1-800-FLOWERS.COM, Inc.
2007 Annual Report
BONUS
2008 Calendar
Best in
Class
ABOUT 1-800-FLOWERS.COM, Inc.
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, confections and plush stuffed animals perfect for every occasion. Customers can “call, click or come in” to shop 1-800-FLOWERS.COM
24/7 at 1-800-356-9377 or www.1800flowers.com.
The 1-800-FLOWERS.COM collection of brands also includes home decor and children’s gifts from Plow & Hearth® (1-800-627-1712 or www.plowandhearth.com), Problem
Solvers® (www.problemsolvers.com), Wind & Weather® (www.windandweather.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 www.cherylandco.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, which provides quality products and diverse services to a select
network of florists. 1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ Global Select Market under ticker symbol FLWS.
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’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 integrate and manage its various brands; 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 2008 and general consumer sentiment and economic conditions that may affect levels
of discretionary customer purchases of the Company’s products. For a more detailed description of these and other risk factors, please refer to the Company’s SEC filings
including the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company expressly disclaims any intent or obligation to update any of the
forward looking statements made in this report or in any of its SEC filings except as may be otherwise stated by the Company.
Financial HigHligHts
Fiscal 2007 acHiEVEMEnts
Years Ended
JulY 1, JulY 2, JulY 3,
JunE 27,
2007 2006 2005 2004
JunE 29,
2003
(in millions, except percentages and per share data)
Total net Revenues
$912.6
$781.7
$670.7 $604.0 $565.6
Gross Profit Margin
43.0% 41.7%
41.1% 41.9% 42.6%
Operating Expense Ratio 37.2% 38.8%
EBITDA(1)
EPS (GAAP)
$ 0.26 $ 0.05
$ 57.4
$ 26.7
37.2%
$ 26.4
$ 0.12
35.8%
37.8%
$ 36.4
$ 27.5
$ 0.60(2) $ 0.18
• Grew EPS 420 percent to
$0.26 per diluted share
• Grew EBITDA(1) 115 percent
to $57.4 million
• Grew Revenues 16.7 percent, or
$130.9 million, to $912.6 million
• Increased Gross Profit Margin
130 basis points to 43 percent
• Reduced Operating Expense Ratio
160 basis points to 37.2 percent
(1) Earnings Before Interest, Taxes, Depreciation and Amortization; excludes accounting for effect of stock-based compensation; a reconciliation of
EBITDA to net income is included as part of the enclosed Financial Section.
(2) For the year ended June 27, 2004, EPS included a net income tax benefit of $19.2 million, or $0.28 per share and was prior to the adoption of FASB 123R.
Financial REPORt insERt
See inside rear-cover pocket.
tOtal REVEnUEs
Total Net Revenues (in millions)
EBITDA
$565.6
$27.5
$604.0
$36.4
$670.7
$26.4
$912.6
$57.4
$781.7
$26.7
FY03
FY04
FY05
FY06
FY07
catEgORY REsUlts
Gourmet Food
& Gift Baskets
Home &
Children’s Gifts
Bloomnet
Wire Service
FY06
$452.2
$196.9
$105
$29.9
$46.5
$7.1 $7.1
$6.8
Consumer
Floral
FY07
$491.4
$192.7
$186.9
$44.4
$26.4
$64.6
$14.2
($1.2)
$186.9
$491.4
Net Revenue
(in millions)
Category EBITDA(3)
(in millions)
Net Revenue
(in millions)
Category EBITDA(3)
(in millions)
(3) The Company defines Category EBITDA as earnings before interest, taxes, depreciation and
amortization and before allocation of corporate overhead expenses.
Fiscal 2007 was a very good year for our company; one in
which we achieved strong top- and bottom-line results repre-
senting significant returns on the investments that we made
in fiscal years 2005 and 2006. We are very pleased to have
delivered on the guidance that we provided a year ago which
called for solid revenue growth and increases in EBITDA and
EPS of more than 100 percent. To recap, for the year we:
s Grew revenues approximately 17 percent, or $131 million,
to $913 million,
s Increased Gross Profit Margin 130
basis points to 43 percent, and
Best in Class
The blue-ribbon icon that you will find
throughout the pages of this year’s annual
report is used to highlight the kind of “Best in
Class” performance that we are always striv-
ing to achieve in all aspects of our business.
Reinforcing this strategic imperative are our
Seeds of Success:
s BE CONSTRUCTIVE. Make and solicit
positive, constructive suggestions every day.
s BE POSITIVE. Teach others to have fun and
celebrate success each day. Use positive
language and reduce negative language
s BE PROMPT. Do it now...
Answer it now... Fix it now...
s BE OUTCOME FOCUSED. Find positive
lessons in every ad-
verse situation. Use
the past only for
positive lessons.
s BE REFLECTIVE.
Look for important
positive lessons.
What could you
have done to make something better?
s BE RELENTLESS IN SEEKING POSITIVE
INCREMENTAL IMPROVEMENT EVERY DAY!
We believe that adhering to these concepts will
help us enhance our performance-driven culture
– a culture that can build long-term value for
all “stakeholders” including our customers, asso-
ciates, business partners, vendors and investors.
s Improved Operating Expense Ratio 160 basis points
to 37.2 percent.
As a result, EBITDA (excluding stock-based compensation
expense) increased 115 percent to more than $57 million, and
EPS grew 420 percent to $0.26 per share. These results illus-
trate the substantial leverage we are driving in our operating
platform as well as the strength of our brands and marketing
programs in attracting a significant number of new customers
each year while concurrently deepening the relationships that
we have with our millions of existing customers.
Most important, these results were driven by strong
performance in our key business categories – Consumer Floral,
Bloomnet® Wire Service and Gourmet Food and Gift Baskets.
This, combined with contributions from our enterprise-wide
business process improvement initiatives, more than offset the
weaker performance of our Home and Children’s Gifts category.
tO OUR sHaREHOldERs
Strong Customer Metrics and ECV
A key element in growing our business, both top- and bot-
tom-line, is our ability to leverage our operating platform and
assets across all of our brands and businesses. Among our
most unique and important assets are the relationships we
have with our more than 25 million existing customers and
our ability to cost efficiently attract millions of new custom-
ers each year. In terms of customer metrics for fiscal 2007:
s We attracted approximately 3.5 million new cus-
tomers. The large majority of these customers came
to us online, through our flagship 1-800-FlOWERS.
COM brand. Importantly, we believe the strength of
the 1-800-FlOWERS.COM brand provides a distinct
advantage in customer acquisition cost compared with
most e-commerce and direct marketing competitors.
s More than 6.5 million e-commerce customers
placed orders with us, with repeat customers repre-
senting 48 percent of the total, up from 46 percent last
year. This reflects the success of our efforts to deepen
our relationships with our customers as their trusted
resource helping them express themselves and connect with
the important people in their lives.
One of our most important initiatives in this area last
year was the development of what we call ECV, or Enterprise
Customer Value, which promotes cross-brand market-
ing and merchandising efforts across our entire platform.
During the year we created an enterprise-wide customer
database and began using sophisticated software tools
to build highly targeted, cross-brand customer “models.”
These models significantly enhance the effectiveness of our
email and direct marketing programs and have proved very
effective in helping us introduce 1-800-FlOWERS.COM
customers to our Gourmet Food and Gift Basket brands,
including Cheryl&Co.® bakery gifts, Fannie May® and Harry
london® chocolates, The Popcorn Factory® and our new
1-800-BASKETS.COM® brand. As a result of these efforts
we are seeing improvements in all of our customer metrics,
including repeat rate, average order value, response and
conversion rates.
Leveraging the Enterprise Platform
In fiscal 2007 we began reporting specific results and operat-
ing metrics for our four business categories: Consumer
Floral, the Bloomnet wire service, Gourmet Food and Gift
Baskets and Home and Children’s Gifts. The brands within
each of these business categories leverage our enterprise op-
erating platform and assets to reduce operating costs while
driving both revenue growth and profitability. This “shared
services” concept, including centralized human resources, IT,
legal, Finance and Customer Service, among others, enables
our brand managers to focus the majority of their efforts on
growing their brands and deepening the relationships with
their customers.
Throughout the year, the business process improvement
initiatives that we implemented beginning in the second half
of fiscal 2006 began to pay off with significant cost savings.
This was achieved by leveraging our growing scale to consoli-
date costs and significantly improve operating efficiencies.
These savings and efficiencies – which can be seen in both
gross margin and operating expense improvements – have
been “institutionalized” so that they are part of our ongoing
operations in fiscal 2008 and the future. Importantly, these
programs are still in their early stages and we see significant
opportunities for further operating efficiencies going for-
ward. In terms of our business categories:
Consumer Floral – Expanding the Competitive Gap
During fiscal 2007, we grew our core 1-800-FlOWERS.COM
floral category nearly nine percent to more than $490 million.
Importantly, this growth significantly outpaced that of our
closest floral competitors and, coming on the largest base of
business in the industry, allowed us to further expand our
market leadership position.
During fiscal 2007 we saw strong customer response to
our enhanced merchandise offerings, particularly exten-
sions of our signature products such as the hugely successful
Happy Hour Collection and its offspring – the Happy Hour
Minis. This positive response, combined with our successful
efforts to increase order add-on rates and rationalize under-
performing skus, enabled us to increase average order value
and drive higher gross profit margins.
Continuing these efforts, we recently announced our
most exciting partnership to date – teaming up with Martha
Stewart living Omnimedia, Inc., to create an exclusive
co-branded floral, plant and gift basket program called
Martha Stewart for 1-800-Flowers.comSM. The program will
launch in the spring of 2008 leveraging the best of both
brands – lifestyle icon Martha Stewart’s unparalleled design
talent with our company’s deepening relationships with our
millions of customers and our unique same-day, any-day
distribution capabilities.
BloomNet – Changing the Wire Service Industry
launched in January 2005, the Bloomnet wire service
emerged from its investment phase at the end of last year and
began providing strong top and bottom-line contributions in
fiscal 2007. For the year, revenues increased approximately 50
percent to more than $44 million and category contribution
margin grew nearly 100 percent to more than $14 million.
These results illustrate the tremendous success of Bloomnet’s
“market disrupter” strategy which has enabled us to gain mar-
ket share by providing florists with a superior value proposi-
tion. This includes Bloomnet’s unique tiered pricing structure
in which florists’ fees are tied directly to the volume of orders
they receive from Bloomnet. In addition, Bloomnet has de-
veloped a best-in-class suite of products and services designed
to help florists grow their businesses profitably. Examples of
these, introduced in fiscal 2007, include the Bloomnet Floral
Selection Guide, Website Hosting service, a comprehensive
technology platform for retail store management and the
industry’s first and only digital florist directory, the Bloomnet
Directory Online.
Florists throughout the country have enthusiastically
embraced the Bloomnet value proposition. As a result, the
Bloomnet team has created what we believe is the very best
quality network in the industry – and did it ahead of our
original plan. As such, last year we began to shift our focus
from growing the network to deepening our relationship with
our existing members… helping them not just survive in a
contracting marketplace, but to thrive. Toward this end, dur-
ing fiscal 2007, Bloomnet began to capture a growing share of
the order volume sent between florists. When combined with
the 1-800-FlOWERS.COM order volume, Bloomnet florists
are now uniquely positioned to benefit from our industry
leading growth in order volume.
Gourmet Food and Gift Baskets – Delicious Results
During fiscal 2007 our Gourmet Food and Gift Baskets busi-
ness grew more than 80 percent, or nearly $90 million, to
$193 million. This growth included a strong contribution
from our Fannie May Confections business, acquired in April,
2006. Combined with our Cheryl & Co. bakery gifts, novelty
food gifts from The Popcorn Factory and our recently re-
launched 1-800-BASKETS.COM business, we have quickly
become one of the leading players in this fast growing gift
category. Our customers continue to tell us – through their
buying patterns and market surveys– that gourmet food
gifts are an excellent way to help them connect with the
important people in their lives for a broad range of celebra-
tory occasions. Recent industry research indicates that this
category represents more than $5 billion in annual sales
with solid double-digit growth and strong profit margins.
Importantly, the category is largely fragmented, with few
large, dominant players. Through a combination of internal
development and strategic acquisitions, we believe we are
positioned to become the leading provider of gourmet food
gifts for our customers.
Home and Children’s Gifts – Restructured and Refocused
Fiscal 2007 performance in this category was significantly
below our expectations. Revenues for the year declined 5
percent to $187 million. More important, category contribu-
tion margin declined more than 100 percent to a loss of
$1.2 million compared with fiscal 2006. These results reflect
both macro market conditions related to the weak housing
sector as well as our own internal missteps in both creative
and merchandising as we attempted to expand the category
with the introduction of two new stand-alone titles.
During the year we took aggressive steps to address the
weak performance in this category. Beginning in January, we
changed senior management and initiated a comprehensive
review of the business. Since that time, we have made prog-
ress in implementing changes that are beginning to provide
benefits in the form of improved customer response rates
and lower operating costs. Among these efforts:
s We strengthened the management team, particularly
in the areas of Creative and Merchandising.
s We revised catalog circulation and marketing
programs, and
s We stepped up product development and sourcing
efforts with a focus on unique, proprietary products
and adjusted promotional pricing strategies to enhance
gross margins.
During fiscal 2008, we believe the changes we have made
will enable us to operate this business profitably on our plan
for flat revenues.
Looking Ahead – Building Momentum
As we look ahead into fiscal 2008 and beyond, we plan to
build on the momentum that we have created. For fiscal
2008 we anticipate continued strong revenue growth in our
key business categories – Consumer Floral, Bloomnet Wire
Service and Gourmet Food and Gift Baskets. This will be
somewhat offset by the planned flat revenues in our Home
and Children’s Gifts business that we mentioned earlier in this
letter. As a result, we anticipate organic revenue growth for
the year in a range of 7-to-9 percent.
Also during the year, we expect to achieve further
improvements in gross profit margin and operating expense
ratio through a combination of sourcing, product mix and
ongoing business process improvement initiatives. Com-
bined with the anticipated revenue growth, we expect this to
result in EBITDA growth of 20-to-25 percent and EPS growth
of 30-to-35 percent for the year.
longer term, we see our growth paths in terms of both
“symmetrical” and “asymmetrical” opportunities. We will
continue to grow symmetrically in our three key business
categories by:
s leveraging our operating platform and collection of
unique assets,
s Birthing new businesses and product-line extensions,
such as the tremendously successful Bloomnet wire
service, and
s Expanding our offerings through strategic acquisitions
We will also continue to explore asymmetrical growth
opportunities – constantly researching, testing and, when
appropriate, embracing new technologies, new social trends
and new ways of looking at our existing businesses so that
we can extend our position as a leading e-commerce com-
pany. This focus is, frankly, part of our “DnA” and a key to
our future success.
We believe that the combination of symmetrical and
asymmetrical growth strategies, along with leveraging our
operating model and assets to reduce costs and enhance prof-
itability, will enable us to build long-term shareholder value.
We thank all of our stakeholders for their continued support.
Sincerely,
Jim McCann
Chairman and CEO
Chris McCann
President
1-800-FLOWERS.COM’S
Integrated Marketing
Strategy is boosting
brand exposure
and expanding
sales growth
Best in
Class
Integrated
Marketing
During fiscal 2007,
1-800-FlOWERS.COM
utilized its diverse integrated
marketing capabilities to
successfully launch an
exciting new collection of
“Happy Hour” floral
products. The Company’s
integrated promotional
strategy encompassed both
on-line and off-line marketing
communication channels
including banner ads,
website features, e-mail,
search, radio, out-of-home
advertising, public relations,
direct mail and retail.
This integrated approach
has resulted in signifi-
cantly increased exposure of
1-800-flowers.com® branded
products as well as improved
customer conversion
and repeat metrics.
January/2008
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Striving for Customer
Service Excellence
results in the prestigious
“Call Center of the Year”
Award
Best in
Class
Customer
Service
1-800-FlOWERS.COM has
been recognized for its
customer service excellence
numerous times by industry
associations. Among the most
prestigious honors received
was being named “Call Center
of the Year” by the International
Customer Management
Institute (ICMI). Each year,
the award cites the very best
call centers within ICMI’s
worldwide membership
community. The responsiveness,
knowledge and commitment
of 1-800-FlOWERS.COM’S
Best in Class customer service
professionals play a pivotal
role in fostering customer
satisfaction, resulting in a high
degree of repeat business.
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The innovative
BloomNet guide is
both a comprehensive
training package and
an essential marketing
tool for retail florists
Best in
Class
BloomNet®
Floral Selection
Guide
March/2008
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Bloomnet is a preferred wire
service provider offering
products and services to a
select network of profes-
sional retail florists. In fiscal
2007, Bloomnet introduced
“expressions of flowersTM,”
one of the industry’s most
innovative floral selection
guides – containing more
than 250 forward-trending
arrangements. Each of the
arrangements can be easily
recreated by Bloomnet
florists, satisfying a wide
array of customer needs.
Also included in the guide
are many tips and insights.
The new guide has quickly
become an essential market-
ing tool for Bloomnet’s high
quality member florists.
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Fresh Rewards®
Loyalty Program
attracts high value
customers at efficient
marketing cost
Best in
Class
Loyalty
Program
As a way of rewarding
loyal customers and to
stimulate everyday gifting,
1-800-FlOWERS.COM
created “Fresh Rewards®” –
the only loyalty program
in the e-commerce floral
category. Members make
purchases and earn points
toward gift certificates. More
than one million customers,
including a significant
number of first-time buyers,
have signed up to be Fresh
Rewards members. Key busi-
ness benefits of the program
include improved customer
metrics: higher average
purchases, higher repeat
rates, higher retention and
more purchases across the
Company’s broad range of
products and brands.
April/2008
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BloomNet’s online
directory is the
industry’s first,
enabling instant
access to the
best-qualified
florists
Best in
Class
BloomNet®
Digital
Directory
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With the introduction of the
floral industry’s first digital
directory, the Bloomnet wire
service has made it more
convenient than ever for
Bloomnet member florists
to find the right floral shop
to fulfill their customer
orders. using the intuitive
digital directory, Bloomnet
florists can search and locate
order-fulfilling florists by
zip code, city, state, floral
specialties and several other
criteria. After reviewing
qualifications and selecting
the best-matched florist
for their customer, the
Bloomnet florist simply
clicks and sends the order
through the secure web-
based “Bloomlink” network.
And, since it’s another
Bloomnet shop filling the
order, they can be confident
of the highest quality in the
floral industry.
Fueling growth by
“talenting up,”
1-800-FLOWERS.COM
helps its most
important resource –
its people – make the
most of their careers
Best in
Class
Professional
Development
1-800-FlOWERS.COM’s
innovative “Fresh university”
is an internal educational
arm providing professional
and personal development
for all of the Company’s
associates, enterprise-wide.
The program’s curriculum
focuses on building
teamwork and teaching
leadership skills that associ-
ates can utilize in advancing
their careers. The curriculum
also offers courses and
workshops in several other
key areas including sales,
conflict resolution and
computer training. Since
the program’s inception,
thousands of associates have
received more than 35,000
hours of instruction.
June/2008
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Leading-edge order
processing is
supported by
state-of-the-art
customer service
centers
Best in
Class
Technology
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10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
29
30
6
7
1
8
2
9
3
4 Independence Day
5
10
11
12
13
14 Bastille Day
15
16
17
18
19
20
21
22
23
24
25
26
27 Parents’ Day
28
29
30
31
1
2
As a pioneer and leader in
the e-commerce market,
1-800-FlOWERS.COM
employs cutting edge
technology anchored by a
proprietary order process-
ing system. The Company’s
scalable and redundant
technology supports the
high volume of transactions
processed through online
and telephonic sales
channels and provides
robust reliability during peak
demand periods.
Furthermore, the Com-
pany’s content-rich website
(www.1800flowers.com) is
continually updated and
incorporates the most
advanced search and person-
alization capabilities. The site
is also supported by
state-of-the-art customer
service centers featuring
keyboard-to-keyboard chat
messaging, “click-to-talk”
capability and e-mail.
Distinctive packaging
and personalization
capabilities convey
the perfect sentiment
for any gifting
occasion
Best in
Class
Gift Packaging
August/2008
July/2008
S M T W T F S
2 3 4 5
1
6 7 8
9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31
1 2
September/2008
S M T W T F S
3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
Two of our most exciting
gourmet food gift brands,
Cheryl&Co.® and The
Popcorn Factory®, offer an
expansive choice of packag-
ing possibilities designed to
convey almost any gifting
sentiment. Cheryl&Co.
baked gifts are available in
special configurations as well
as with elegant satin ribbons
that can be customized for
specific occasions and recipi-
ents. To enhance presentation
and protect peak freshness,
Cheryl&Co. cookies are
individually wrapped. The
Popcorn Factory’s collect-
ible tins are famous for their
beautiful seasonal graphics.
now tins can also be custom-
ized with recipient names,
personal messages, company
logos and just about
anything else the customer
has in mind, including the
latest innovation, uploadable
photographs for personalized
gift cards.
27
28
29
30
31
3
4
5
6
7
1
8
2
9
10
11 National Friendship
Week Begins
12
13
14
15
16
17
18
19
20
21
22
23
25
26
27
28
29
30
24
31
“Giving back”
is a priority for
the Company,
exemplified by two
programs benefiting
veterans and
students
Best in
Class
Community
Involvement
September/2008
August/2008
S M T W T F S
1 2
3 4 5
6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31
October/2008
S M T W T F S
1 2 3 4
5 6 7
8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
31
1 Labor Day
7 Grandparent’s Day
8
2
9
3
4
5
6
10
11 Patriot Day
12
13
14
15
16
17
18
19
20
21
22 First Day of Fall
23
24
25
26
27
28
29 Rosh Hashanah
Begins at Sunset
30
1
2
3
4
Working directly with
the armed services and
local government,
1-800-FlOWERS.COM has
initiated a program that
provides military veterans
and their family members
with business-skills train-
ing designed to ease their
entry into the private sector
economy. The Company’s
Military Assistance Plan
offers training in resume
writing, computer skills, job-
interview techniques and
sales strategies, among other
courses. The Company also
offers a rapidly expanding
Executive Intern Program
that gives hundreds of
college students from
around the country an
opportunity to gain hands-
on experience in such areas
as developing marketing
programs, merchandising,
information technology,
and more.
Thoughtful gift ideas,
backed by
unparalleled
service, make
1-800-FLOWERS.COM
a trusted business
gift-giving expert
Best in
Class
Business
Gift Services
For more than 30 years,
1-800-FlOWERS.COM has
helped businesses thank
their clients, celebrate
success and reward team
members. The Company
delivers a unique propo-
sition: a broad range of
options not offered by
other gift vendors, enabling
customers to send distinctly
different gifts on various
occasions. Among the most
popular business gifts are
gourmet food and gift basket
items from The Popcorn
Factory®, Cheryl&Co.® and
1-800-BASKETS.COM®. Each
product can be customized
to include company logos,
recipient names, or special
business messages.
October/2008
1 2
September/2008
S M T W T F S
3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30
November/2008
S M T W T F S
1
2 3 4
5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
28
29
30
1
2
3
4
5
6
7
8 Yom Kippur Begins at Sunset 9
10
11
12 National Children’s Day
13 Columbus Day (Observed) 14
15
16 National Bosses’ Day
17
18 Sweetest Day
19
20
21
22
23
24
25
26
27
28
29
30
31 Halloween
1
Unique floral
arrangements
and gifts are the
“signature” of
1-800-FLOWERS.COM
Best in
Class
Merchandising
2
9
1-800-FlOWERS.COM
constantly strives to bring
product innovation to the
floral marketplace. During
fiscal 2007, the Company’s
highly successful “Happy
Hour” collection featuring
beautiful bouquets in
whimsical giant cocktail
glasses led to the birth of
the new “Minis” – pint-sized
versions of the Happy Hour
collection great for everyday
connective occasions. Also
new to the floral category
is the “Fields of the World”
collection, combining unique
and often exclusive floral va-
rieties sourced directly by the
Company from farms around
the world. 1-800-FlOWERS.
COM also offers exclusively-
designed containers and
vases, along with hand
crafted arrangements from
expert floral designers such
as Preston Bailey, Jane Carroll,
Julie Mulligan and Jane Packer.
November/2008
October/2008
S M T W T F S
1 2 3 4
5 6 7
8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
1 2
December/2008
S M T W T F S
3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
26
27
28
29
30
31
1
8
3
4 Election Day
5
6
7
10
11 Veteran’s Day
12
13
14
15
16
17
18
19
20
21
22
24
25
26
27 Thanksgiving Day
28
29
23
30
The Company’s
expanded Home Agent
network adds flexibility
for peak holiday
periods and increases
the already award
winning quality of its
customer service
Best in
Class
Home Agent
Network
To fulfill the increased
staffing requirements of busy
selling periods such as
Valentine’s Day, Mother’s
Day and Christmas,
1-800-FlOWERS.COM has
developed a highly
flexible and responsive
Home Agent network.
utilizing sophisticated call
routing technologies, the
Company is able to quickly
and efficiently scale up its
number of home-based
customer service agents as
well as its infrastructure to
meet peak holiday demands.
The expanding Home Agent
network has also increased
customer satisfaction and
repeat business by making
agents more readily available
to customers.
December/2008
November/2008
S M T W T F S
1
2 3 4
5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30
January/2009
S M T W T F S
1 2 3
4 5 6
7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31
Sunday
Monday
Tuesday
Wednesday Thursday
Friday
Saturday
30
7
1
8
2
9
3
4
5
6
10
11
12
13
14
15
16
17
18
19
20
21
Hanukkah Begins
at Sunset
First Day of Winter
22
23
24
25 Christmas Day
26 First Day of Kwanzaa
27
28
29
30
31
1
2
3
BOaRd OF diREctORs
cORPORatE OFFicERs
James F. McCann
Chairman and Chief
Executive Officer
1-800-FlOWERS.COM
Christopher G. McCann
President
1-800-FlOWERS.COM
Jan Murley
Consultant,
Consumer & Retail Practice
Kohlberg, Kravis, Roberts & Co.
Jeffrey C. Walker
Chairman & CEO
CCMP Capital Advisors, llC
James A. Cannivino
Chairman & CEO
Direct Insite, Inc.
leonard J. Elmore
Senior Counsel
leBoeuf, lamb,
Green and MacRae, llP
John J. Conefry
Vice Chairman
Astoria Financial Corporation
lawrence V. Calcano
Principal
Calcano Capital Advisors
James F. McCann
Chairman and Chief Executive 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
Gerard M. Gallagher
Senior Vice President of Business Affairs,
General Counsel and Corporate Secretary
1-800-FlOWERS.COM
Stephen Bozzo
Senior Vice President,
Chief Information Officer
1-800-FlOWERS.COM
Monica l. Woo
President, Consumer Floral Brand
1-800-FlOWERS.COM
Timothy J. Hopkins
President
Madison Brands
1-800-FlOWERS.COM
David Taiclet
Chief Executive Officer
Fannie May Confections Brands, Inc.
Fiscal Year 2007
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 and
The Winetasting Network in November 2004. The following financial data reflects the results of operations of these subsidiaries
since their respective dates of acquisition. 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 1, July 2, July 3, June 27, June 29,
2007 2006 2005 2004 2003
(in thousands, except per share data)
Consolidated Statement of Income Data:
Net revenues:
E-commerce (telephonic/online)
Other (retail/wholesale)
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
Other income (expense), net
Income before income taxes
Income tax expense (benefit)
Net income
Net income per common share:
Basic
Diluted
Shares used in the calculation of net
income per common share:
Basic
Diluted
$749,238
163,360
912,598
520,132
392,466
262,303
21,316
56,017
17,837
357,473
34,993
(5,984)
29,009
11,891
$ 17,118
$
$
0.27
0.26
$706,001
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
$620,831
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
$570,509
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)
$536,349
29,269
565,618
324,565
241,053
170,013
13,937
29,593
15,389
228,932
12,121
117
12,238
––
$ 3,187
$ 7,849
$ 40,904 $ 12,238
$
$
0.05
0.05
$
$
0.12
0.12
$
$
0.62
0.60
$ 0.19
$ 0.18
63,786
65,526
65,100
66,429
66,038
67,402
65,959
68,165
65,566
67,670
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 1, 2007,
July 2, 2006, June 27, 2004 and June 29, 2003 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 by $0.05 for both of the fiscal years ended
July 1, 2007 and July 2, 2006, is described in further detail in Note 2 of the Company’s Annual Financial Statements.
As of
July 1, July 2, July 3, June 27, June 29,
2007 2006 2005 2004 2003
(in thousands)
Consolidated Balance Sheet Data:
Cash and equivalents
and short-term investments
Working capital
Investments-non current
Total assets
Long-term liabilities
Total stockholders’ equity
$ 16,087
51,419
––
352,507
78,911
201,031
$ 46,608
44,739
––
251,952
5,281
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
$ 24,599
44,250
––
346,634
79,221
193,183
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 selec-
tion 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’s top floral artists and hand-delivered the same
day, and spectacular flowers delivered through its “Fresh
From Our Growers(TM)” program.
Customers can “call, click or come in” to 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 children’s gifts from Plow &
Hearth® (1-800-627-1712 or www.plowandhearth.com);
Wind & Weather® (www.windandweather.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);
gourmet foods from GreatFood.com® (www.greatfood.com);
wine gifts from Ambrosia.com (www.ambrosiawine.com); gift
baskets from 1-800-BASKETS.COM® (www.1800baskets.com)
and the BloomNet® international floral wire service, which
provides 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.
Category Information
During the first quarter of fiscal 2007, the Company
segmented its organization to improve execution and cus-
tomer focus and to align its resources to meet the demands of
the markets it serves. The following table presents the contribu-
tion of net revenues, gross profit and “EBITDA” (earnings
before interest, taxes, depreciation and amortization) from
each of the Company’s business categories.
Net Revenues
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Net revenues:
1-800-Flowers.com
Consumer
Floral
BloomNet
Wire Service
Gourmet Food &
Gift Baskets
$491,404 8.7% $452,188
7.2% $422,012
44,379
48.5% 29,884
37.2% 21,784
192,698
83.5% 105,002
93.5%
54,263
Home & Children’s
Gifts
186,948 (5.1%)
196,919
14.3% 172,317
Corporate(*)
1,652
19.0% 1,388
(25.5%)
1,863
Intercompany
eliminations
Total net
revenues
(4,483) (23.2%)
(3,640) (133.3%) (1,560)
$912,598
16.7% $781,741
16.6% $670,679
Gross Profit
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Gross profit:
1-800-Flowers.com
Consumer
Floral
BloomNet
Wire Service
Gourmet Food &
Gift Baskets
Home & Children’s
Gifts
$192,921
39.3%
13.2% $170,352
37.7%
6.8% $159,553
37.8%
24,844
56.0%
55.4%
88,207
45.8%
85.9%
85,899
45.9%
764
46.2%
(6.2%)
38.7%
15,989
53.5%
47,442
45.2%
91,555
46.5%
551
39.7%
35.6%
99.3%
14.8%
(31.6%)
11,795
54.1%
23,806
43.9%
79,728
46.3%
806
43.3%
(169)
(245)
(37)
$392,466
20.5% $325,644
18.1% $275,651
43.0%
41.7%
41.1%
Corporate(*)
Intercompany
eliminations
Total gross
profit
3
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
EBITDA (**)
Years Ended
Reconciliation of Net Income to EBITDA:
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
July 1, July 2, July 3,
2007 2006 2005
(in thousands)
(in thousands)
Net income
$17,118
$ 3,187
$ 7,849
Category Contribution Margin:
1-800-Flowers.com
Consumer
Floral $64,580
38.8% $46,518 (1.1%)
$47,039
BloomNet
Wire Service
14,169
99.4%
7,106
20.2% 5,912
Gourmet Food &
Gift Baskets
26,377 286.4%
6,827 790.1% 767
Home & Children’s
Gifts
(1,215) (117.0%)
7,134
5.8% 6,741
Category Contribution
Margin Subtotal 103,911
53.7%
67,585
11.8% 60,459
Corporate(*)
(51,081)
(12.7%)
(45,311)
(33.0%) (34,072)
EBITDA $52,830 137.2% $22,274
(15.6%)
$26,387
(*) Corporate expenses consist of the Company’s enterprise shared
service cost centers, and include, among other items, Information
Technology, Human Resources, Accounting and Finance, Legal,
Executive and Customer Service Center functions, as well as Stock-
Based Compensation. In order to leverage the Company’s infra-
structure, these functions are operated under a centralized
management platform, providing support services throughout the
organization. The costs of these functions, other than those of the
Customer Service Center, which are allocated directly to the above
categories based upon usage, are included within corporate
expenses as they are not directly allocable to a specific category.
(**) Performance is measured based on category contribution
margin or category EBITDA, reflecting only the direct controllable
revenue and operating expenses of the categories. As such,
management’s measure of profitability for these categories does not
include the effect of corporate overhead, described above, nor does
it include depreciation and amortization, other income (net), and
income taxes. Management utilizes EBITDA as a performance
measurement tool because it considers such information a meaning-
ful supplemental measure of its performance and believes it is
frequently used by the investment community in the evaluation of
companies with comparable market capitalization. The Company
also uses EBITDA as one of the factors used to determine the total
amount of bonuses available to be awarded to executive officers and
other employees. The Company’s credit agreement uses EBITDA
(with additional adjustments) to measure compliance with covenants
such as interest coverage and debt incurrence. EBITDA is also
used by the Company to evaluate and price potential acquisition
candidates. EBITDA has limitations as an analytical tool, and should
not be considered in isolation or as a substitute for analysis of the
Company’s results as reported under GAAP. Some of these
limitations are: (a) EBITDA does not reflect changes in, or cash
requirements for, the Company’s working capital needs; (b) EBITDA
does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on the Company’s debts; and (c) although depreciation and amorti-
zation are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future, and EBITDA does
not reflect any cash requirements for such capital expenditures.
Because of these limitations, EBITDA should only be used on a
supplemental basis combined with GAAP results when evaluating
the Company’s performance.
Add:
Interest
expense
7,390
Depreciation and
amortization
17,837
Income tax
expense
Less:
Interest
income
Other income
(expense)
11,891
1,381
25
1,407
15,765
3,181
481
14,489
5,398
1,260
1,690
6
140
$26,387
EBITDA
$52,830
$22,274
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 2007
and 2006, which ended on July 1, 2007 and July 2, 2006,
respectively, consisted of 52 weeks, while fiscal year 2005,
which ended on July 3, 2005, consisted of 53 weeks.
Net Revenues
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Net Revenues:
E-Commerce
$749,238
6.1% $706,001
13.7% $620,831
Other
163,360 115.7%
75,740
51.9%
49,848
$912,598
16.7% $781,741
16.6% $670,679
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 16.7% during the fiscal
year ended July 1, 2007 was due to a combination of organic
growth, as well as the acquisitions of Fannie May Confections
Brands, a manufacturer and retailer of premium chocolates
and other confections, acquired on May 1, 2006 and Wind &
Weather, a direct marketer of weather-themed gifts, acquired
on October 31, 2005. Organic revenue growth, including post
acquisition growth of the aforementioned acquisitions,
adjusted for the disposition of certain Company owned floral
retail stores, during fiscal 2007 was approximately 8%,
reflecting: (i) the Company’s strong brand name recognition,
(ii) continued leveraging of its existing customer base, and
(iii) cost effective spending on its marketing and selling
programs, designed to improve customer acquisition and
accelerate top-line growth.
The Company’s revenue growth of 16.6% during the fiscal
4
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
year ended July 2, 2006 was due to a combination of organic
growth, as well as the acquisitions of Cheryl & Co., acquired
on March 28, 2005, Wind & Weather, acquired on October 31,
2005, and Fannie May Confections Brands, acquired on May
1, 2006. Organic revenue growth, including post acquisition
growth of the aforementioned acquisitions, during fiscal 2006
was approximately 10%, adjusted for the additional week of
sales during fiscal 2005 which consisted of 53 weeks,
compared to fiscal 2006 which consisted of 52 weeks.
The Company fulfilled approximately 11,635,000,
11,315,000 and 10,213,000 orders through its e-commerce
(combined online and telephonic) sales channel during the
fiscal years ended July 1, 2007, July 2, 2006, and July 3,
2005, respectively, representing increases of 2.8% and
10.8% over the respective prior fiscal years. The Company’s
e-commerce (combined online and telephonic) sales
channel average order value increased 3.2% to $64.37
during fiscal 2007, and 2.6% to $62.39 during fiscal 2006, as
a result of increased service and shipping charges (in line
with industry norms) to partially offset the impact of increased
fuel costs passed on from freight carriers.
Other revenues for the fiscal years ended July 1, 2007
and July 2, 2006, increased in comparison to the same
periods of the prior year, primarily as a result of the retail/
wholesale contribution of Fannie May Confections Brands,
as well as the continued membership growth and wholesale
floral product and service offerings from the Company’s
BloomNet Wire Service category. Additionally, during fiscal
2006, other revenues increased from the retail/wholesale
contribution of Cheryl & Co.
The 1-800-Flowers.com Consumer Floral category
includes the 1-800-Flowers brand operations which derives
revenue from the sale of consumer floral products through its
e-commerce sales channels (telephonic and online sales)
and company-owned and operated retail floral stores, as
well as royalties from its franchise operations. Net revenues
during the fiscal years ended July 1, 2007 and July 2, 2006,
increased by 8.7% and 7.2% over the respective prior year
periods, primarily from a combination of increased average
order value and order volumes from its e-commerce sales
channel, offset in part by lower retail sales from its company-
owned floral stores due to the planned transition of Company
stores to franchise ownership.
The BloomNet Wire Service category includes revenues
from membership fees as well as other service offerings to
florists. Net revenues during the fiscal years ended July 1,
2007 and July 2, 2006 increased by 48.5% and 37.2% over
the respective prior year periods, primarily as a result of
increased florist membership, expanded product and service
offerings, pricing initiatives and an increase in wholesale
floral product sales.
The Gourmet Food & Gift Basket category includes the
operations of the Cheryl & Co., Fannie May Confections Brands,
The Popcorn Factory and The Winetasting Network brands.
Revenue is derived from the sale of cookies, baked gifts,
premium chocolates and confections, gourmet popcorn and
wine gifts through its E-commerce sales channels (telephonic
and online sales) and company-owned and operated retail
stores under the Cheryl & Co. and Fannie May Confections
brands, as well as wholesale operations. Net revenue during
the fiscal year ended July 1, 2007 increased by 83.5% over the
prior year period, as a result of the contribution of Fannie May
Confections Brands, which was acquired in May 2006, and
strong organic growth within the Cheryl & Co. Net revenue
during the fiscal year ended July 2, 2006 increased by 93.5%
over the prior year period, as a result of the contribution of
Cheryl & Co., which was acquired in March 2005, and strong
organic growth within The Popcorn Factory brand.
The Home & Children’s Gifts category includes revenues
from the Plow & Hearth, Wind & Weather, Problem Solvers,
Madison Place, HearthSong and Magic Cabin brands.
Revenue is derived from the sale of home decor and
children’s gifts through its e-commerce sales channels
(telephonic and online sales) or company-owned and
operated retail stores operated under the Plow & Hearth
brand. Net revenue during the year ended July 1, 2007
decreased by 5.1% over the prior year period due to a lack of
new “hit” products and an overall macro decline in customer
demand within this category. During the second quarter of
fiscal 2007, efforts to expand titles outside of the core Plow &
Hearth brand did not attract the level of customer demand to
justify the increase in marketing costs. In response to the
poor results, during the third quarter of fiscal 2007, manage-
ment implemented several changes to improve the perfor-
mance within this category: (i) revised the aforementioned
plans to expand and add titles, (ii) strengthened the manage-
ment team, (iii) improved the creative look and feel of the
catalogs and (iv) revised the circulation plans for all titles to
place more focus on the category’s existing customer base.
Net revenue during the fiscal year ended July 2, 2006
increased by 14.3% over the prior year period as a result of
increased average order value and order volumes from its
e-commerce sales channel, including the contribution of
Wind & Weather, as well as higher retail sales from the
Plow & Hearth brand company-owned stores due to the
addition of 3 new store locations.
Over the past several years, through a combination of
organic efforts and strategic acquisitions, the Company has
rapidly grown its revenues, achieving a solid base of busi-
ness which is approaching $1 billion. For fiscal 2008, the
Company anticipates continued strong growth in its key
business categories: Consumer Floral, BloomNet Wire
Service and Gourmet Food & Gift Baskets, partially offset by
anticipated flat growth in its Home and Children’s category.
As a result, the Company anticipates organic revenue growth
for the year in a range of 7-9 percent.
Gross Profit
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Gross profit
$392,466 20.5% $325,644
18.1% $275,651
Gross margin % 43.0% 41.7%
41.1%
Gross profit consists of net revenues less cost of rev-
enues, 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 out-
bound shipping charges. Additionally, cost of revenues
include labor and facility costs related to direct-to-consumer
merchandise operations.
Gross profit increased during the fiscal years ended July
1, 2007 and July 2, 2006, in comparison to the same periods
of the prior years, primarily as a result of the revenue growth
5
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
described above and an increase in gross margin percent-
age. Gross margin percentage increased 130 basis points
and 60 basis points during the fiscal years ended July 1,
2007 and July 2, 2006, respectively, as a result of product mix
and pricing initiatives as well as continued improvements in
customer service, fulfillment, including improved outbound
shipping rates, and merchandising programs.
The 1-800-Flowers.com Consumer Floral category gross
profit for the fiscal years ended July 1, 2007 and July 2, 2006,
increased by 13.2% and 6.8% over the respective prior year
periods, as a result of the aforementioned increase in net
revenues. During fiscal 2007, gross margin percentage
increased 160 basis points to 39.3% as a result of improve-
ments in sourcing, fulfillment logistics, including reduced
outbound shipping rates, and pricing initiatives. During fiscal
2006, gross margin percentage decreased 10 basis points
to 37.7% as a result of increases in carrier fuel charges.
The BloomNet Wire Service category gross profit for the
fiscal years ended July 1, 2007 and July 2, 2006, increased
by 55.4% and 35.6% over the respective prior year periods
as a result of increases in florist membership, product and
service offerings, pricing initiatives and floral wholesale
product sales. Gross margin percentage increased 250 basis
points to 56.0% primarily as a result of sales mix, whereas,
the gross margin percentage during fiscal 2006 decreased
by 60 basis points as a result of increases in carrier fuel
charges on sales of floral wholesale products.
The Gourmet Food & Gift Basket category gross profit for
the fiscal year ended July 1, 2007 increased by 85.9% over
fiscal 2006 as a result of the incremental revenue generated
by Fannie May Confections Brands and strong organic
growth within the Cheryl & Co. brand, combined with an
increase in gross margin percentage of 60 basis points, to
45.8%, as a result of improvements in outbound shipping
rates and merchandising programs across all brands within
the category. Gross profit for the fiscal year ended July 2,
2006 increased by 99.3% over fiscal 2005 as a result of the
incremental revenue and higher gross margin percentage
generated by Cheryl & Co., combined with the strong organic
growth of The Popcorn Factory brand. As a result, during
fiscal 2006, gross margin percentage increased by 130
basis points to 45.2%.
The Home & Children’s Gift category gross profit for the
fiscal year ended July 1, 2007 decreased by 6.2% over the
respective prior year period as a result of the aforementioned
decline in sales, combined with a lower gross margin percent-
age, which declined by 60 basis points to 45.9%, due to sales
mix and markdowns to move inventory. During the year ended
July 2, 2006, gross profit increased by 14.8% as a result of the
aforementioned increase in revenue combined with an
improvement in gross margin percentage, which increased
20 basis points to 46.5%, as a result of sourcing initiatives.
During fiscal year 2008, the Company expects that its
gross margin percentage will continue to improve, primarily
through: (i) growth of its higher margin business categories
including Gourmet Food and Gift Baskets and BloomNet Wire
Service, (ii) improved product sourcing, new product devel-
opment and process improvement initiatives implemented
during the fiscal 2007, (iii) continued improvements in
performance of the Consumer Floral segment, and (iv)
refocus on the core Home and Children’s Gifts’ businesses.
Marketing and Sales Expense
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Marketing and
sales
Percentage of
sales
$262,303
9.5% $239,573 20.4% $198,935
28.7%
30.6%
29.7%
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal and search costs, retail store and fulfillment
operations (other than costs included in cost of revenues)
and customer service center expenses, as well as the
operating expenses of the Company’s departments engaged
in marketing, selling and merchandising activities.
During the fiscal year ended July 1, 2007, marketing and
sales expenses decreased from 30.6% to 28.7% of net
revenues, reflecting improved operating leverage from a
number of cost-saving initiatives and the completion of the
investment phase of the Company’s BloomNet Wire Service
business, including the absorption of incremental personnel
to expand membership, increase product and service
offerings, and increase BloomNet Technologies penetration.
This leverage was achieved through significant improvement
within the Company’s 1-800-Flowers Consumer Floral,
BloomNet Wire Service and Gourmet Food & Gift Baskets
categories, as efforts to grow the Home and Children’s Gifts
businesses through the introduction of titles outside of the
core Plow & Hearth brand did not attract the necessary level
of customer demand to justify the costs.
During the fiscal year ended July 2, 2006, marketing and
sales expense increased as a percentage of net revenues 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) incre-
mental 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 years ended July 1, 2007 and July 2,
2006, marketing and sales expense increased over the
respective prior year periods by 9.5% and 20.4% as a result
of several factors, including: (i) incremental expenses
associated with the acquisition of Fannie May Confections
Brands in May 2006 and Cheryl & Co. in March 2005, (ii)
incremental variable costs to accommodate higher sales
volumes, and (iii) personnel associated with the expansion
of the BloomNet Wire Service business. Additionally, as
previously mentioned, fiscal 2006 was further impacted by
the adoption of SFAS No. 123(R), “Share-Based Payment”.
During the fiscal year ended July 1, 2007, the Company
added approximately 3,464,000 new e-commerce customers,
compared to 3,556,000 and 3,311,000 in fiscal 2006 and
fiscal 2005, respectively. Of the 6,630,000 total customers
who placed e-commerce orders during the fiscal year ended
6
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
July 1, 2007, approximately 47.7% were repeat customers,
compared to 46.4% in both prior fiscal years, reflecting the
Company’s ongoing focus on deepening the relationship
with its existing customers as their trusted source for gifts
and services for all of their celebratory occasions.
During fiscal 2007, the Company 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, during fiscal 2008, the Company expects that
marketing and sales expense will continue to decrease as a
percentage of net revenue in comparison to the prior years.
Technology and Development Expense
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Technology and
development
Percentage of
sales
$21,316 7.6%
$19,819 34.3% $14,757
2.3%
2.5%
2.2%
Technology and development expense consists primarily
of payroll and operating expenses of the Company’s informa-
tion technology group, costs associated with its web sites,
including hosting, design, content development and mainte-
nance and support costs related to the Company’s order
entry, customer service, fulfillment and database systems.
During the fiscal year ended July 1, 2007, technology and
development expense decreased to 2.3% of net revenue,
reflecting improved operating leverage, however, technology
and development expense increased by 7.6% over the prior
year period, as a result of the incremental expenses associ-
ated with Fannie May Confections Brands, as well as for
increases in the cost of maintenance and license agreements
required to support the Company’s technology platform.
During the fiscal year ended July 2, 2006, technology and
development expense increased to 2.5% of net revenues
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
operations, (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 technology 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.
During the fiscal years ended July 1, 2007, July 2, 2006,
and July 3, 2005 the Company expended $32.3 million,
$33.6 million, and $24.0 million, respectively, on technology
and development, of which $11.0 million, $13.8 million, and
$9.2 million, respectively, has been capitalized.
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 incremental
expenses associated with Fannie May Confections Brands,
the Company expects that its spending for the fiscal 2008 will
remain consistent, as a percentage of net revenues, in
comparison to the prior year.
General and Administrative Expenses
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
General and
administrative
$56,017
27.4%
$43,978 23.6% $35,572
Percentage of
sales
6.1% 5.6%
5.3%
General and administrative expense consists of payroll
and other expenses in support of the Company’s executive,
finance and accounting, legal, human resources and other
administrative functions, as well as professional fees and
other general corporate expenses.
General and administrative expense increased 27.4% and
23.6% during the fiscal years ended July 1, 2007 and July 2,
2006, respectively, and by 50 basis points and 30 basis points
as a percentage of net revenues in comparison to the respec-
tive prior year periods, primarily as a result of: (i) incremental
expenses associated with the acquisitions of Fannie May
Confections Brands in May 2006 and Cheryl & Co. in March
2005, (ii) increased legal and professional fees, and (iii) the
achievement of certain performance related bonus targets in
fiscal 2007 which were not earned in the prior fiscal years.
Additionally, general and administrative expense during fiscal
2006 was further impacted by incremental expenses associ-
ated with the Company’s corporate headquarters relocation in
December 2005, and 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.
Although the Company believes that its current general
and administrative infrastructure is sufficient to support
existing requirements and drive operating leverage, the
Company expects that its general and administrative
expenses as a percentage of net revenue during fiscal
2008 will remain consistent with the prior year period.
Depreciation and Amortization
Years Ended
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
(in thousands)
Depreciation and
amortization
Percentage of
sales
$17,837
13.1%
$15,765 8.8%
$14,489
2.0%
2.0%
2.2%
Depreciation and amortization expense increased by
13.1% and 8.8% during the fiscal years ended July 1, 2007
and July 2, 2006, respectively, in comparison to the prior year
periods as a result of the incremental amortization expense
related to the intangibles established as a result of the
acquisitions of Fannie May Confections Brands and Wind &
Weather in fiscal 2006 and Cheryl & Co. in fiscal 2005, as
well as depreciation associated with recently completed
technology projects designed to provide improved order/
warehouse management functionality across the enterprise.
The Company believes that continued investment in its
7
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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, and the increase
in amortization expense associated with intangibles
established as a result of recent acquisitions, the Company
expects that depreciation and amortization for the fiscal
2008 will remain consistent as a percentage of net revenues
in comparison to the prior year.
Other Income (Expense)
Years Ended
effective income tax rate for fiscal 2006 of approximately
8.5% 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 1, 2007,
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.
At July 1, 2007, the Company’s net operating loss
carryforwards were approximately $27.7 million, which, if
not utilized, will begin to expire in fiscal year 2020.
July 1, July 2, July 3,
2007 % Change 2006 % Change 2005
Liquidity and Capital Resources
(in thousands)
Interest income $ 1,381
9.6% $1,260
(25.4)% $ 1,690
Interest expense (7,390) (425.2)% (1,407) (192.5)% (481)
Other, net
25
316.7%
6
(95.7)% 140
$ (5,984) (4,144.0)% $ (141) (110.5)% $ 1,349
Other income (expense) consists primarily of interest
income earned on the Company’s investments and available
cash balances, offset by interest expense, primarily attribut-
able to the Company’s long-term debt, and revolving line of
credit. 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,
as amended on October 24, 2006, currently includes an
$85.0 million term loan and a $60.0 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, Inc.
The decrease in other income (expense) during the fiscal
years ended July 1, 2007 and July 2, 2006, respectively, in
comparison to prior years was the result of higher interest
expense on the Company’s 2006 Credit Facility. Additionally,
other income (expense) during fiscal 2006 decreased as a
result of 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 in May 2006, which was
partially funded from the Company’s existing cash balances,
as well as the Company’s stock buy-back program.
Income Taxes
During the fiscal years ended July 1, 2007, July 2, 2006
and July 3, 2005, the Company recorded income tax ex-
pense of $11.9 million, $3.2 million and $5.4 million, respec-
tively. The Company’s effective tax rate for the fiscal years
ended July 1, 2007, July 2, 2006 and July 3, 2005 was
41.0%, 50.0% and 40.7%, respectively. The decrease in the
effective tax rate during the fiscal year ended July 1, 2007
resulted from the dilution of the impact of stock-based
compensation recognized in accordance with SFAS No.
123(R), over an increased level of income before taxes in
comparison the prior fiscal year. The increase in the effective
tax rate during the fiscal year ended July 2, 2006, resulted
from the impact of stock-based compensation recognized in
accordance with SFAS No. 123(R) which was adopted in
fiscal 2006, thus resulting in an increase in the annual
8
At July 1, 2007, the Company had working capital of
$51.4 million, including cash and equivalents of $16.1
million, compared to working capital of $44.3 million, includ-
ing cash and equivalents of $24.6 million, at July 2, 2006.
Net cash provided by operating activities of $32.3 million
for the fiscal year ended July 1, 2007 was primarily attribut-
able to net income, adjusted to add back non-cash charges
for depreciation and amortization, deferred income taxes and
stock-based compensation, offset in part by increases in
inventory (primarily due to the strong growth in the Gourmet
Food and Gift Baskets category as well as slower growth in
the Home & Children’s Gifts category) and receivables (due
to the strong growth in the Gourmet Food and Gift Baskets
category as well as the BloomNet Wire Service category).
Net cash used in investing activities of $16.7 million for
the fiscal year ended July 1, 2007 was primarily attributable to
capital expenditures related to the Company’s technology and
distribution infrastructure, offset in part by the sale of certain
Company owned floral retail stores to franchise operators.
Net cash used in financing activities of $24.2 million for
the fiscal year ended July 1, 2007, was primarily due to the
scheduled repayments (net) of the Company’s debt and bank
borrowings against the Company’s 2006 Credit Facility and
capital lease obligations of $10.3 million, and the repurchase
of 3,035,367 shares of treasury stock in the amount of $15.9
million, offset by the net proceeds received upon the exercise
of employee stock options.
On May 1, 2006, the Company entered into a secured
credit facility with JPMorgan Chase Bank, N.A., as adminis-
trative agent, and a group of lenders (the “2006 Credit
Facility”). The 2006 Credit Facility includes an $85.0 million
term loan and a $60.0 million revolving credit facility, as
adjusted, 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 Company 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.
The Company had historically utilized cash generated
from operations to meet its cash requirements, including all
operating, investing and debt repayment activities. However,
due to the Company’s continued expansion into non-floral
products, including the acquisition of Fannie May Confections
Brands, as well as its recent acquisition of $15.9 million of
treasury stock, during the second half of fiscal 2007, the
Company expects to borrow against its existing line of credit
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
to fund working capital requirements related to pre-holiday
manufacturing and inventory purchases. At July 1, 2007, the
Company had no outstanding amounts under its revolving
credit facility, but anticipates borrowing against the facility
prior to the end of its first quarter. The Company anticipates
that such borrowings will peak during its fiscal second
quarter, before being repaid prior to the end of that quarter.
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. Under this program, as of July 1, 2007, the
Company had repurchased 1,534,677 shares of common stock
for $11.3 million. In a separate transaction, during fiscal 2007,
the Company’s Board of Directors authorized the repurchase of
3,010,740 shares ($15.7 million) from an affiliate. The purchase
price was $15,689,000, or $5.21 per share. The repurchase was
approved by the disinterested members of the Company’s
Board of Directors and is in addition to the Company’s existing
stock repurchase authorization of $20.0 million, of which $8.7
million remains authorized but unused.
At July 1, 2007, the Company’s contractual obligations
consist of:
Payments due by period
Less than More than
Total 1 year 1 - 3 years 3 - 5 years 5 years
(in thousands)
Long-term debt, including interest $ 93,113
99
Capital lease obligations
68,577
Operating lease obligations
6,232
Sublease obligations
33,788
Purchase commitments (*)
Total
$201,809
$ 14,741
41
10,812
2,099
33,788
$ 61,481
$ 32,610
27
16,436
2,904
––
$ 51,977
$
45,762
25
13,182
976
––
$
––
6
28,147
253
––
$
59,945
$ 28,406
(*) Purchase commitments consist primarily of inventory, equipment purchase orders and online marketing agreements made in
the ordinary course of business.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial
position and results of operations are based upon the
consolidated financial statements of 1-800-FLOWERS.COM,
Inc., which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation
of these financial statements requires management to make
estimates and assumptions that affect the reported amount
of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, management evaluates its estimates, including those
related to revenue recognition, inventory and long-lived
assets, including goodwill and other intangible assets related
to acquisitions. Management bases its estimates and
judgments on historical experience and on various other
factors that are believed to be reasonable under the circum-
stances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different
assumptions or conditions. Management believes the
following critical accounting policies, among others, affect
its more significant judgments and estimates used in prepa-
ration of its consolidated financial statements.
Revenue Recognition
Net revenues are generated by E-commerce operations
from the Company’s online and telephonic sales channels
as well as other operations (retail/wholesale) and primarily
consist of the selling price of merchandise, service or
outbound shipping charges, less discounts, returns and
credits. Net revenues are recognized upon product shipment.
Shipping terms are FOB shipping point. Net revenues
generated by the Company’s BloomNet Wire Service
operations include membership fees as well as other
products and service offerings to florists. Membership fees
are recognized monthly in the period earned, and products
sales are recognized upon product shipment with shipping
terms of FOB shipping point.
Accounts Receivable
The Company maintains allowances for doubtful accounts
for estimated losses resulting from the inability of its custom-
ers or franchisees to make required payments. If the financial
condition of the Company’s customers or franchisees were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Inventory
The Company states inventory at the lower of cost or
market. In assessing the realization of inventories, we are
required to make judgments as to future demand 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
9
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
indicators is based on market conditions and operational
performance of the Company. Future events could cause the
Company to conclude that impairment indicators exist and
that goodwill and other intangible assets associated with
our acquired businesses is impaired.
Capitalized Software
The carrying value of capitalized software, both pur-
chased and internally developed, is periodically reviewed
for potential impairment indicators. Future events could
cause the Company to conclude that impairment indicators
exist and that capitalized software is impaired.
Stock-based Compensation
SFAS No. 123R requires the measurement of stock-based
compensation expense based on the fair value of the award
on the date of grant. The Company determines the fair value
of stock options issued by using the Black-Scholes option-
pricing model. The Black-Scholes option-pricing model
considers a range of assumptions related to volatility,
dividend yield, risk-free interest rate and employee exercise
behavior. Expected volatilities are based on historical
volatility of the Company’s stock price. The dividend yield
is based on historical experience and future expectations.
The risk-free interest rate is derived from the US Treasury
yield curve in effect at the time of grant. The Black-Scholes
model also incorporates expected forfeiture rates, based on
historical behavior. Determining these assumptions are
subjective and complex, and therefore, a change in the
assumptions utilized could impact the calculation of the
fair value of the Company’s stock options.
Income Taxes
The Company has established deferred income tax
assets and liabilities for temporary differences between the
financial reporting bases and the income tax bases of its
assets and liabilities at enacted tax rates expected to be in
effect when such assets or liabilities are realized or settled.
The Company has recognized as a deferred tax asset the
tax benefits associated with losses related to operations,
which are expected to result in a future tax benefit. Realiza-
tion of this deferred tax asset assumes that we will be able
to generate sufficient future taxable income so that these
assets will be realized. The factors that we consider in
assessing the likelihood of realization include the forecast of
future taxable income and available tax planning strategies
that could be implemented to realize the deferred tax assets.
Recent Accounting Pronouncements
In June 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 interpretation 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 recog-
nized. 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.
10
In September 2006, the FASB issued Statement No. 157,
“Fair Value Measurements” (“Statement No. 157”) which
defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value mea-
surements. Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measure-
ments and, accordingly, does not require any new fair value
measurements. Statement No. 157 is effective for fiscal years
beginning after November 15, 2007. The transition adjust-
ment of the difference between the carrying amounts and
the fair values of those financial instruments should be
recognized as a cumulative-effect adjustment to retained
earnings as of the beginning of the year of adoption. The
company is currently evaluating the impact of adopting the
provisions of Statement No. 157.
Quantitative and Qualitative Disclosures
About Market Risk
The Company’s earnings and cash flows are subject to
fluctuations due to changes in interest rates primarily from its
investment of available cash balances in money market
funds and investment grade corporate and U.S. government
securities, as well as from outstanding debt. As of July 1,
2007, the Company’s outstanding debt, including current
maturities, approximated $78.1 million, of which $76.5 million
was variable rate debt. Each 25 basis point change in interest
rates would have a corresponding effect on our interest
expense of approximately $0.2 million as of July 1, 2007.
Under its current policies, the Company does not use interest
rate derivative instruments 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 state-
ments 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 connec-
tion with any discussion of future operating or financial
performance. In particular, these include statements relating
to future actions; the effectiveness of our marketing programs;
the performance of our existing products and services; our
ability to attract and retain customers and expand our cus-
tomer base; our ability to enter into or renew online marketing
agreements; our ability to respond to competitive pressures;
expenses, including shipping costs and the costs of marketing
our current and future products and services; the outcome of
contingencies, including legal proceedings in the normal
course of business; and our ability to integrate acquisitions.
We cannot guarantee that any forward-looking statement
will be realized, although we believe we have been prudent
in our plans and assumptions. Achievement of future results
is subject to risk, uncertainties and potentially inaccurate
assumptions. Should known or unknown risks or uncertain-
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
ties materialize, or should underlying assumptions prove
inaccurate, actual results could differ materially from past results
and those anticipated, estimated or projected. You should bear
this in mind as you consider forward looking statements.
We undertake no obligation to publicly update forward-
looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to
consult any further disclosures we make on related subjects
in our 10-K, 10-Q and 8-K reports to the SEC. Also note we
provide the following cautionary discussion of risks, uncer-
tainties and possibly inaccurate assumptions relevant to our
business. These are factors that, individually or in the
aggregate, we think could cause our actual results to differ
materially from expected and historical results. We note these
factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. You should understand that it
is not possible to predict or identify all such factors. Conse-
quently, you should not consider the following to be a
complete discussion of all potential risks and uncertainties.
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years 2007
and 2006. 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
July 1, Apr. 1, Dec. 31, Oct. 1, Jul. 2, Apr. 2, Jan. 1, Oct. 2,
2007 2007 2006 2006 2006 2006 2006 2005
(in thousands, except per share data)
Net revenues:
E-Commerce (telephonic/online)
Other
$194,228
37,593
$175,592
38,187
$270,159
59,707
$109,259
27,873
$161,820
18,197
$258,484
19,345
$100,655
12,110
231,821
132,833
213,779
127,092
329,866
177,889
98,988
86,687
151,977
137,132
82,318
54,814
180,017
109,743
277,829
152,837
84,352
70,274
124,992
$185,042
26,088
211,130
126,778
Total net revenues
Cost of revenues
Gross Profit
Operating expenses:
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income (expense), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Basic and diluted net income (loss)
61,873
5,485
14,545
4,812
86,715
12,273
59,023
5,469
14,198
4,447
83,137
99,037
5,201
13,931
3,834
122,003
42,370
5,161
13,343
4,744
65,618
60,287
5,083
11,804
4,555
81,729
53,188
5,170
11,181
3,877
73,416
87,874
4,797
10,357
3,809
106,837
3,550
29,974
(10,804)
2,623
(3,142)
18,155 (11,127)
(979)
11,294
4,732
137
(10,990)
7,704 (4,364)
$ 6,562 $ 1,053 $ 16,922 $ (7,419) $ 1,017 $ (1,540) $ 10,336 $ (6,626)
(1,347) (2,178)
27,796
10,874
(1,480)
(12,284)
(4,865)
515
(2,627)
(1,087)
(678)
1,945
928
(115)
18,040
2,203
1,150
112,765
66,739
46,026
38,224
4,769
10,636
3,524
57,153
per share:
$ 0.10 $ 0.02 $ 0.26 $ (0.11) $ 0.02 $ (0.02) $ 0.16 $ (0.10)
The Company’s quarterly results may experience seasonal fluctuations. Due to the Company’s expansion into non-floral
products, including the acquisitions of Wind & Weather and Fannie May Confections Brands. 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. For fiscal 2008,
however, the Easter holiday will occur in the Company’s third fiscal quarter, thus creating high growth in the Company’s third
fiscal quarter and lower growth in the Company’s fourth fiscal quarter.
11
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
July 1, July 2,
2007 2006
Assets
Current Assets:
$ 16,087
17,010
62,051
19,260
9,576
123,984
62,561
112,131
52,750
––
1,081
$ 352,507
$ 62,433
10,132
72,565
68,000
8,230
2,681
151,476
––
303
$ 24,599
13,153
52,954
17,427
10,347
118,480
59,732
131,141
29,822
6,224
1,235
$ 346,634
$ 63,870
10,360
74,230
78,063
––
1,158
153,451
––
299
421
269,270
421
262,667
(38,893) (56,011)
(30,070) (14,193)
201,031 193,183
$346,634
$ 352,507
Cash and equivalents
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
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Class A common stock, $.01 par value, 200,000,000 shares authorized,
30,298,019 and 29,872,183 shares issued in 2007 and 2006, respectively
Class B common stock, $.01 par value, 200,000,000 shares authorized,
42,138,465 shares issued in 2007 and 2006
Additional paid-in capital
Retained deficit
Treasury stock, at cost – 4,590,717 and 1,555,350 Class A shares in
2007 and 2006, respectively, and 5,280,000 Class B shares
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
12
Consolidated Statements of Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
Years Ended
July 1, July 2, July 3,
2007 2006 2005
Net revenues
Cost of revenues
Gross profit
$781,741
456,097
325,644
$912,598
520,132
392,466
$670,679
395,028
275,651
Operating expenses:
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Operating income
262,303
21,316
56,017
17,837
357,473
34,993
239,573
19,819
43,978
15,765
319,135
6,509
198,935
14,757
35,572
14,489
263,753
11,898
Other income (expense):
1,690
Interest income
Interest expense (7,390) (1,407) (481)
140
Other, net
1,349
Total other income (expense), net
6
(141)
25
(5,984)
1,260
1,381
Income before income taxes
Income tax expense
29,009
11,891
6,368
3,181
13,247
5,398
Net income
$ 17,118
$
3,187
$
7,849
Net income per common share:
Basic
Diluted
$ 0.27
$ 0.26
$
$
0.05
0.05
$
$
0.12
0.12
Weighted average shares used in the calculation of net income
per common share:
Basic
Diluted
63,786
65,526
65,100
66,429
66,038
67,402
See accompanying notes.
13
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Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
July 1, July 2, July 3,
2007 2006 2005
Operating activities:
Net income
Reconciliation of net income to net cash
$ 17,118
3,187
7,849
$
$
provided by operations:
Depreciation and amortization
Deferred income taxes
Bad debt expense
Stock-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:
Capital expenditures
Acquisitions, net of cash acquired
Dispositions
Purchases of investments
Proceeds from sales of investments
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
Repayment of capital lease obligations
Other
Net cash provided by (used in) financing activities
17,837
10,325
1,880
4,600
(791)
(5,737)
(9,800)
771
(5,562)
177
1,523
32,341
(18,043)
(347)
1,463
––
––
242
(16,685)
(15,877)
2,007
110,000
(119,913)
(385)
––
(24,168)
15,765
2,175
476
4,336
125
1,316
(9,106)
5,513
(1,046)
(6,208)
(1,795)
14,738
14,489
4,702
270
192
––
(655)
(6,345)
220
(10,334)
919
(878)
10,429
(20,491)
(96,874)
––
––
6,647
2
(13,334)
(50,965)
––
(93,946)
118,109
192
(110,716) (39,944)
(1,324)
558
105,000
(22,482)
(1,228)
92
80,616
(9,813)
1,533
––
(1,391)
(1,677)
––
(11,348)
Net change in cash and equivalents
Cash and equivalents:
Beginning of year
End of year
(8,512)
(15,362)
(40,863)
24,599
$ 16,087
39,961
$ 24,599
80,824
$ 39,961
Supplemental Cash Flow Information:
-
- The Company paid income taxes of approximately $1,429, $23 and $762, net of tax refunds received, for the years ended July 1, 2007,
Interest paid amounted to $7,390, $1,407, and $481 for the years ended July 1, 2007, July 2, 2006 and July 3, 2005, respectively.
July 2, 2006, and July 3, 2005.
See accompanying notes.
15
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
July 1, 2007
Note 1. Description of Business
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, 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’s top floral artists and hand-delivered the same
day, and spectacular flowers shipped overnight “Fresh From
Our GrowersTM” program. 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 guaran-
teed. The 1-800-FLOWERS.COM collection of brands also
includes home decor and children’s gifts from Plow &
Hearth® (1-800-627-1712 or www.plowandhearth.com),
Wind & Weather® (www.windandweather.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 www.cherylandco.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, which provides
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.
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
2007 and 2006, which ended on July 1, 2007, July 2, 2006,
respectively, consisted of 52 weeks, while fiscal year 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, Inc. 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 assumptions that affect
the amounts reported in the financial statements and accom-
panying 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 lease-
hold improvements and capital leases are calculated using
the straight-line method over the shorter of the lease terms,
including renewal options expected to be exercised, or
estimated useful lives of the improvements. Estimated useful
lives are periodically reviewed, and where appropriate,
changes are made prospectively. The Company’s property
plant and equipment is depreciated using the following
estimated lives:
Buildings
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 amor-
tized, but are evaluated annually for impairment. The
Company performs its 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 report-
ing 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. 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 con-
sumed, 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 prepaid
and other current assets was $4.3 million at both July 1, 2007
and July 2, 2006, relating to prepaid catalog expenses.
Investments
The Company considers all of its debt and equity
securities, for which there is a determinable fair market
value and no restrictions on the Company’s ability to sell
within the next 12 months, as available-for-sale. Available-
for-sale securities are carried at fair value, with unrealized
gains and losses reported as a separate component of
stockholders’ equity. For the years ended July 1, 2007,
July 2, 2006 and July 3, 2005, 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
16
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
payable, and accrued liabilities approximate their fair values
principally because of the short-term nature of these items.
The fair value of investments, including available-for-sale
securities, is based on quoted market prices where avail-
able. The fair value of the Company’s long-term obligations,
the majority of which are carried at a variable rate of interest,
are estimated based on the current rates offered to the
Company for obligations of similar terms and maturities.
Under this method, the Company’s fair value of long-term
obligations was not significantly different than the carrying
values at July 1, 2007 and July 2, 2006.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk
consist principally of cash and equivalents, investments
and accounts receivable. The Company maintains cash
and equivalents and investments with high credit, quality
financial institutions. Concentration of credit risk with
respect to accounts receivable are limited due to the
Company’s large number of customers and their dispersion
throughout the United States, and the fact that a substantial
portion of receivables are related to balances owed by
major credit card companies. Allowances relating to
consumer, corporate and franchise accounts receivable
($1.4 million and $2.3 million at July 1, 2007 and July 2,
2006, respectively) have been recorded based upon
previous experience and management’s evaluation.
Revenue Recognition
Net revenues are generated by E-commerce operations
from the Company’s online and telephonic sales channels
as well as other operations (retail/wholesale) and primarily
consist of the selling price of merchandise, service or
outbound shipping charges, less discounts, returns and
credits. Net revenues are recognized upon product ship-
ment. Shipping terms are FOB shipping point. Net revenues
generated by the Company’s BloomNet Wire Service
operations include membership fees as well as other
products and service offerings to florists. Membership fees
are recognized monthly in the period earned, and products
sales are recognized upon product shipment with shipping
terms of FOB shipping point.
Cost of Revenues
Cost of revenues consists primarily of florist fulfillment
costs (fees paid directly to florists), the cost of floral and
non-floral merchandise sold from inventory or through
third parties, and associated costs including inbound and
outbound shipping charges. Additionally, cost of revenues
includes labor and facility costs related to direct-to-con-
sumer 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 fulfill-
ment operations (other than costs included in cost of
revenues), and customer service center expenses, as well
as the operating expenses of the Company’s departments
engaged in marketing, selling and merchandising activities.
The Company expenses all advertising costs, with the
exception of catalog costs (see Deferred Catalog Costs
above) at the time the advertisement is first shown. Advertis-
ing expense was $133.2 million, $127.4 million and $107.8
million for the years ended July 1, 2007, July 2, 2006 and
July 3, 2005, respectively.
Technology and Development
Technology and development expense consists primarily
of payroll and operating expenses of the Company’s
information technology group, costs associated with its web
sites, including hosting, content development and mainte-
nance and support costs related to the Company’s order
entry, customer service, fulfillment and database systems.
Costs associated with the acquisition or development of
software for internal use are capitalized if the software is
expected to have a useful life beyond one year and amor-
tized over the software’s useful life, typically three to five
years. Costs associated with repair, maintenance or the
development of web site content are expensed as incurred
as the useful lives of such software modifications are less
than one year.
Stock-Based Compensation
The Company’s employee stock-based compensation
plans are described more fully in Note 11. 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 Standards
Board (FASB) issued SFAS No. 123(R), “Share-Based
Payment.” This Statement revised SFAS No. 123 by eliminat-
ing 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 disclo-
sures), and (b) compensation cost for all stock-based
payments granted subsequent to July 3, 2005 (based on the
grant-date fair value estimated in accordance with the new
provision of SFAS No. 123(R)). 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 deductions in excess of recog-
nized 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 reduc-
17
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
tion of taxes paid. There were no significant excess tax
benefits for the years ended July 1, 2007 or July 2, 2006.
the fair value recognition provisions of SFAS No. 123 to stock-
based employee compensation prior to July 4, 2005:
The amounts of stock-based compensation expense
recognized in the periods presented are as follows:
Years Ended
July 1, July 2, July 3,
2007 2006 2005
(in thousands, except per share data)
Stock options
Restricted stock awards
Total
Deferred income tax
benefit
Stock-based
compensation
expense, net
Impact on basic and
diluted net income
$2,736
1,864
4,600
$ 3,710
626
4,336
1,353
1,120
$
––
192
192
77
$3,247
$ 3,216
$ 115
per common share
$ (0.05)
$ (0.05)
$ (0.00)
Stock based compensation expense is recorded within
the following line items of operating expenses:
Years Ended
July 1, July 2, July 3,
2007 2006 2005
(in thousands, except per share data)
Marketing and sales
Technology and
development
General and
administrative
Total
$1,605
$1,504
$
––
690
642
––
2,305
$4,600
2,190
$ 4,336
192
$ 192
The amounts above include the impact of recognizing
compensation expense relating to stock options and
restricted stock awards. For the periods prior to our imple-
mentation of SFAS 123(R) on July 4, 2005, only compensa-
tion expense related to restricted stock awards was recog-
nized and included in general and administrative expenses.
Stock-based compensation expense has not been
allocated between business segments, but is reflected in
Corporate. (Refer to Note 14 – Business Segments)
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 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
Year Ended
July 3,
2005 (1)
(in thousands, except per share data)
Net income (loss) As reported
Less: Stock option compensation expense
Net income (loss) – Pro forma
Net income (loss) per share:
Basic and diluted – As reported
Basic and diluted – Pro forma
$ 7,849
10,499
$ (2,650)
0.12
$
$ (0.04)
(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).
Comprehensive Income
For the years ended July 1, 2007, July 2, 2006 and July 3,
2005, 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 outstand-
ing 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, “Account-
ing for Income Taxes” and defines the confidence level that
a tax position must meet in order to be recognized in the
financial statements. The interpretation requires that the tax
18
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 Com-
pany is currently evaluating the effect that the adoption of
FIN 48 will have on its consolidated results of operations
and financial condition.
In September 2006, the FASB issued Statement No. 157,
“Fair Value Measurements” (“Statement No. 157”) which
defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value mea-
surements. Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measure-
ments and, accordingly, does not require any new fair value
measurements. Statement No. 157 is effective for fiscal
years beginning after November 15, 2007. The transition
adjustment of the difference between the carrying amounts
and the fair values of those financial instruments should be
recognized as a cumulative-effect adjustment to retained
earnings as of the beginning of the year of adoption. The
company is currently evaluating the impact of adopting the
provisions of Statement No. 157.
Reclassifications
Certain balances in the prior fiscal years have been reclassi-
fied to conform with the presentation in the current fiscal year.
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 1, July 2, July 3,
2007 2006 2005 (1)
(in thousands, except per share data)
Numerator:
Net income
Denominator:
Weighted average
$17,118
$ 3,187
$ 7,849
shares outstanding
63,786
65,100
66,038
Effect of dilutive securities:
Employee stock
options (2)
Employee restricted
stock awards
Adjusted weighted-average
shares and assumed
1,282
1,282
1,364
458
1,740
47
1,329
––
1,364
conversions
65,526
66,429
67,402
Net income per common share:
Basic
Diluted
$
$
0.27
0.26
$ 0.05
$ 0.05
$ 0.12
$ 0.12
Note (1): The Company adopted the fair value recogni-
tion provisions of SFAS No. 123(R) using the modified
19
prospective application method on July 4, 2005. Accordingly,
results for the fiscal year ended July 3, 2005 do not reflect
compensation expense associated with stock options, which
is more fully discussed above in Note 2.
Note (2): The effect of options to purchase 5.8 million, 5.9
million and 3.8 million shares for the years ended July 1,
2007, July 2, 2006, and July 3, 2005, respectively, were
excluded from the calculation of net income per share on a
diluted basis as their effect is anti-dilutive.
Note 4. Acquisitions
The Company accounts for its business combinations in
accordance with SFAS No. 141, “Business Combinations,”
which addresses financial accounting and reporting for
business combinations and requires that all such transactions
be accounted for using the purchase method. Under the
purchase method of accounting for business combinations,
the aggregate purchase price for the acquired business is
allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the acquisition date.
Acquisition of 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 Confec-
tions 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 $96.6 million in cash (including the achieve-
ment of $4.4 million of “earn-out” incentives for financial
targets achieved during fiscal 2007 and estimated working
capital adjustments and transaction costs), included a
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 (of which $4.4 million was achieved) and $1.5
million during the year ending June 29, 2008, upon achieve-
ment of specified earnings targets. Prior to the acquisition,
Fannie May Confections Brands had generated revenues of
approximately $75.0 million during its most recent fiscal year
which ended on 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, as amended on October 24, 2006, includes an $85.0
million term loan and a $60.0 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.
During fiscal 2007, the Company completed the process
of allocating the Fannie May Confections Brands purchase
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 outstanding long-term debt.
Pro forma Results of Operation
The following unaudited pro forma consolidated financial
information has been prepared as if the acquisitions 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, July 3,
2006 2005
(in thousands, except per share data)
Net revenues
Operating income
Net income
Basic and diluted
net income per
common share
$854,333
$ 16,182
$ 5,321
$780,199
$ 23,462
$ 12,246
$ 0.08
$
0.18
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:
Years Ended
July 1, July 2,
2007 2006
(in thousands)
Finished goods
Work-in-process
Raw materials
$43,113
$ 3,911
$15,027
$62,051
$36,689
$ 3,370
$12,895
$52,954
price to the estimated fair values of assets acquired and
liabilities assumed:
Fannie May
Confections
Brands
Purchase
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
$ 19,718
4,642
37,879
44,096
156
106,491
5,045
4,485
399
$ 9,929
$ 96,562
Of the $37.9 million of acquired intangible assets related
to the Fannie May Confections Brands acquisition, $28.2
million was assigned to trademarks that are not subject to
amortization, while the remaining acquired intangibles of $9.7
million were allocated primarily to customer related intan-
gibles which are being amortized over the assets’ determin-
able useful life of 3-10 years. Of the $44.1 million of goodwill,
approximately $2.1 million is deductible for tax purposes.
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 then existing line of credit which was repaid
during the Company’s second quarter of fiscal 2006 utilizing
cash generated from operations, and excludes the assump-
tion of Wind & Weather’s $1.2 million balance on its sea-
sonal working capital line. The Company has since relo-
cated the operations of Wind & Weather to its Madison,
Virginia facility, and terminated operations in California.
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 approxi-
mately $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.
20
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 6. Goodwill and Intangible Assets
The change in the net carrying amount of goodwill is as follows (in thousands):
1-800-Flowers.com BloomNet Gourmet Home and
Consumer Wire Food and Children’s
Floral Service Gift Baskets Gifts Total
Balance at July 3, 2005
Acquisition of Winetasting Network
Acquisition of Cheryl & Co.
Acquisition of Wind & Weather
Acquisition of Fannie May
Confections Brands
Other
Balance at July 2, 2006
Acquisition of Wind & Weather
Acquisition of Fannie May
Confections Brands
Purchase Price Allocation of
Fannie May Confections-
Reclassification of goodwill
to intangible assets
Other
Balance at July 1, 2007
$6,919
––
––
––
––
(267)
6,652
––
––
––
(300)
$6,352
$
$
––
––
––
––
––
––
––
––
––
––
––
––
$40,449
273
2,461
––
62,752
––
105,935
––
6,023
(24,679)
––
$87,279
$15,851
––
––
2,703
––
––
18,554
$ 63,219
273
2,461
2,703
62,752
(267)
131,141
(54)
(54)
––
––
––
6,023
(24,679)
(300)
$18,500
$112,131
The Company’s intangible assets consist of the following:
July 1, July 2,
2007 2006
Gross Gross
Amortization Carrying Accumulated Carrying Accumulated
Period Amount Amortization Net Amount Amortization Net
(in thousands)
Intangible assets with determinable lives:
Investment in
licenses
Customer lists
Other
14 - 16 years
3 - 10 years
3 - 8 years
$ 4,927
14,260
2,639
21,826
Trademarks with
indefinite lives
Total intangible assets
––
39,676
$61,502
$ 4,085
3,919
748
8,752
––
$ 8,752
$
842
10,341
1,891
13,074
39,676
$52,750
$ 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
The amortization of intangible assets for the years ended July 1, 2007, July 2, 2006 and July 3, 2005 was $2.5 million,
$1.6 million, and $0.8 million, respectively. Future estimated amortization expense is as follows: 2008 - $2.7 million,
2009 - $2.6 million, 2010 - $2.5 million, 2011 - $1.9 million, and 2012 - $0.8 million, and thereafter - $2.6 million.
21
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 7. Property, Plant and Equipment
July 1, July 2,
2007 2006
(in thousands)
Land
Building and building
improvements
Leasehold improvements
Furniture and fixtures
Equipment
Computer equipment
Telecommunication equipment
Software
Accumulated depreciation and
amortization
$ 2,516
$ 2,516
16,209
19,087
5,637
21,278
54,942
9,106
57,763
16,409
20,474
5,182
18,346
51,449
8,344
51,086
186,538 173,806
123,977 114,074
$ 59,732
$ 62,561
Note 8. Long-Term Debt
July 1, July 2,
2007 2006
(in thousands)
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
$76,500
1,553
––
79
78,132
$85,000
2,942
23
458
88,423
10,132
$68,000
10,360
$78,063
(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 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, as amended on October 24, 2006,
includes an $85.0 million term loan and a $60.0 million
revolving facility, which bear interest at LIBOR (5.35%) plus
0.625% to 1.125%, with pricing based upon the Company’s
leverage ratio (6.23% at July 1, 2007). 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 borrow-
ing, and affirmative and 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 1, 2007.
(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 $1.6 million
is outstanding at July 1, 2007.
As of July 1, 2007, long-term debt maturities, excluding
amounts relating to capital leases, are as follows:
Year Debt Maturities
(in thousands)
2008
2009
2010
2011
2012
Thereafter
$10,053
12,750
12,750
17,000
25,500
––
$78,053
Note 9. Income Taxes
Significant components of the income tax provision are
as follows:
Years Ended
July 1, July 2, July 3,
2007 2006 2005
(in thousands)
Current provision:
Federal
State
Deferred provision:
Federal
State
Income tax provision
$ (275)
1,841
1,566
9,082
1,243
10,325
$11,891
$ 351
655
1,006
2,120
55
2,175
$ 3,181
$ 308
388
696
3,313
1,389
4,702
$5,398
22
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
A reconciliation of the U.S. federal statutory tax rate to the
Company’s effective tax rate is as follows:
convert into one share of Class A common stock upon its
transfer, with limited exceptions.
Years Ended
July 1, July 2, July 3,
2007 2006 2005
Tax at U.S. statutory rates
35.0%
State income taxes, net
of federal tax benefit
35.0%
35.0%
7.3
8.7
6.9
Non-deductible stock-based
compensation
1.7
8.5
––
Non-deductible goodwill
amortization
Tax credits
Tax settlements
Other, net
0.4
(0.4)
(3.1)
0.5
41.0%
2.2
(5.0)
––
2.0
50.0%
1.5
––
––
(4.5)
40.7%
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The significant
components of the Company’s deferred income tax assets
(liabilities) are as follows:
Years Ended
July 1, July 2, July 3,
2007 2006 2005
(in thousands)
Deferred income tax assets:
Net operating loss
carryforwards
Accrued expenses
and reserves
Stock-based
compensation
$12,944
$25,963 $ 23,742
6,318
6,325
3,965
2,529
1,098
––
Deferred income tax liabilities:
Other intangibles
Installment sales
Tax in excess of
(9,112)
––
(9,285)
(25)
––
(34)
book depreciation
(1,649)
(425)
(293)
Net deferred
income tax assets
$11,030
$23,651 $27,380
At July 1, 2007, the Company’s net operating loss
carryforwards were approximately $27.7 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
23
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. Under
this program, as of July 1, 2007, the Company had
repurchased 1,534,677 shares of common stock for $11.3
million, of which $0.2 million (24,627 shares), $1.3 million
(182,000 shares) and $9.8 million (1,328,050 shares)
were repurchased during the fiscal years ending July, 1
2007, July 2, 2006 and July 3, 2005, respectively. In a
separate transaction, during fiscal 2007, the Company’s
Board of Directors authorized the repurchase of 3,010,740
shares from an affiliate. The purchase price was
$15,689,000 or $5.21 per share. The repurchase was
approved by the disinterested members of the Company’s
Board of Directors and is in addition to the Company’s
existing stock repurchase authorization of $20.0 million, of
which $8.7 remains authorized but unused.
Note 11. Stock Based Compensation
The Company has stock options and restricted stock
awards outstanding to participants under the 1-800-
FLOWERS.COM 2003 Long Term Incentive and Share
Award Plan (the “Plan”). Options are also outstanding
under the Company’s 1999 Stock Incentive Plan, but no
further options may be granted under this plan. The Plan is
a broad-based, long-term incentive program that is intended
to attract, retain and motivate employees, consultants and
directors to achieve the Company’s long-term growth and
profitability objectives, and therefore align stockholder and
employee interests. The Plan provides for the grant to
eligible employees, consultants and directors of stock
options, share appreciation rights (“SARs”), restricted
shares, restricted share units, performance shares, perfor-
mance units, dividend equivalents, and other share-based
awards (collectively “Awards”).
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 Rev-
enue 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 1, 2007, the Company has reserved approxi-
mately 14.8 million shares of common stock for issuance,
including options previously authorized for issuance under
the 1999 Stock Incentive Plan.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 1, July 2, July 3,
2007 2006 2005
Weighted average fair value
of options granted
Expected volatility
Expected life (in years)
Risk-free interest rate
Expected dividend yield
$ 3.29
46%
5.3
4.6%
0.0%
$ 3.16
46%
5.3
4.6%
0.0%
$4.44
61%
5.0
3.8%
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 and fiscal 2007, 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 contrac-
tual 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%.
The following table summarizes stock option activity during the year ended July 1, 2007:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Term Value (000s)
Outstanding – beginning of
period
10,103,491
187,500
Granted
Exercised (395,379)
Forfeited/Expired (742,947)
Outstanding – end of period
9,152,665
Options vested or expected to
vest at end of period
Exercisable at end of period
8,888,395
7,322,901
$8.09
$6.82
$4.94
$9.33
$8.10
$8.13
$8.36
4.8 years
$24,210
4.7 years
4.0 years
$23,592
$19,871
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 2007 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 1,
2007. This amount changes based on the fair market value of the company’s stock. The total intrinsic value of options exercised
for the years ended July 1, 2007, July 2, 2006 and July 3, 2005 was $1.0 million, $0.3 million, and $0.7 million, respectively.
The following table summarizes information about stock options outstanding at July 1, 2007:
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
$ 5.25 - 6.52
$ 6.53 - 8.45
$ 8.47 - 12.87
$12.95 - 21.00
2,461,805
2,206,431
1,852,490
2,025,893
606,046
9,152,665
2.9 years
6.3 years
7.1 years
4.1 years
2.3 years
4.8 years
2,461,805
1,380,381
854,076
2,020,593
606,046
7,322,901
$ 3.83
$ 6.40
$ 7.24
$ 12.19
$ 20.01
$ 8.36
$ 3.83
$ 6.40
$ 7.43
$12.18
$20.01
$ 8.10
As of July 1, 2007, the total future compensation cost
related to nonvested options not yet recognized in the
statement of income was $4.9 million and the weighted
average period over which these awards are expected
to be recognized was 2.9 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 condi-
tions and, in certain cases, holding periods (Restricted
Stock). In fiscal 2005, the Company recorded the grant date
fair value of unvested shares of Restricted Stock as un-
earned stock-based compensation (“Deferred Compensa-
tion”). In accordance with SFAS No. 123(R), in fiscal 2006,
the Company reclassified the balance of Deferred Compen-
sation against additional paid-in capital, and reduced its
shares of Class A Common Stock issued accordingly.
24
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 14. Business Segments
During the first quarter of fiscal 2007, the Company
segmented its organization to improve execution and
customer focus and to align its resources to meet the
demands of the markets it serves. The Company’s manage-
ment reviews the results of the Company’s operations by
the following four business categories:
(cid:127) 1-800-Flowers.com Consumer Floral;
(cid:127) BloomNet Wire Service;
(cid:127) Gourmet Food and Gift Baskets; and
(cid:127) Home and Children’s Gifts.
Category performance is measured based on contribu-
tion margin, which includes only the direct controllable
revenue and operating expenses of the categories. As such,
management’s measure of profitability for these categories
does not include the effect of corporate overhead (see *
below), which are operated under a centralized manage-
ment platform, providing services throughout the organiza-
tion, nor does it include stock-based compensation, depre-
ciation and amortization, other income (net), and income
taxes. Assets and liabilities are reviewed at the consolidated
level by management and not accounted for by category.
Net Revenues
Years Ended
July 1, July 2, July 3,
2007 2006 2005
(in thousands)
Net revenues:
1-800-Flowers.com
Consumer Floral
BloomNet Wire
Service
Gourmet Food &
Gift Baskets
Home &
Children’s Gifts
Corporate (*)
Intercompany
$491,404
$452,188
$422,012
44,379
29,884
21,784
192,698
105,002
54,263
186,948
1,652
196,919
1,388
172,317
1,863
eliminations (4,483) (3,640) (1,560)
$670,679
Total net revenues
$781,741
$912,598
The following table summarizes the activity of non-vested
restricted stock during the year ended July 1, 2007:
Weighted
Average
Grant Date
Shares Fair Value
Non-vested – beginning
of period
293,681
Granted
984,536
Vested (39,913)
Forfeited (136,322)
1,101,982
Non-vested – end of period
$7.44
$5.22
$6.48
$5.81
$5.70
The fair value of nonvested shares is determined based on
the closing stock price on the grant date. As of July 1, 2007,
there was $3.8 million of total unrecognized compensation cost
related to non-vested restricted stock-based compensation to
be recognized over a weighted-average period of 2.0 years.
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 employ-
ees who have attained the age of 21 are eligible to participate
upon completion of one year of service. Participants may elect
to make voluntary contributions to the 401(k) plan in amounts
not exceeding federal guidelines. On an annual basis the
Company, as determined by its board of directors, may make
certain discretionary contributions. Employees are vested in
the Company’s contributions based upon years of service.
The Company made contributions of $0.5 million, $0.4
million, and $0.3 million, for the years ended July 1, 2007,
July 2, 2006 and July 3, 2005, respectively.
25
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Operating Income
Years Ended
cancelable capital lease obligations and operating leases
with initial terms of one year or more consist of the following:
July 1, July 2, July 3,
2007 2006 2005
(in thousands)
Category Contribution Margin:
1-800-Flowers.com
Consumer Floral
BloomNet Wire
Service
Gourmet Food &
Gift Baskets
Home &
$64,580
$46,518
$47,039
14,169
7,106
5,912
26,377
6,827
767
Children’s Gifts (1,215)
7,134
6,741
Category Contribution
Margin Subtotal
60,459
103,911
Corporate (*) (51,081) (45,311) (34,072)
Depreciation and
67,585
amortization (17,837) (15,765) (14,489)
Operating
income (loss)
$34,993
$ 6,509
$11,898
(*) Corporate expenses consist of the Company’s enterprise
shared service cost centers, and include, among others,
Information Technology, Human Resources, Accounting and
Finance, Legal, Executive and Customer Service Center
functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are
operated under a centralized management platform, provid-
ing support services throughout the organization. The costs
of these functions, other than those of the Customer Service
Center which are allocated directly to the above categories
based upon usage, are included within corporate expenses,
as they are not directly allocable to a specific category.
Note 15. Commitments and Contingencies
Leases
The Company currently leases office, store facilities, and
equipment under various operating leases through fiscal
2019. As these leases expire, it can be expected that in the
normal course of business they will be renewed or replaced.
Most lease agreements contain renewal options and rent
escalation clauses and require the Company to pay real
estate taxes, insurance, common area maintenance and
operating expenses applicable to the leased properties. The
Company has also entered into leases that are on a month-
to-month basis. 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.
As of July 1, 2007, future minimum payments under non-
Obligations
Under
Capital Operating
Leases Leases
(in thousands)
2008
2009
2010
2011
2012
Thereafter
Total minimum lease payments
Less amounts representing
$40
14
13
13
13
6
$99
interest (20)
Present value of net minimum
lease payments
$79
$11,416
9,141
7,289
7,006
6,176
28,146
$69,174
At July 1, 2007, the aggregate future sublease rental
income under long-term operating sub-leases for land and
buildings and corresponding rental expense under long-
term operating leases were as follows:
Sublease Sublease
Income Expense
(in thousands)
2008
2009
2010
2011
2012
Thereafter
$ 2,099
1,713
1,191
635
341
253
$ 6,232
$ 2,099
1,713
1,191
635
341
253
$ 6,232
Rent expense was approximately $18.9 million, $13.7
million, and $9.7 million for the years ended July 1, 2007,
July 2, 2006and July 3, 2005, 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.
26
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 Subsid-
iaries (the “Company”) as of July 1, 2007 and July 2, 2006,
and the related consolidated statements of income, stock-
holders’ equity, and cash flows for each of the three years in
the period ended July 1, 2007. These financial statements
and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the stan-
dards 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.
financial position of 1-800-FLOWERS.COM, Inc. and Subsid-
iaries at July 1, 2007 and July 2, 2006, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended July 1, 2007, 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 1, 2007,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our re-
port dated September 10, 2007 expressed an unqualified
opinion thereon.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
Melville, New York
September 10, 2007
27
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for estab-
lishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting
is defined in Rules 13-a-15(f) and 15d-15(f) under the
Exchange Act as a process designed by, or under the
supervision of, the Company’s principal executive and
principal financial officers and effectuated by the Company’s
board of directors, management and other personnel to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial state-
ments for external purposes in accordance with U.S.
generally accepted accounting principles and includes
those policies and procedures that:
(cid:127) 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;
(cid:127) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted account-
ing principles, and that receipts and expenditures of the
Company are being made only in accordance with authori-
zation of management and directors of the Company; and
(cid:127) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposi-
tion 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 1, 2007. In making this assessment, management
used the criteria established in “Internal Control-Integrated
Framework,” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on this assessment, management believes that,
as of July 1, 2007 the Company’s internal control over
financial reporting is effective.
Ernst & Young LLP, the Company’s independent registered
public accounting firm, has issued a report on the effectiveness
of the Company’s internal control over financial reporting, as of
July 1, 2007; their report is included on the following page.
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)
28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of 1-800-
FLOWERS.COM, Inc. and Subsidiaries
We have audited 1-800-FLOWERS.COM, Inc. and
Subsidiaries (the “Company”) internal control over financial
reporting as of July 1, 2007, based on criteria established
in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). The Company’s manage-
ment is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the stan-
dards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effective-
ness of internal control based on the assessed risk, and
performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regard-
ing the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transac-
tions 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.
In our opinion, 1-800-FLOWERS.COM, Inc. and Subsid-
iaries maintained, in all material respects, effective internal
control over financial reporting as of July 1, 2007, based on
the COSO criteria.
We also have 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 1, 2007
and July 2, 2006, and the related consolidated statements
of income, stockholders’ equity, and cash flows for each of
the three years in the period ended July 1, 2007 and our
report dated September 10, 2007 expressed an unqualified
opinion thereon.
Melville, New York
September 10, 2007
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 1, 2007 and July 2, 2006.
High Low
Year ended July 1, 2007
July 3, 2006 – October 1, 2006
October 2, 2006 – December 31, 2006
January 1, 2007 – April 1, 2007
April 2, 2007 – July 1, 2007
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
$ 6.10
$ 6.35
$ 8.00
$ 9.47
$ 7.86
$ 7.65
$ 7.10
$ 7.90
$ 4.33
$ 4.94
$ 5.84
$ 7.66
$ 6.45
$ 5.83
$ 6.16
$ 5.39
29
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 5, 2007, there were approximately
276 stockholders of record of the Company’s Class A
common stock, although the Company believes that there
Market for Common Equity and Related Stockholder Matters (continued)
is a significantly larger number of beneficial owners. As of
September 5, 2007, there were approximately 21 stockhold-
ers of record of the Company’s Class B common stock.
Dividend Policy
Although the Company has never declared or paid
any cash dividends on its Class A or Class B common
stock, the Company anticipates that it will generate
increasing free cash flow in excess of its capital invest-
ment 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
36,923,303 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 registra-
tion under Rule 144 or 701 under the Securities Act. As of
September 5, 2007, 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. Under
this program, as of July 1, 2007, the Company had
repurchased 1,534,677 shares of common stock for $11.3
million, of which $0.2 million (24,627 shares), $1.3 million
(182,000 shares) and $9.8 million (1,328,050 shares)
were repurchased during the fiscal years ending July, 1
2007, July 2, 2006 and July 3, 2005, respectively. In a
separate transaction, during fiscal 2007, the Company’s
Board of Directors authorized the repurchase of 3,010,740
shares from an affiliate. The purchase price was
$15,689,000 or $5.21 per share. The repurchase was
approved by the disinterested members of the Company’s
Board of Directors and is in addition to the Company’s
existing stock repurchase authorization of $20.0 million,
of which $8.7 remains authorized but unused.
The following table sets forth, for the months indicated,
the Company’s purchase of Class A common stock during
the fiscal year ending July 1, 2007, which includes the
period July 3, 2006 through July 1, 2007.
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
(in thousands, except average price paid per share)
7/3/06 - 7/30/06
7/31/06 - 8/27/06
8/28/06 - 10/01/06
10/2/06 - 10/29/06
10/30/06 - 11/26/06
11/27/06 - 12/31/06
1/1/07 - 1/28/07
1/29/07 - 2/25/07
2/26/07 - 4/1/07
4/2/07 - 4/29/07
4/30/07 - 5/27/07
5/28/07 - 7/1/07
Total
––
––
9.1
––
––
3,011.1
2.0
13.2
––
––
––
––
3,035.4
––
––
9.1
––
––
0.3
2.0
13.2
––
––
––
––
24.6
$8,863
$8,863
$8,816
$8,816
$8,816
$8,814
$8,802
$8,711
$8,711
$8,711
$8,711
$8,711
$ ––
$ ––
$5.11
$ ––
$ ––
$5.21
$6.20
$6.90
$ ––
$ ––
$ ––
$ ––
$5.22
30
Comparison of 5 Year Cumulative Total Return*
Among 1-800-FLOWERS.COM, the Russell 2000 Index
and the NASDAQ Non-Financial Index
■
1-800-FLOWERS.COM, INC.
▼
Russell 2000
●
Nasdaq Non-Financial
* $100 invested on 6/30/02 in stock or index-including reinvestment of dividends.
Fiscal year ending June 30.
31
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’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 by visiting
the Investor Relations section at www.1800flowers.com,
by calling 516-237-6113, 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