Stock to its
employees that are subject to restrictions on transfer and
risk of forfeiture until fulfillment of applicable service
conditions and, in certain cases, holding periods (Re-
stricted Stock). In fiscal 2005, the Company recorded the
grant date fair value of unvested shares of Restricted
Stock as unearned stock-based compensation (“Deferred
Compensation”). In accordance with SFAS No. 123(R), in
fiscal 2006, the Company reclassified the balance of
Deferred Compensation against additional paid-in
capital, and reduced its shares of Class A Common Stock
issued accordingly.
The following table summarizes the activity of non-
vested restricted stock during the year ended July 2, 2006:
Weighted
Average
Grant Date
Shares Fair Value
155,919
168,399
(9,500)
(21,137)
293,681
$8.39
$6.59
$7.09
$9.23
$7.44
Non-vested at July 3, 2005
Granted
Vested
Forfeited
Non-vested at April 2, 2006
The fair value of nonvested shares is determined
based on the closing stock price on the grant date. As of
July 2, 2006, there was $1.2 million of total unrecognized
compensation cost related to non-vested restricted stock-
based compensation to be recognized over a weighted-
average period of 2.5 years.
23
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
cost of approximately $18.0 million and $17.9 million at
July 2, 2006 and July 3, 2005, respectively, and accumu-
lated amortization of $17.9 million and $17.1 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 classified as operating
leases, are classified as capital leases and have initial
lease terms of approximately 20 years (including option
periods in some cases).
During fiscal 2001, the Company entered into a $5.0
million equipment lease line of credit with a bank. Interest
under this line, which is renewable annually, is deter-
mined on the date of each commitment to borrow and is
based on the bank’s base rate on such date. At July 2,
2006, approximately $0.3 million is outstanding, and no
further borrowings are permitted under this lease line
unless it is renewed by the Company and the lending
bank. 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 commenc-
ing in February 2001. Borrowings under the line are
collateralized by the underlying equipment purchased
and an equal amount of pledged investments.
As of July 2, 2006, future minimum payments under
non-cancelable capital lease obligations and
operating leases with initial terms of one year or more
consist of the following:
Obligations
Under
Capital Operating
Leases Leases
(in thousands)
2007
2008
2009
2010
2011
Thereafter
Total minimum lease payments
Less amounts representing interest
Present value of net minimum
lease payments
$ 409
23
13
13
13
18
$ 489
(31)
$ 458
$ 9,666
8,734
7,040
4,908
4,436
27,653
$62,437
Note 12. Employee Stock Purchase Plan
In December 2000, the Company’s Board of Director’s
approved the 1-800-FLOWERS.COM, Inc. 2001 Employee
Stock Purchase Plan (ESPP), a non-compensatory
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, 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
ESPP was terminated effective as of June 30, 2005.
Note 13. 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 contri-
butions 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 $0.4 million, $0.3
million, and $0.3 million, for the years ended July 2, 2006,
July 3, 2005 and June 27, 2004, respectively.
Note 14. Commitments and
Contingencies
Leases
The Company currently leases office, store facilities,
and equipment under various operating leases through
fiscal 2019. As these leases expire, it can be expected that
in the normal course of business they will be renewed or
replaced. Most lease agreements contain renewal options
and rent escalation clauses and require the Company to
pay real estate taxes, insurance, common area mainte-
nance and operating expenses applicable to the leased
properties. The Company has also entered into leases that
are on a month-to-month basis. All leases and subleases
with an initial term of greater than one year are accounted
for under SFAS No. 13, Accounting for Leases. These
leases are classified as either capital leases, operating
leases or subleases, as appropriate.
The Company leases certain computer, telecommuni-
cation and related equipment under capital leases, which
are included in property and equipment with a capitalized
24
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
At July 2, 2006, 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:
2007
2008
2009
2010
2011
Thereafter
Sublease Sublease
Income Expense
(in thousands)
$2,120
1,546
1,234
808
494
574
$6,776
$2,120
1,546
1,234
808
494
574
$6,776
Rent expense was approximately $13.7 million, $9.7
million, and $8.9 million for the years ended July 2, 2006,
July 3, 2005 and June 27, 2004, respectively.
Litigation
There are various claims, lawsuits, and pending
actions against the Company and its subsidiaries
incident to the operations of its businesses. It is the
opinion of management, after consultation with counsel,
that the ultimate resolution of such claims, lawsuits and
pending actions will not have a material adverse effect on
the Company’s consolidated financial position, results of
operations or liquidity.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
1-800-FLOWERS.COM, Inc. and Subsidiaries
We have audited the accompanying consolidated
balance sheets of 1-800-FLOWERS.COM, Inc. and
Subsidiaries (the “Company”) as of July 2, 2006 and
July 3, 2005, and the related consolidated statements of
income, stockholders’ equity, and cash flows for each of
the three years in the period ended July 2, 2006. 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 the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
and Subsidiaries at July 2, 2006 and July 3, 2005, and
the consolidated results of its operations and its cash
flows for each of the three years in the period ended
July 2, 2006, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial
statements the Company adopted Statement of Financial
Accounting Standards No. 123(R), “Share-Based
Payment,” as revised, effective July 4, 2005.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of 1-800-
FLOWERS.COM, Inc.’s internal control over financial
reporting as of July 2, 2006, based on criteria established
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission and our report dated September 13, 2006
expressed an unqualified opinion thereon.
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.
Melville, New York
September 13, 2006
25
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for
establishing and maintaining adequate internal control
over financial reporting. Internal control over financial
reporting is defined in Rules 13-a-15(f) and 15d-15(f)
under the Exchange Act as a process designed by, or
under the supervision of, the Company’s principal execu-
tive and principal financial officers and effected by the
Company’s board of directors, management and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with U.S. generally accepted accounting principles and
includes those policies and procedures that:
• pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
• provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with
authorization of management and directors of the
Company; and
• provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the
Company’s internal control over financial reporting as of
July 2, 2006. In making this assessment, management
used the criteria established in “Internal Control-Inte-
grated Framework,” issued by the Committee of Sponsor-
ing Organizations of the Treadway Commission (COSO).
Based on this assessment, management believes
that, as of July 2, 2006 the Company’s internal control
over financial reporting is effective.
The Company acquired Fannie May Confections
Brands, Inc. on May 1, 2006, and has excluded the acquired
company from its assessment of and conclusion on the
effectiveness of internal control over financial reporting. For
the year ended July 2, 2006, the acquired business
accounted for 0.7% of the Company’s total net revenue. As
of July 2, 2006, the acquired business accounted for 8.4%
of the Company’s total assets, excluding $75.5 million of
goodwill and other intangible asset amounts that were
recorded in connection with the acquisition.
Ernst & Young LLP, the Company’s independent
registered public accounting firm, has issued a report on
management’s assessment and the effectiveness of the
Company’s internal control over financial reporting, as of
July 2, 2006; their report is included in Item 9A.
James F. McCann
Chief Executive Officer
Chairman of the Board of Directors
(Principal Executive Officer)
William E. Shea
Senior Vice President Finance and Administration
(Principal Financial and Accounting Officer)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of 1-800-
FLOWERS.COM, Inc. and Subsidiaries
We have audited management’s assessment, included
in the accompanying Management’s Report on Internal
Control Over Financial Reporting, that 1-800-
FLOWERS.COM, Inc. and Subsidiaries (the “Company”)
maintained effective internal control over financial report-
ing as of July 2, 2006, based on criteria established in
Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). 1-800-FLOWERS.COM,
Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assess-
ment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the
effectiveness of the company’s internal control over
financial reporting based on our audit.
26
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assur-
ance about whether effective internal control over
financial reporting was maintained in all material re-
spects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the
design and operating effectiveness of internal control,
and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is
Report of Independent Registered Public Accounting Firm (continued)
a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and disposi-
tions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the company are being made
only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As indicated in the accompanying Management’s
Report on Internal Control Over Financial Reporting,
management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did
not include the internal controls of Fannie May Confections
Brands, Inc., which are included in the Fiscal 2006 consoli-
dated financial statements of 1-800-FLOWERS.COM, Inc.
and Subsidiaries and constituted 8.4% of total assets as of
July 2, 2006, excluding $75.5 million of goodwill and other
intangible asset amounts recorded in connection with
these acquisitions, and 0.7% of revenues for the fiscal
year then ended. Our audit of internal control over
financial reporting of 1-800-FLOWERS.COM, Inc. and
Subsidiaries also did not include an evaluation of the
internal control over financial reporting of Fannie May
Confections Brands, Inc.
In our opinion, management’s assessment that
1-800-FLOWERS.COM, Inc. and Subsidiaries maintained
effective internal control over financial reporting as of July
2, 2006, is fairly stated, in all material respects, based on
the COSO criteria. Also, in our opinion, 1-800-
FLOWERS.COM, Inc. and Subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of July 2, 2006, based on the COSO criteria.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets
of 1-800-FLOWERS.COM, Inc. and Subsidiaries as of
July 2, 2006 and July 3, 2005, and the related consoli-
dated statements of income, stockholders’ equity, and
cash flows for each of the three years in the period ended
July 2, 2006 and our report dated September 13, 2006
expressed an unqualified opinion thereon.
Melville, New York
September 13, 2006
Market for Common Equity and Related Stockholder Matters
Market Information
1-800-FLOWERS.COM’s Class A common stock
trades on The Nasdaq Stock Market under the ticker
symbol “FLWS.” There is no established public trading
market for the Company’s Class B common stock. The
following table sets forth the reported high and low sales
prices for the Company’s Class A common stock for each
of the fiscal quarters during the fiscal years ended July 2,
2006 and July 3, 2005.
High Low
Year ended July 2, 2006
July 4, 2005 – October 2, 2005
October 3, 2005 – January 1, 2006
January 2, 2006 – April 2, 2006
April 3, 2006 – July 2, 2006
Year ended July 3, 2005
$ 7.86
$ 7.65
$ 7.10
$ 7.90
June 28, 2004 – September 26, 2004
$ 9.64
September 27, 2004 – December 26, 2004 $ 8.95
$ 8.75
December 27, 2004 – March 27, 2005
$ 7.83
March 28, 2005 – July 3, 2005
$ 6.45
$ 5.83
$ 6.16
$ 5.39
$ 7.01
$ 7.44
$ 7.20
$ 6.52
27
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 8, 2006, there were approximately
266 stockholders of record of the Company’s Class A
common stock, although the Company believes that there
is a significantly larger number of beneficial owners. As
Market for Common Equity and Related Stockholder Matters(continued)
of September 8, 2006, there were approximately 18
stockholders of record of the Company’s Class B com-
mon stock.
Dividend Policy
Although the Company has never declared or paid any
cash dividends on its Class A or Class B common stock, the
Company anticipates that it will generate increasing free cash
flow in excess of its capital investment requirements. As
such, although the Company has no current intent to do so,
the Company may choose, at some future date, to use some
portion of its cash for the purpose of cash dividends.
Resales of Securities
39,931,543 shares of Class A and Class B common
stock are “restricted securities” as that term is defined in
Rule 144 under the Securities Act. Restricted securities
may be sold in the public market from time to time only if
registered or if they qualify for an exemption from
registration under Rule 144 or 701 under the Securities
Act. As of September 8, 2006, 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.
Purchases of Equity Securities by the Issuer
On May 12, 2005, the Company’s Board of Directors
increased the Company’s authorization to repurchase the
Company’s Class A common stock up to $20 million, from
the previous authorized limit of $10 million. Any such
purchases could be made from time to time in the open
market and through privately negotiated transactions,
subject to general market conditions. The repurchase
program will be financed utilizing available cash. As of July
2, 2006, the Company had repurchased 1,510,050 shares
of common stock for $11.1 million, of which $1.3 million and
$9.8 million was repurchased during the fiscal years ending
July 2, 2006 and July 3, 2005, respectively.
The following table sets forth, for the months indi-
cated, the Company’s purchase of Class A common stock
during the fiscal year ending July 2, 2006, which includes
the period July 4, 2005 through July 2, 2006.
Total Number of Dollar Value of
Shares Purchased Shares That May
Total Number as Part of Publicly Yet Be Purchased
of Shares Average Price Announced Plans Under the Plans
Period Purchased Paid Per Share or Programs or Programs
(inthousands, except average price paid per share)
7/4/05 - 7/31/05
8/1/05 - 8/28/05
8/29/05 - 10/2/05
10/3/05 - 10/30/05
10/31/05 - 11/27/05
11/28/05 - 1/1/06
1/2/06 - 1/29/06
1/30/06 - 2/26/06
2/27/06 - 4/2/06
4/3/06 - 4/30/06
5/1/06 - 5/28/06
5/29/06 - 7/2/06
Total
120.5
61.5
–
–
–
–
–
–
–
–
–
–
182.0
$7.19
$7.31
–
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
–
$
$
–
$7.23
120.5
61.5
–
–
–
–
–
–
–
–
–
–
182.0
$9,315
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
$8,863
1-800-FLOWERS.COM, Inc.
One Old Country Road, Suite 500
Carle Place, NY 11514
(516) 237-6000
STOCK EXCHANGE LISTING
NASDAQ Global Select Market
Ticker Symbol: FLWS
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 LLP
80 Pine Street
New York, NY 10005
(212) 701-3000
SHAREHOLDER INQUIRIES
Copies of the Company(cid:10)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 516-237-6113.
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
One Old Country Road, Suite 500
Carle Place, NY 11514
1-800-FLOWERS.COM, Inc.
One Old Country Road, Suite 500
Carle Place, NY 11514
(516)-237-6000