2015 Annual Report
Multi-Brand, Omni-Channel Gift Leader
Driving Growth
ABOUT 1-800-FLOWERS.COM, INC.
1-800-FLOWERS.COM, Inc. is the leading provider of gourmet and floral gifts for all occasions. For nearly 40 years,
1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers
with gifts for every occasion, including fresh flowers, premium, gift-quality fruits and other gourmet items from
Harry & David® (1-877-322-1200 or www.harryanddavid.com), popcorn and specialty treats from The Popcorn Factory®
(1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl’s® (1-800-443-8124 or
www.cheryls.com); premium chocolates and confections from Fannie May® (www.fanniemay.com and
www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com® (www.1800baskets.com); premium
English muffins and other breakfast treats from Wolferman’s (1-800-999-1910 or www.wolfermans.com); carved
fresh fruit arrangements from Fruit Bouquets by 1800Flowers.comSM (www.fruitbouquets.com); and top quality
steaks and chops from Stock Yards® (www.stockyards.com). The Company’s BloomNet® international floral wire
service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to
help professional florists grow their businesses profitably. As always, our 100% Smile Guarantee® backs every gift.
1-800-FLOWERS.COM was named a winner of the 2015 “Best Companies to Work for in New York State” award by The
New York Society for Human Resource Management (NYS-SHRM). 1-800-FLOWERS.COM was awarded the 2014 Silver
Stevie Award, recognizing the organization’s outstanding Customer Service and commitment to our 100% Smile
Guarantee®. 1-800-FLOWERS.COM received a Gold Award for Best User Experience on a Mobile Optimized Site for
the 2013 Horizon Interactive Awards. Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select
Market, ticker symbol: FLWS.
1-800-FLOWERS.COM’s acquisition of Harry & David in September
2014 combined the foremost brands in gourmet food
and floral gifting to create a leading multi-brand,
omni-channel provider of gifts that resonate with
customers and help them deliver smiles for
every occasion. In January 2015, the Company
launched its integration efforts, strategically
merging Harry & David’s premium quality fruit,
gourmet food products and other gifts with the
growing family of 1-800-FLOWERS.COM
gifting brands – optimizing operating
synergies and creating significant
revenue growth opportunities.
FINANCIAL HIGHLIGHTS
(From Continuing Operations)
JUNE 28, JUNE 29, JUNE 30, JULY 1,
2012
2014
2015
2013
JULY 3,
2011
Total Net Revenues
Gross Profit Margin
Operating Expense Ratio
Adjusted EBITDA(1)
Adjusted EPS
(1) Excluding stock-based compensation.
(in millions, except percentages and per share data)
$756.3
$1,121.5
41.7%
43.4%
40.1%
38.6%
$ 80.5(2, 3) $ 48.2
$ 0.33(2, 3) $ 0.22
$735.5
41.5%
38.0%
$ 48.9
$ 0.24
$707.5 $661.4
41.4% 41.6%
38.5% 39.5%
$ 44.3(4) $ 38.3
$ 0.10
$ 0.20
(2) Pro forma for comparability: Includes Harry & David’s fiscal 2015 first quarter loss in order to present comparable full-year results:
Fiscal 2015 Adjusted EBITDA as reported was $95.3MM and fiscal 2015 Adjusted EPS as reported was $0.51.
(3) Adjusted EBITDA and Adjusted EPS for fiscal 2015 exclude one-time costs associated with the acquisition and integration of Harry & David and the
impact of the Fannie May warehouse fire in November 2014.
(4) Fiscal 2012 EBITDA was adjusted to exclude a gain on the sale of Fannie May stores.
TOTAL REVENUES
(From Continuing Operations)
(In Millions)
FY15 % REVENUES
by Category
by Season
$1.12B
Gourmet Food & Gift Baskets
July – September (Fiscal 1st Quarter)
Revenue
Adjusted EBITDA1
$756.3
$735.5
$707.5
$661.4
$80.52,3
$48.9
$48.2
$44.3
$38.3
FY11
FY12
FY13
FY14
FY15
Consumer Floral
October – December (Fiscal 2nd Quarter)
BloomNet® Wire Service
January – March (Fiscal 3rd Quarter)
April – June (Fiscal 4th Quarter)
7
%
%
8
3
2
0
%
%
1
1
5 %
5
2 1 %
48%
FISCAL 2015 ACHIEVEMENTS
FINANCIAL REPORT INSERT
• Acquired Harry & David, adding the iconic Harry & David®,
Wolferman’s®, Moose Munch® and Cushman’s® brands
See inside rear cover pocket
• Grew revenue 48.3% to $1.12B
• Adjusted reported EBITDA $95.3 Million (pro forma $80.5MM)
• Adjusted reported EPS $0.51 (pro forma $0.33)
TO OUR SHAREHOLDERS
Fiscal 2015 was a very exciting year for our company. First, and foremost,
during the year we added the iconic Harry & David brand – along with
Wolferman’s, Moose Munch and Cushman’s – to our growing family of
great gifting brands.
When we closed on the acquisition on September 30, 2014, we reported
that we expected it to be highly accretive, even before any operating
synergies – and, indeed, it has proven to be even better than we expected,
helping drive our fiscal 2015 revenues past $1.12 billion and significantly
increasing our EBITDA, EPS and Free Cash Flow. Moreover, it has helped
extend our position as a leading, omni-channel provider of top-quality
gifts that resonate with our customers for an expanding range of their
celebratory occasions.
BECOMING A GOURMET FOOD AND GIFT BASKET LEADER
Adding Harry & David to our growing family of brands both illustrates and
accelerates our strategy to leverage the leadership position we built with
the $15 million in cost synergies that we have targeted for the next three
years. We have also begun to focus on synergistic revenue opportunities
in areas such as:
s Our combined customer database – where we have a tremendous
amount of customer data and new software tools that can help us extract
and use that data to enhance the relevancy of our marketing messages so
that we can deepen our customer relationships;
s Our Omni-Channel reach – where we can leverage our wholesale ac-
count relationships along with our manufacturing capabilities to increase
brand awareness and absorb operating expenses while growing sales of
Harry & David, Moose Munch and Wolferman’s – brands and products that
our mass channel customer are asking for;
s And our multi-brand website – where we are creating a one-stop
gift shop featuring all of our brands with a single shopping cart, a single
1-800-FLOWERS.COM in the floral gifting category – along with
the relationships we have with our millions of customers – to create
what is fast becoming a leading position in the Gourmet Foods and
Gift Baskets category.
With the addition of Harry & David’s brands to our growing family of gour-
met food gift brands – including Fannie May chocolates, Cheryl’s bakery
gifts, The Popcorn Factory, and 1-800-Baskets.com, among others, we now
have an annual revenue run rate in this segment of more than $650 million.
We see significant growth opportunities in this area and we are confident
and committed to building a billion dollar position in this area through a
combination of solid organic growth and additional accretive acquisitions
in what is a highly fragmented $30+ billion market.
CAPTURING SYNERGIES
When we launched the integration for Harry & David back in January of
2015 we designed the program to look at how we can enhance all aspects
of our business across the enterprise. As a result of this approach, the vari-
ous work streams that we created – from marketing and merchandising to
manufacturing, distribution, finance, human resources, and more – have
all done an excellent job of identifying opportunities for both operating
efficiencies and revenue growth drivers across our brands. Throughout
the year, we made excellent progress toward identifying and going after
address book, our Celebrations Rewards® and Reminders programs and
the Celebrations Passport® free shipping program – all designed to take
the friction out of our customer’s gifting experience.
While we have only scratched the surface in terms of the growth and
operating synergy opportunities we see, through the second half of
fiscal 2015 and the first quarter of 2016, we achieved enhanced year-over-
year revenue growth in the Harry & David business while significantly
reducing their seasonal operating losses. We did this by leveraging our
marketing and merchandising programs as well as our shared services
platform, including our IT, human resources, finance and sourcing.
These efforts, driven by the very talented teams that we have assembled
across the enterprise, are doing an excellent job of continually identifying
and aggressively pursuing growth and operating synergies in all areas
of our operations.
FANNIE MAY FIRE RECOVERY – STRONGER THAN EVER
While fiscal 2015 was indeed exciting, some of that excitement was
also very challenging. During our second quarter, on Thanksgiving Day
2014, we were faced with what could have been a catastrophic fire at our
Fannie May warehouse and distribution facility in Maple Heights, Ohio.
Fortunately, no one was injured in the fire. However, the disruption to our
business was significant since more than $30 million worth of Fannie May
chocolates and other products and packaging that had been built for the
year-end and spring holiday seasons literally went up in smoke. We are
proud to report that the Fannie May team, with help from across our entire
enterprise, responded to this challenge in exemplary fashion – overcom-
ing the loss of a key distribution center and extremely limited inventory
to deliver solid performance for the year. Since that time, inventories have
been rebuilt, stores have been re-stocked, the temporary warehouse and
distribution center that we moved into is operating well and the Maple
Heights location is being rebuilt for us to move back into after the calendar
2015 holiday season. Our comprehensive business insurance provided full
coverage for the financial impact of the fire with final settlement on our
claims totaling $55 million ($30 million received during fiscal 2015 and a
final $25 million received during the first half of fiscal 2016.)
In addition to the excitement at Fannie May, during fiscal 2015 our
Gourmet Foods and Gift Baskets category benefited from the continued
strong performance of our Cheryl’s bakery gifts brand where customer
demand for Cheryl’s signature frosted cookies and brownies continues
to grow at a rapid rate. We also benefited from enhanced performance
in our omni-channel 1-800-Baskets business. Here we are leveraging our
unique design and confection capabilities and see growing opportunities
for cross brand merchandising in our mass market channels, particularly
for our new Harry & David brands, including Moose Munch, Wolferman’s
and Cushman’s.
1-800-FLOWERS.COM DRIVING IMPROVED CONTRIBUTION MARGIN
On the floral side of our business, 1-800-Flowers.com continued to extend
its market leading position in fiscal 2015, driving increased bottom-line
contributions in each quarter of the year. This was achieved despite
the revenue headwind associated with the Saturday placement of the
important Valentine holiday. With more than forty years of experience as
a leader in floral gifting, we know that a weekend day placement for the
Valentine holiday impacts demand due to a number of factors, including
recipients not being in their offices where they typically prefer to receive
their floral gifts so that they can share the experience with their co-workers
and a broader range of alternatives for senders such as breakfast in bed, a
dinner date or a trip to the mall. With Valentine’s Day falling on a Sunday
in fiscal 2016, we expect a similar headwind in our fiscal third quarter and
we are planning our marketing and merchandising programs accordingly.
Fortunately, Valentine’s Day leaps to a Tuesday in fiscal 2017, followed by
strong Wednesday, Thursday and Friday placements in the years following.
BLOOMNET: INNOVATION = MARKET SHARE GAINS
During fiscal 2015 BloomNet further expanded its market position versus
the legacy wire service competitors, achieving solid top-line growth and
strong bottom-line growth for the year. BloomNet is leveraging its posi-
tion as the leading innovator in the floral industry to build on these growth
trends through such industry firsts as its exclusive tablet-based store man-
agement system. The new BMS (Business Management System) system
includes a number of new enhancements, such as: direct integration with
QuickBooks® accounting software as well as a variety of payment systems;
an integrated employee time-card and an advanced inventory manage-
ment system. Also during fiscal 2015, BloomNet introduced a new incen-
tive program designed to stimulate florist-to-florist order sending and a
next-generation website solution for florists incorporating such features as
custom-designed and mobile enabled product pages along with programs
to enhance SEO rankings for florist sites.
We believe BloomNet is well positioned to continue its top and bottom-
line growth trends by leveraging our better value proposition for florists
and our innovative suite of products and services.
STRONG BALANCE SHEET PROVIDES FLEXIBILITY FOR GROWTH
We finished the year with a strong balance sheet including a low debt
ratio and growing cash flows. At year end, we had term debt of $132.1
million and cash and equivalents of $27.9 million. During the year, we
used approximately $8.4 million in cash buying back approximately 1.1
million shares of our stock. To continue our focus on returning value to
our shareholders, late in the year we received a new $25 million autho-
rization from our Board of Directors to continue our stock repurchase
program in fiscal 2016 and beyond.
In terms of capital expenses, for fiscal 2015 we spent approximately $32
million including capital investments made as part of our Harry & David
integration process. We anticipate CapEx for fiscal ’16 will remain at
approximately $32 million as we invest behind initiatives underway to
leverage our combined business platform to drive both operating cost
reductions and revenue growth synergies. Combined with our credit
facility, we have significant flexibility to grow our business both organi-
cally as well as through strategic acquisitions and enhance long-term
shareholder value.
GROWTH GUIDANCE:
For fiscal 2016, we expect to achieve consolidated revenue growth for the
year in a range of five-to-seven percent, based off of $1.12 billion reported
for fiscal 2015. In terms of our bottom-line results, we expect to grow
EBITDA approximately 10% and EPS in excess of 20 percent, based off
of pro forma fiscal 2015 Adjusted EBITDA of $80.5 million and pro forma
fiscal 2015 Adjusted EPS of $0.33 per fully diluted share. In addition,
we expect to generate approximately $35 million of Free Cash Flow in
fiscal 2016.
In conclusion, fiscal 2015 was indeed, very exciting:
n We acquired Harry & David and grew our revenues north of $1.1 billion
while delivering strong bottom line results.
n We launched an enterprise-wide integration program that is
already delivering benefits and where we are continuing to identify
additional opportunities.
n Our Fannie May business literally survived a trial-by-fire and emerged
stronger than ever – poised to accelerate its growth and deliver
strong contributions.
n We completed the expansion of our Cheryl’s bakery facility, expanding
our production capacity to keep pace with continued strong
customer demand.
n We further extended 1-800-Flowers.com’s leadership position in the
consumer floral space and grew BloomNet’s market position – delivering
top-line growth and strong bottom line contributions in both areas.
n And we continued to innovate and invest for the future, in
– our multi-brand website,
– our industry-leading Mobile and Social commerce initiatives,
– and in our operations – from the Harry & David orchards to our
distribution and fulfillment platform.
As we look ahead, we are more excited than ever by the opportunities
we see to drive increased top and bottom line results. We will grow our
revenues both organically and through strategic acquisitions, while we
leverage our business platform to reduce operating expenses, expand
our margins and drive enhanced shareholder value.
Jim McCann
Chairman and CEO
Chris McCann
President
JANUARY
2016
S U N D AY
Everyone likes to belong to exclusive
clubs, particularly when the clubs
are as exclusively delicious as those
offered by our family of brands – in-
cluding everything from the signature
Harry & David® Fruit of the Month
Club®, to Cheryl’s® Cookie Clubs,
Fannie May® Chocolate Clubs, Stock
Yards® Steak Clubs, and even a Moose
Munch® Gourmet Popcorn Club. In
addition to the expanded offering
of new clubs and subscriptions, the
Company is making gifting even more
convenient with the Celebrations
suite of services designed to stimulate
multi-brand purchases and deepen
customer loyalty. The Celebrations
Passport® program features free ship-
ping and other exclusive perks while
the Celebrations Rewards® program
offers special savings to repeat cus-
tomers and Celebrations RemindersSM
provides personalized alerts to help
customers remember to deliver smiles
year ‘round.
1
3
10
17
24
M O N D AY
T U E S D AY
1
5
12
4
11
18
Martin Luther King Jr.’s
Birthday (observed)
19
25
26
31
W E D N E S D AY
1
1
6
13
20
27
7
14
21
28
THURSDAY
F R I D AY
S AT U R D AY
1
New Year’s Day
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15
22
29
2
9
16
23
30
FEBRUARY
2016
S U N D AY
1
1
7
Perhaps no other gifting occasion
throughout the year is more important
to the “Romantic” in all of us than
Valentine’s Day. Expert in delivering
romantic smiles for more than 40 years,
1-800-FLOWERS.COM, Inc. is dedicated
to providing lovers and special friends
everywhere with truly original gifts
designed to WOW recipients – from
stunning, oversized rose arrangements
to delectable gourmet gifts from
Harry & David®, Cheryl’s®, Fannie
May®, The Popcorn Factory®, and
1-800-Baskets.com®. Complementing
these gift choices is the Company’s
superior customer service and custom-
er-friendly technologies, underscored
by numerous prestigious awards such
as: the 2014 Silver Stevie Award, recog-
nizing the organization’s outstanding
Customer Service and commitment
to our 100% Smile Guarantee® and a
Gold Award for Best User Experience on
a Mobile Optimized Site for the 2013
Horizon Interactive Awards.
M O N D AY
T U E S D AY
2 Groundhog Day
9
1
8
14
Valentine’s Day
15
Presidents’ Day
16
23
21
28
22
29
1
W E D N E S D AY
3
4
10
17
24
11
18
25
THURSDAY
F R I D AY
S AT U R D AY
5
12
19
26
6
13
20
27
MARCH
2016
S U N D AY
BloomNet®, the floral industry’s
leading wire service innovator,
offers an extensive range of prod-
ucts and services to thousands of
local, professional florists across the
country. Among the many advan-
tages BloomNet provides to florists
is a state-of-the-art technology suite
that is continuously being enhanced.
For example, the new BloomNet
Commerce website program provides
florists with a customizable, feature-
rich ecommerce solution designed
to grow florists’ revenues both online
and in-store. BloomNet further deep-
ened its relationships with florists in
fiscal 2015, and broadened its florist-
to-florist order sending opportunities,
with promotional programs such as
the “Send to Win – I Heart FLORISTS”
sweepstakes...encouraging florists to
send more orders through BloomNet
with the chance to win fabulous
cruise vacations and many other
valuable prizes.
2
1
6
13
M O N D AY
T U E S D AY
2
7
1
8
14
15
20
First Day of Spring
21
27
Easter
28
22
29
2
W E D N E S D AY
2
3
9
10
4
11
THURSDAY
F R I D AY
S AT U R D AY
5
12
19
26
16
17
St. Patrick’s Day
18
25
23
30
24
31
APRIL
2016
S U N D AY
M O N D AY
T U E S D AY
As the saying goes, “when you’ve got
it, flaunt it!” – in this case, the “it” is
the broadest and best family of gifting
brands assembled anywhere, and
flaunting it means cross-brand mar-
keting. Introducing millions of online
shoppers to this family of brands is
the job of the Company’s multi-brand
website. Here, a growing number of
customers are engaging with multiple
brands to solve their gifting needs for
an expanding range of celebratory
occasions – generating increased
customer retention, frequency and
lifetime value. “Boutique” tabs for
Harry & David® and Wolferman’s®
have joined the multi-brand site,
enticing customers to discover new
gift possibilities while providing those
iconic brands with exposure to mil-
lions of potential new customers. In
addition to the multi-brand website,
the Company continues to be a lead-
ing innovator in mobile technology,
launching a new app that includes
streamlined checkout as well as easy
access to the Company’s Celebrations
Rewards® program and special offers
for returning customers.
3
10
17
4
11
18
5
12
19
24
25
Administrative Professionals’
Week Begins
26
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
0 1
6
2
7
13
14
1
April Fools Day
8
15
2
9
16
20
21
22
Passover Begins at Sunset
23
27
Administrative
Professionals’ Day
28
29
30
MAY
2016
S U N D AY
2
1
2 1
8
Mother’s Day
9
Consumers across the country and
all over the world are increasingly
emphasizing healthier lifestyles, and
we are staying in front of this grow-
ing trend with an extensive offering
of healthful products well suited
for gifting throughout the year. For
Mother’s Day the Company offers
luxurious spa baskets designed to
indulge and pamper Mom along with
lite popcorn treats from The Popcorn
Factory®, gluten-free cookies from
Cheryl’s®, and delicious pears and
assorted fresh fruits from Harry &
David®. Also a customer favorite for
Mother’s Day and for a myriad
of other celebratory occasions is
the Company’s continuously expand-
ing offering of personalize-able
products, including Message in a
Bottle® featuring pre-printed poems
or custom-created messages as well
as personalized plush stuffed animals
and many other customized gift ideas.
M O N D AY
T U E S D AY
3 1
10
17
24
16
23
30
Memorial Day
(observed)
31
15 0
22
29
2
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4 1
5
Cinco dé Mayo
6
National Bring Your Mom
to Work Day
7
11
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12
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25
26
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29
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30
JUNE
2016
S U N D AY
1-800-FLOWERS.COM, Inc. is truly a
one-stop destination for expressing
thoughtfulness with the perfect gifts
for all occasions and all times of the
year. For instance, the month of June
is all about Father’s Day, graduations
and other family gatherings that
celebrate the warmer weather and
bright sunshine. From breakfast to
barbeque and everything in between,
brands such as Wolferman’s®,
Stock Yards®, Harry & David®, Cheryl’s®,
Fannie May® and The Popcorn
Factory® provide a taste tempting
selection of gourmet foods that not
only deliver smiles for thoughtful
gifting but are also just right for
customers to treat themselves!
5
12
M O N D AY
T U E S D AY
1
6
2
7
13
14
Flag Day
19
Father’s Day
20
First Day of Summer
21
26
27
28
THURSDAY
F R I D AY
S AT U R D AY
3
10
17
24
4
11
18
25
W E D N E S D AY
1
2
8
15
22
29
9
16
23
30
JULY
2016
S U N D AY
In fiscal 2015, the Company continued
to expand the geographic reach of its
Fruit Bouquets by 1800Flowers.comSM
business, increasing national cover-
age through the design and creative
skills of local florists as well as food
service partners across the country.
Fruit Bouquets by 1800Flowers.comSM,
birthed internally to address growing
customer demand for a same-day
fresh fruit gift, are nearly impossible to
resist. These freshly carved and hand
crafted arrangements feature succu-
lent strawberries, the juiciest melons
and grapes, sweetest pineapples and
brightest oranges. Each arrangement
is expertly designed into customized
shapes and each is great for sharing
among family and friends as a refresh-
ing treat and during just about any
occasion from picnics and backyard
cook-outs to sympathy gatherings.
2
1
3
10
17
24
M O N D AY
T U E S D AY
4
Independence Day
5
12
19
26
11
18
25
Parents’ Day
31
2
W E D N E S D AY
1
6
13
20
27
THURSDAY
F R I D AY
S AT U R D AY
2
7
1
8
14
Bastille Day
15
21
28
22
29
2
9
16
23
30
AUGUST
2016
The 1-800-Flowers.com® Local Artisan
program provides local florists with
an opportunity to showcase their
creativity to an audience of millions
by promoting their original floral
and gourmet product designs on the
1-800-flowers.com website. In essence,
the program levels the playing field,
giving retail florists and their exquisite
floral creations enormous exposure,
an especially valuable strategy for
flower shops with limited marketing
budgets. During fiscal 2015, the Local
Artisan program was expanded to add
dedicated boutique pages for florists
who have three or more products live
on the 1-800-flowers.com site, enabling
those florists to further market their
shops and their design capabilities via
behind-the-scenes videos and photos.
Florists can find out how to partici-
pate in the Local Artisan program at
www.1800flowers.com/join-local-program.
S U N D AY
M O N D AY
T U E S D AY
7
14
21
28
National Friendship
Week Begins
1
8
15
22
29
2
9
16
23
30
30
31
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
0 3
4
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24
31
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27
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29
SEPTEMBER
2016
S U N D AY
M O N D AY
T U E S D AY
Professional florists look to the
BloomNet® wire service for innovative
insights that can help them grow their
business. A cornerstone of BloomNet’s
commitment to florists is its Floriology®
family of services and support. The
Floriology Institute™ in Jacksonville,
Florida – complemented by Floriology
Institute Online™ – provides educa-
tional opportunities through courses
in floral design taught by the world’s
leading design experts, enabling
florists to explore the latest trends and
create uniquely beautiful arrange-
ments that can give their business a
competitive edge. Another element
in BloomNet’s commitment to florists
is Floriology® Magazine, filled each
month with exciting floral designs
and inspirational articles focusing
on the success stories of flower shop
owners throughout America. Yet
another component in the BloomNet
offering is the Floriology Institute “Tips,
Tricks & Techniques Blog” featuring a
constantly updated collection of step-
by-step ideas that can increase florists’
sales and profits.
1
6
13
20
27
4
5
Labor Day
11
Patriot Day
Grandparents Day
12
18
25
19
26
W E D N E S D AY
2
7
14
21
28
THURSDAY
F R I D AY
S AT U R D AY
3
10
17
24
1
8
2
9
15
16
22
First Day of Fall
23
29
30
OCTOBER
2016
1
S U N D AY
M O N D AY
T U E S D AY
In fiscal 2015, the Company’s Business
Gift Services division continued to in-
crease its capabilities and its gift offer-
ings for thousands of corporate clients
across the country. BGS has expanded
its reach through partnerships with
Veterans Advantage, Capital One®,
MasterCard®, Visa®, American Express®
and many others. Order volume has
also been enhanced via partnership
marketing, providing loyalty and
rewards programs through such in-
dustry leading organizations as AARP,
AAA, Caesars Rewards, Southwest
Airlines and JetBlue to name just a
few. Furthermore, the BGS division is
growing sales through cross-brand
marketing, taking advantage of an
expanded gourmet food and gift
basket line resulting from the recent
addition of Harry & David® along with
a steady stream of new products in-
cluding Cheryl’s® cookies, Fannie May®
chocolates, The Popcorn Factory®
and 1-800-Baskets.com®.
2
Rosh Hashanah
Begins at Sunset
3
4
9
16
23
10
Columbus Day
(observed)
11
Yom Kippur
Begins at Sunset
17
National Boss’s Day
18
24
25
30
Halloween
31
1
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1 2
6
13
20
27
5
12
19
26
2
7
14
21
28
1
8
National Children’s Day
15
Sweetest Day
22
29
NOVEMBER
2016
S U N D AY
The Harry & David® brand has a rich
history steeped in tradition and known
for top quality gourmet delights
including world famous Royal Riviera®
pears. The origin of these incomparable
pears goes all the way back to the
early 1900s when brothers Harry and
David Holmes utilized their education
in agriculture at Cornell University
to specialize in a particularly deli-
cious variety known as the Comice
pear. Now, each year the summer/fall
harvest at Harry& David’s vast orchards
in southern Oregon and its thousands
of carefully-tended trees produce the
very best Mother Nature has to offer:
sumptuous pears at their peak of
ripeness, unsurpassed in flavor and
appearance. During the holidays and
for many other celebratory occasions,
these pears are treasured gifts that are
always enjoyed and looked forward to
by generation after generation.
2
1
6
13
20
27
M O N D AY
T U E S D AY
2
7
14
21
28
1
8
Election Day
15
22
29
2
W E D N E S D AY
2
3
THURSDAY
F R I D AY
S AT U R D AY
4
5
10
17
11
Veterans Day
12
18
19
26
24
Thanksgiving Day
25
9
16
23
30
DECEMBER
2016
Holiday time is the time for friends
and family to gather, and sharing
great food is at the heart of the best
holiday celebrations – whether those
celebrations are at home, in the
office, or anywhere else. The Company’s
family of gourmet gifting brands has
something for every palate, from
chocolates to steaks to unique fruits
and decadent cakes and cookies. The
dedicated “chocolatiers” of Fannie
May® assure the incredible taste of
iconic Pixies®, Mint Meltaways® and
other treats; Cheryl’s® bakers provide
scrumptious frosted cookies and
brownies; Harry & David® farmers
and Wolferman’s® chefs deliver
premium quality fruits, muffins and
other savory gourmet items; and The
Popcorn Factory® and Moose Munch®
teams continue to pop out fun and
delicious snacks.
S U N D AY
M O N D AY
T U E S D AY
1
6
13
20
4
11
18
5
12
19
25
Christmas Day
26
First Day of Kwanzaa
27
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
0 2
7
1
8
14
15
21
First Day of Winter
22
28
29
2
9
16
23
30
3
10
17
24
Hanukkah Begins at Sunset
31
BOARD OF DIRECTORS
James F. McCann
Chairman and
Chief Executive Officer
1-800-FLOWERS.COM, Inc.
Christopher G. McCann
President
1-800-FLOWERS.COM, Inc.
Geralyn R. Breig
President
Clarks, Americas
James A. Cannavino
IBM Company
Senior Vice President
Retired
Eugene F. DeMark
Area Managing Partner
KPMG LLP, Retired
BankUnited Director
Leonard J. Elmore
Network Television
Sports Analyst
Attorney at Law
Lawrence V. Calcano
President
iCapital Network, Inc.
Larry Zarin
Express Scripts, Inc.
Senior Vice President,
Chief Marketing Officer
Retired
Sean P. Hegarty
Managing Partner
Hegarty & Company
Fiscal Year 2015
Financial Report
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The selected consolidated statement of operations data for the years ended June 28, 2015, June 29, 2014
and June 30, 2013 and the consolidated balance sheet data as of June 28, 2015 and June 29, 2014, have been
derived from the Company’s audited consolidated financial statements included elsewhere in this Annual Report.
The selected consolidated statement of operations data for the years ended July 1, 2012 and July 3, 2011, and
the selected consolidated balance sheet data as of June 30, 2013, July 1, 2012 and July 3, 2011, are derived from
the Company’s audited consolidated financial statements which are not included in this Annual Report.
The following tables summarize the Company’s consolidated statement of operations and balance sheet data.
The Company acquired Harry & David in September 2014, 16 franchised stores from GB Chocolates on June 27, 2014,
iFlorist in December 2013, Pingg Corp in May 2013 (disposed of in June 2015), Flowerama in August 2011, Fine Statio-
nery, Inc. in May 2011 (disposed of in June 2015) and Mrs. Beasley’s Bakery LLC in March 2011. The following financial
data reflects the results of operations of these subsidiaries since their respective dates of acquisition. On September 6,
2011, the Company completed the sale of certain assets of its wine fulfillment services business operated by its
Winetasting Network subsidiary. During the fourth quarter of fiscal 2013, the Company made the strategic decision to divest
the e-commerce and procurement businesses of its Winetasting Network subsidiary in order to focus on growth opportuni-
ties in its Gourmet Foods and Gift Baskets business segment. The Company closed on the sale of its Winetasting Network
business on December 31, 2013. As a result, the Company has classified the results of its wine fulfillment services
business as a discontinued operation for fiscal 2012 and 2011, and the results of the e-commerce and procurement
businesses as discontinued operations for fiscal 2014, 2013, 2012 and 2011. This information should be read together
with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
Company’s consolidated financial statements and notes to those statements included elsewhere in this Annual Report.
Years Ended
June 28, June 29, June 30, July 1, July 3,
2015 2014 2013 2012 2011
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Gain on sale of stores
Operating income
Interest expense and other, net
Income from continuing operations
before income taxes
Income tax expense from
continuing operations
Income from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income
Less: Net loss attributable to
noncontrolling interest
Net income attributable to
$1,121,506
634,311
487,195
299,801
34,745
85,908
29,124
449,578
––
37,617
7,303
30,314
10,930
19,384
––
19,384
$
$756,345
440,672
315,673
194,847
22,518
54,754
19,848
291,967
––
23,706
1,357
$735,497
430,305
305,192
186,720
21,700
52,188
18,798
279,406
––
25,786
991
$707,517
414,940
292,577
181,199
20,426
51,474
19,540
272,639
3,789
23,727
2,635
22,349
24,795
21,092
8,403
13,946
729
$ 14,675
9,073
15,722
(3,401)
$ 12,321
7,771
13,321
4,325
$ 17,646
$661,389
386,296
275,093
171,960
20,109
48,701
20,237
261,007
––
14,086
3,993
10,093
3,903
6,190
(468)
$ 5,722
$ (903) $ (697) $ –– $
––
$
––
1-800-FLOWERS.COM, Inc.
Basic net income (loss) per common share
attributable to 1-800-FLOWERS.COM, Inc.
From continuing operations
From discontinued operations
Basic net income per common share
Diluted net income (loss) per common share
$
$
$
$
attributable to 1-800-FLOWERS.COM, Inc.
$
From continuing operations
$
From discontinued operations
Diluted net income per common share
$
Weighted average shares used in the calculation
of net income (loss) per common share:
Basic
Diluted
20,287
$ 15,372
$ 12,321
$ 17,646
$ 5,722
0.31
0.00
0.31
0.30
0.00
0.30
$ 0.23
$
0.01
$ 0.24
$ 0.22
$ 0.01
$ 0.23
$ 0.24
$ (0.05)
$ 0.19
$ 0.24
$ (0.05)
$ 0.19
$
0.21
$ 0.07
$ 0.27
$ 0.20
$ 0.07
$ 0.27
$ 0.10
$ (0.01)
$ 0.09
$ 0.10
$ (0.01)
$ 0.09
64,976
67,602
64,035
66,460
64,369
66,792
64,697
66,239
64,001
65,153
2
Selected Financial Data (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
As of
June 28, June 29, June 30, July 1, July 3,
2015 2014 2013 2012 2011
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Long-term liabilities
Total 1-800-FLOWERS.COM, Inc.
$ 27,940
36,361
501,946
168,083
$ 5,203
17,511
267,569
7,144
154
16,886
250,073
5,039
$
$ 28,854
29,721
262,213
17,080
$ 21,442
17,303
259,075
32,242
stockholders’ equity
208,449
183,228
169,271
161,748
142,511
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Description of Business
1-800-FLOWERS.COM, Inc. is the world’s leading
florist and gift shop. For nearly 40 years, 1-800-FLOW-
ERS® (1-800-356-9377 or www.1800flowers.com) has
been helping deliver smiles for our customers with gifts
for every occasion, including fresh flowers and the finest
selection of plants, gift baskets, gourmet foods, confec-
tions, candles, balloons and plush stuffed animals.
As always, our 100% Smile Guarantee® backs every
gift. 1-800-FLOWERS.COM was recently named in
Internet Retailer’s 2016 Top Mobile 500 as one of the
world’s leading mobile commerce sites. Additionally, the
Company was included in Internet Retailer’s 2015 Top
500 for fast growing e-commerce companies. In 2015,
1-800-FLOWERS.COM was named a winner of the
“Best Companies to Work for in New York State” award by
The New York Society for Human Resource Management
(NYS-SHRM). 1-800-FLOWERS.COM was awarded the
2014 Silver Stevie Award, recognizing the organization’s
outstanding Customer Service and commitment to our
100% Smile Guarantee®. 1-800-FLOWERS.COM received
a Gold Award for Best User Experience on a Mobile
Optimized Site for the 2013 Horizon Interactive Awards.
The Company’s BloomNet® international floral
wire service (www.mybloomnet.net) provides a broad
range of quality products and value-added services
designed to help professional florists grow their busi-
nesses profitably. The 1-800-FLOWERS.COM “Gift Shop”
also includes gourmet gifts such as premium, gift-quality
fruits and other gourmet items from Harry & David®
(1-877-322-1200 or www.harryanddavid.com),
popcorn and specialty treats from The Popcorn Factory®
(1-800-541-2676 or www.thepopcornfactory.com);
cookies and baked gifts from Cheryl’s® (1-800-443
8124 or www.cheryls.com); premium chocolates
and confections from Fannie May®
(www.fanniemay.com and www.harrylondon.com);
gift baskets and towers from 1-800- Baskets.com®
(www.1800baskets.com); premium English muffins and
other breakfast treats from Wolferman’s (1-800-999-1910
or www.wolfermans.com); carved fresh fruit arrangements
from FruitBouquets.com (www.fruitbouquets.com);
and top quality steaks and chops from Stock
Yards® (www.stockyards.com).
On September 30, 2014, the Company completed
its acquisition of Harry & David, a leading multi-channel
specialty retailer and producer of branded premium
gift-quality fruit, gourmet food products and other gifts
marketed under the Harry & David®, Wolferman’s® and
Cushman’s® brands. The transaction, at a purchase price
of $142.5 million, included the Harry & David’s brands
and websites as well as its headquarters, manufacturing
and distribution facilities and orchards in Medford,
Oregon, a warehouse and distribution facility in Hebron,
Ohio and 48 Harry & David retail stores located through-
out the country. Harry & David’s revenues were approxi-
mately $386 million in fiscal 2014, with Adjusted EBITDA
of approximately $28 million.
Including the contribution of Harry & David from date
of acquisition, the Company generated total annual net
revenues of $1.12 billion and Adjusted EBITDA of
$95.3 million for fiscal 2015 (excluding stock based
compensation, transaction/integration costs and pur-
chase accounting adjustments related to the Harry &
David acquisition and the impact of the Fannie May
warehouse fire). It should be noted that the revenue and
Adjusted EBITDA for fiscal 2015 do not include the results
of Harry & David for the fiscal first quarter of the year,
which is typically its lowest in terms of revenues and
includes significant losses due to the seasonality of its
business. The historical results of Harry & David, as well
as applicable pro forma results are included in the
Company’s Form 8-K/A filed on December 16, 2014.
In order to finance the acquisition, on September 30,
2014, the Company entered into a Credit Agreement with
JPMorgan Chase Bank as administrative agent, and a
group of lenders (the “2014 Credit Facility”), consisting of
a $142.5 million five-year term loan (the “Term Loan”)
with a maturity date of September 30, 2019, and a co-
terminus revolving credit facility (the “Revolver”), with a
3
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
seasonally adjusted limit ranging from $100.0 to $200.0
million, which may be used for working capital (subject to
the applicable sublimit) and general corporate purposes.
On November 27, 2014, a fire occurred at the
Company’s Maple Heights, Ohio warehouse and distribu-
tion facility. While the fire did not cause any injuries, the
building was severely damaged, rendering it inoperable
for the key calendar 2014 holiday season, and all Fannie
May and Harry London confections in the facility were
destroyed. As a result, the Company had limited supplies
of its Fannie May Fine Chocolates and Harry London
Chocolates products available in its retail stores as well
as for its ecommerce and wholesale channels during the
holiday season. While the Company implemented
contingency plans to increase production for Fannie May
Fine Chocolates and Harry London Chocolates products
at its production facility in Canton, Ohio and to shift
warehousing and distribution operations to alternate
Company facilities, product availability was severely
limited impacting revenue and earnings during the fiscal
second and third quarters of fiscal 2015. The Company
does not believe that there will be any further significant
impact on revenues from this issue beyond the year
ended June 28, 2015.
The impact of lost sales related to the fire was
estimated to be $17.3 million during the year ended
June 28, 2015, with corresponding loss of income from
continuing operations before income taxes of $6.6 million.
While no insurance recoveries have been recorded to
date related to lost sales, the Company expects that its
property and business interruption insurance will cover
these losses.
During the fourth quarter of fiscal 2013, the Company
made the strategic decision to divest the e-commerce
and procurement businesses of its Winetasting Network
subsidiary in order to focus on growth opportunities in
its Gourmet Foods and Gift Baskets business segment.
The Company closed on the sale of its Winetasting
Network business on December 31, 2013. The Company
has classified the results of the e-commerce and procure-
ment business of The Winetasting Network as a discontin-
ued operation for the fiscal years 2014 and 2013.
As a provider of gifts to consumers and wholesalers
for resale to consumers, the Company is subject to
changes in consumer confidence and the economic
conditions that impact our customers. Demand for the
Company’s products is affected by the financial health of
our customers, which, in turn, is influenced by macro
economic issues such as unemployment, fuel and energy
costs, trends in the housing market and availability of
consumer credit. While consumers appear more upbeat
about the economy, during the recent economic down-
turn, the demand for our products had been adversely
affected by the reduction in consumer spending, and the
Company expects that its revenues will continue to be
closely tied to changes in consumer sentiment.
Fiscal 2015 was a transformative year for the Com-
pany. The acquisition of the iconic Harry & David brands
helped the Company to extend its position as a leading,
omni-channel provider of top quality gifts that resonate
with our customers for all of their celebratory occasions.
This acquisition combined with continued organic
improvement within all segments of the Company’s
core businesses have resulted in a business exceeding
$1.1 billion in revenue during fiscal 2015. However, fiscal
2105 was not without its challenges, the most significant
of which was the Maple Heights, Ohio warehouse fire on
Thanksgiving Day which destroyed most of Fannie May’s
inventory, which was at its annual peak in preparation for
the upcoming Holidays. As a result, the Company had
limited supplies of its Fannie May chocolate products
available in its retail stores as well as for its e-commerce
and wholesale channels during the holiday season.
While the Company immediately implemented contin-
gency plans to increase production at its facility in
Canton, Ohio, and to shift warehousing and distribution
operations to alternate facilities, product availability was
severely limited. In addition to the fire, the Company
effectively steered its way through the challenging day
placement of Valentine’s Day, which moved from Friday in
fiscal 2014 to Saturday in fiscal 2015. This shift presented
not only logistical challenges related to Friday/Saturday
deliveries, but also impacts overall demand as customers
have more gifting options, such as dining out, when
Valentine’s Day falls on a weekend.
Recognizing the need to balance the Company’s short
and long-term operating and financial objectives, the
primary objectives during fiscal 2016 are to generate
outsized earnings growth under a strategy which mini-
mizes risk by focusing on achieving moderate revenue
growth from the Company’s core businesses, while
driving synergistic opportunities from the acquisition of
Harry & David which are expected to generate $15
million in operating synergies over a 3-year period and
contribute significant, multi-channel revenue growth
synergies. Tempered by the current economic climate,
during fiscal 2016, the Company said it expects to
achieve consolidated revenue growth for the year in a
range of five-to-seven percent, compared with revenues
of $1.12 billion reported for fiscal 2015. In terms of
bottom-line results, the Company expects to grow
EBITDA approximately 10% and EPS in excess of 20
percent, compared with pro forma fiscal 2015 Adjusted
EBITDA* of $80.5 million and pro forma fiscal 2015
Adjusted EPS* of $0.33 per diluted share. (*Pro forma
fiscal 2015 Adjusted EBITDA and Adjusted EPS include
seasonal losses associated with Harry & David that are
incurred in its fiscal 2015 first quarter. These losses were
not captured in the Company’s fiscal 2015 results due to
the close of the acquisition on September 30, 2014.)
When the Company launched its integration efforts
for Harry & David in January of 2015, it created an all-
encompassing program designed to look at how the
Company can enhance all aspects of its business. As a
result of this approach, workstreams in areas including
marketing and merchandising, manufacturing, distribu-
tion, finance, and human resources are focusing on
4
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
identifying and achieving a number of initiatives that will
enable it to drive enhanced top and bottom-line growth in
fiscal 2016, including:
Cost synergy opportunities – where the Company
has made significant headway towards identifying and
implementing the programs that are expected to drive
$15 million in synergies over the next three year.
While we continue to focus on capturing these cost
synergies, the Company is also working on revenue
opportunities in areas such as:
(cid:127) Our combined customer database – where we have
new software tools that can help the Company to
significantly enhance the relevancy of our marketing
messages so that we can expand and deepen our
relationships with the customers in our significant
database;
(cid:127) Our multi-brand website – launched in fiscal 2015,
the Company is now focusing its marketing efforts on
developing and growing its multi-branded customer,
providing for increased customer counts and pur
chase frequency through increased penetration of its
suite of floral and food gift products, including the
recently acquired Harry & David brand. Through the
multi-brand website, the Company is creating a one-
stop gift shop featuring all of our brands with a
single shopping cart, a single address book, the
Celebrations Rewards and Reminders programs and
the Celebrations Passport free shipping program –
all designed to ease the customers’ gifting
experience, and
(cid:127) Our Mass-Channel – where the Company can
leverage its wholesale account relationships along
with our manufacturing capabilities and expanded
production capacities to grow our business with
brands like Moose Munch, Wolferman’s, the
Popcorn Factory and Harry London.
The Company believes that these initiatives and its
continued focus on the following core values will drive
long-term profitable growth:
(cid:127) Know and Take Care of Our Customer –
by providing the right products and the best services
with consistent, excellent quality and value to help
them express themselves and deliver smiles.
1-800-FLOWERS.COM was awarded the 2014
Silver Stevie Award, recognizing the organization’s
outstanding Customer Service and commitment to our
100% Smile Guarantee. 1-800-FLOWERS.COM is
rated “EXCELLENT” by StellaService.
(cid:127) Maintain and enhance our Financial Strength
and Flexibility – by seeking ways to reduce our
operating costs while strengthening our balance sheet
and adding flexibility to our capital structure. During
fiscal 2015, the Company completed the purchase of
Harry & David and in order to finance the acquisition
entered into a credit agreement consisting of a term-
loan and a new revolving credit facility, assuring
capital availability and future flexibility.
(cid:127) Continue to Innovate and Invest for the Future –
by investing in technology and new growth
opportunities 1-800-FLOWERS.COM was included in
Internet Retailer’s 2016 Top Mobile 500 as one of the
world’s leading mobile commerce sites. Additionally,
the Company was included in Internet Retailer’s 2015
Top 500 for fast growing e-commerce companies.
1-800-FLOWERS.COM received a Gold Award for
Best User Experience on a Mobile Optimized Site
for the 2013 Horizon Interactive Awards. In 2015,
1-800-FLOWERS.COM was named a winner of the
“Best Companies to Work for in New York State” award
by The New York Society for Human Resource
Management (NYS-SHRM), demonstrating
its investment in its employees.
Faced with a still challenging economic climate, these
strategic investments, coupled with improved manufactur-
ing and labor efficiency plans and more targeted and
efficient advertising spend, will not only generate revenue
growth and consumer loyalty but position the Company to
achieve its strategic, financial and operational objectives in
the coming year, which in turn will build shareholder value.
Category Information
The following table presents the net revenues, gross
profit and category contribution margin from each of the
Company’s business segments, as well as consolidated
EBITDA and Adjusted EBITDA. As noted previously, the
Company’s e-commerce and procurement businesses
of its Winetasting Network subsidiary, which had previ-
ously been included within its Gourmet Foods & Gift
Baskets category, have been classified as discontinued
operations and therefore excluded from category
information below for fiscal 2014 and 2013. (Due to
certain one-time items, the following Non-GAAP
reconciliation tables have been included within MD&A.)
5
(cid:127)
Years Ended
Impact of
Purchase
Impact of Accounting
Purchase Adjustment June 28,
Accounting for 2015
Impact of Adjustment to Inventory Impact of Impact of Impact of Adjusted
2015 Fire Revenue Step-Up Costs Costs Costs Revenue 2014 % Change 2013 % Change
June 28, Warehouse Deferred Fair Value Acquisition Integration Severance Net June 29, June 30,
Net revenues from continuing operations:
1-800-Flowers.com Consumer Floral
BloomNet Wire Service
Gourmet Food & Gift Baskets
Corporate
Intercompany eliminations
$
422,199
85,968
613,953
1,020
(1,634)
$
––
350
16,934
––
––
$
––
––
1,621
––
––
Total net revenues from continuing operations
$ 1,121,506
$ 17,284
$
1,621
Gross profit from continuing operations:
1-800-Flowers.com Consumer Floral
$
BloomNet Wire Service
Gourmet Food & Gift Baskets
Corporate (*)
165,677
39.2%
47,924
55.7%
272,690
44.4%
904
88.6%
$
––
––
70
––
6,745
––
––
––
$
––
––
––
––
1,621
––
––
––
$
$
$
$
$
$
––
––
––
––
––
––
––
––
––
––
4,760
––
––
––
Total gross profit from continuing operations
$
487,195
$ 6,815
$
1,621
$
4,760
$
(dollars in thousands)
$
$
$
$
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
$
$
$
$
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
$
422,199
86,318
632,508
1,020
(1,634)
$
421,336
84,199
251,990
797
2.4%
2.9%
3.6%
1.0%
(1,977) 17.3% (1,865) (6.0%)
$ 411,526
81,822
243,225
789
0.2%
2.5%
151.0%
28.0%
$ 1,140,411
$
756,345
50.8%
$ 735,497
2.8%
$
165,677
39.2%
47,994
55.6%
285,816
45.2%
904
88.6%
$
164,792
39.1%
44,900
53.3%
105,092
41.7%
889
111.5%
0.5%
6.9%
172.0%
$ 163,726
39.8%
41,674
50.9%
98,839
40.6%
0.7%
7.7%
6.3%
6
1.7%
953 (6.7%)
––
$
500,391
$
315,673
58.5%
$ 305,192
3.4%
43.4%
39.4%
100.0%
100.0%
0.0%
0.0%
0.0%
43.9%
41.7%
41.5%
EBITDA from continuing operations, excluding
stock-based compensation
Category Contributions Margin from
continuing operations:
1-800-Flowers.com Consumer Floral
$
BloomNet Wire Service
Gourmet Food & Gift Baskets
Category Contribution Margin Subtotal
43,529
29,398
74,889
147,816
Corporate (*)
(81,075)
$
––
70
6,486
6,556
––
$
––
––
1,621
1,621
––
$
––
––
4,760
4,760
––
$
––
––
1,238
1,238
2,910
$
––
––
––
––
$
––
––
1,989
1,989
$
43,529
29,468
90,983
163,980
$
40,252
26,715
27,122
94,089
8.1%
10.3%
235.5%
74.3%
$
47,193
(14.7%)
25,611
20,345
93,149
4.3%
33.3%
1.0%
3,039
468 (74,658) (50,535) -47.7% (48,565) (4.1%)
EBITDA from continuing operations
$
66,741
$ 6,556
$
1,621
$
4,760
$
4,148
$ 3,039
$
2,457
$
89,322
$
43,554
105.1%
44,584 (2.3%)
Add: Stock-based compensation
5,962
––
––
––
––
––
––
5,962
4,664
27.8%
4,283
8.9%
EBITDA from continuing operations, excluding
stock-based compensation
$
72,703
$ 6,556
$
1,621
$
4,760
$
4,148
$ 3,039
$
2,457
$
95,284
$
48,218
97.6%
48,867
(1.3%)
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of net income from continuing operations to adjusted net income from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands, except per share data)
Income from continuing operations $19,384
(903)
Less: Net loss attributable to noncontrolling interest
20,287
Income from continuing operations attributable to 1-800-FLOWERS.COM, Inc.
$15,722
––
15,722
Add: Impact of warehouse fire, net of tax 4,189 –– ––
Add: Purchase accounting adjustment to deferred revenue, net of tax 1,036
––
Add: Purchase accounting adjustment for inventory
$13,946
(697)
14,643
––
fair value step-up, net of tax 3,042
Add: Acquisition costs, net of tax 2,650
Add: Integration costs, net of tax 1,942
Add: Severance costs, net of tax 1,570
––
––
––
––
––
––
––
––
Adjusted income from continuing operations attributable
to 1-800-FLOWERS.COM, Inc. $34,716 $14,643
––
Less: income attributable to Harry & David 18,804
$15,722
––
Adjusted income from continuing operations attributable
to 1-800-FLOWERS.COM, Inc., excluding income
attributable to Harry & David $15,912 $14,643
$15,722
Income per common share from continuing operations attributable
to 1-800-FLOWERS.COM, Inc.
Basic $ 0.31 $ 0.23
Diluted $ 0.30 $ 0.22
$ 0.24
$ 0.24
Adjusted net income per common share from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.
Basic $ 0.53 $ 0.23
Diluted $ 0.51 $ 0.22
$ 0.24
$ 0.24
Adjusted net income per common share from continuing operations
attributable to 1-800-FLOWERS.COM, Inc., excluding income
attributable to Harry & David
Basic $ 0.24 $ 0.23
Diluted $ 0.24 $ 0.22
$ 0.24
$ 0.24
Weighted average shares used in the calculation of net income and
adjusted net income per common share from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.
Basic 64,976 64,035
Diluted 67,602 66,460
64,369
66,792
Discontinued Operations:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(dollars in thousands)
Net revenues from discontinued operations $ ––
Gross profit from discontinued operations
$ ––
EBITDA from discontinued operations $ ––
$ 1,669
$ 429
$ (868)
$ 5,154
$ 149
$ (2,769)
7
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of income from continuing operations attributable to 1-800-Flowers.com, Inc. to Adjusted EBITDA
from Continuing Operations, excluding stock-based compensation(**) and EBITDA attributable to Harry & David:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands)
Income from continuing operations attributable
to 1-800-FLOWERS.COM, Inc. $ 20,287 $ 14,643
$ 15,722
Add:
Interest expense and other, net 7,303 1,357 991
Depreciation and amortization 29,124 19,848 18,798
Income tax expense 10,930 8,403 9,073
Less:
Net loss attributable to noncontrolling interest (903) (697) ––
EBITDA from continuing operations 66,741 43,554 44,584
Add: Stock-based compensation 5,962 4,664 4,283
EBITDA from continuing operations, excluding stock-based compensation $ 72,703 $ 48,218 $ 48,867
Add: Impact of warehouse fire 6,556 –– ––
Add: Purchase accounting adjustment to deferred revenue 1,621 –– ––
Add: Purchase accounting adjustment for inventory fair value step-up 4,760 –– ––
Add: Acquisition costs 4,148 –– ––
Add: Integration costs 3,039 –– ––
Add: Severance costs 2,457 –– ––
Adjusted EBITDA from continuing operations, excluding
stock-based compensation $ 95,284 $ 48,218 $ 48,867
Less: EBITDA attributable to Harry & David 41,497 –– ––
Adjusted EBITDA from continuing operations, excluding
stock-based compensation and EBITDA attributable to Harry & David $ 53,787 $ 48,218 $ 48,867
(*) 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, and during
the year ended June 28, 2015 acquisition and integration costs (including severance) related to the acquisition of Harry & David, in the amount of $9.6
million. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support
services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the
above segments based upon usage, are included within corporate expenses, as they are not directly allocable to a specific segment. The Company has
commenced integrating Harry & David into its operating platforms, and as such, their operating costs have been classified in a similar manner.
(**) Performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating
expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described
above, depreciation and amortization, other income (net), nor does it include one-time charges or gains. Management utilizes EBITDA, and adjusted financial
information, as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it
is frequently used by the investment community in the evaluation of companies with comparable market capitalization. The Company also uses EBITDA and
adjusted financial information as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other
employees. The Company’s credit agreement uses EBITDA and adjusted financial information to measure compliance with covenants such as interest coverage
and debt incurrence. EBITDA and adjusted financial information is also used by the Company to evaluate and price potential acquisition candidates. EBITDA
and adjusted financial information have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the
Company’s results as reported under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes in, or cash requirements for, the Company’s
working capital needs; (b) EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal
payments, on the Company’s debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may
have to be replaced in the future, and EBITDA does not reflect any cash requirements for such capital expenditures. Because of these limitations, EBITDA
should only be used on a supplemental basis combined with GAAP results when evaluating the Company’s performance.
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 2015,
2014 and 2013 consisted of 52 weeks which ended on June
28, 2015, June 29, 2014 and June 30, 2013, respectively.
Net Revenues
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Net revenues:
E-Commerce $ 849,853
271,653
Other
$1,121,506
54.8%
31.0%
48.3%
$548,976
207,369
$756,345
2.3% $536,550
4.2%
198,947
2.8% $735,497
Net revenues consist primarily of the selling price of
the merchandise, service or outbound shipping charges,
less discounts, returns and credits.
During the fiscal year ended June 28, 2015, revenues
increased 48.3% in comparison to the prior year primarily
as a result of the incremental revenue generated by
Harry & David, which was acquired on September 30,
2014, as well as growth across all three of the Company’s
business segments. After adjusting for lost revenue
associated with the Thanksgiving Day fire at the
Company’s Fannie May warehouse and distribution
center, estimated to be $17.3 million during the year
ended June 28, 2015, and for the impact of purchase
accounting adjustments to reduce the acquired value of
8
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Harry & David’s deferred revenue of $1.6 million during
the year ended June 28, 2015, pro forma revenue
increased by 50.8% during the year ended June 28,
2015. Excluding the impact of acquisitions, organic
revenue, adjusted for the estimated lost revenue from the
Fannie May warehouse fire, increased 2.8% during the
year ended June 28, 2015, despite the loss of revenue
from the shift in the Valentine’s Day Holiday to a Saturday
in fiscal 2015.
“Never Settle For Less” marketing campaigns, and iii) the
impact of the acquisition of iFlorist in December 2013.
During fiscal 2014, these efforts were partially offset by
the severe weather which impacted all of the Company’s
brands, especially during the 2014 Valentine holiday.
During fiscal 2014, the Company fulfilled approximately
9.1 million e-commerce orders, an increase of 3% in
comparison to fiscal 2013, while average order value was
$60.09, a decrease of 0.8% in comparison to fiscal 2013.
During the fiscal year ended June 29, 2014, revenues
increased by 2.8% in comparison to the prior year as a
result of revenue growth across all business segments.
This growth was driven by: i) a combination of new
product initiatives and increased marketing efforts
focusing on the Company’s “everyday” and “Just
Because” campaigns, ii) incremental revenues generated
by the Company’s acquisition of a majority interest in
iFlorist on December 3, 2013, iii) continued improve-
ments within the BloomNet segment as a result of
additional market penetration, and iv) improvements
within the Gourmet Food & Gift Baskets segment as a
result of the continued rebound of DesignPac’s wholesale
gift basket products, and solid ecommerce growth within
Cheryl’s bakery gifts product line. These growth drivers
were partially offset by: i) the impact of severe winter
weather beginning in January, culminating with the winter
storm that affected much of the country during the key
Valentine holiday, ii) the calendar shift that resulted in
six fewer shopping days between Thanksgiving and
Christmas and iii) the continuation of a difficult macro-
economic climate, especially for the sellers of discretion-
ary products. Adjusting for the pro forma impact of the
revenue associated with the acquisition of a majority
interest of iFlorist, revenue increased approximately
1.8% during the year ended June 29, 2014.
E-commerce revenues (combined online and tele-
phonic) increased by 54.8% during the year ended
June 28, 2015, primarily as a result of the incremental
e-commerce revenue generated by the recent acquisition
of Harry & David, as well as organic growth from the
Company’s Gourmet Food and Gift Baskets segment,
offset by the estimated loss of revenues from the ware-
house fire. E-commerce revenues from the Consumer
Floral segment were flat in comparison to fiscal 2014 as
growth during the balance of the year was offset by a
decline in Valentine’s Day revenue resulting from the shift
in the date placement of holiday from Friday in fiscal 2014
to Saturday in fiscal 2015. Reflecting the incremental
sales from Harry & David, during fiscal 2015, the
Company fulfilled approximately 12.0 million e-commerce
orders, with an average order value of $70.87, represent-
ing increases of 31.5% and 17.9%, respectively,
compared to fiscal 2014.
Other revenues, comprised of the Company’s
BloomNet Wire Service segment, as well as the whole-
sale and retail sales channels of its 1-800-Flowers.com
Consumer Floral and Gourmet Food and Gift Baskets
segments, increased by 31.0% and 4.2% during fiscal
2015 and fiscal 2014, respectively. The increase in fiscal
2015 was primarily due to the addition of Harry & David’s
retail and wholesale operations, and to a lesser extent,
growth within BloomNet, partially offset by the sales lost
as a result of the Thanksgiving Day warehouse fire.
The increased revenue in fiscal 2014 was primarily due
to growth in sales of DesignPac’s wholesale gift baskets,
partially offset by declines in Fannie May wholesale
volume as a result of prior years’ operational issues.
Fiscal 2014 also benefitted from growth within the
BloomNet WireService segment.
The 1-800-Flowers.com Consumer Floral segment
includes the operations of the 1-800-Flowers and iFlorist
brands, and derives revenue from the sale of consumer
floral products through its e-commerce sales channels
(telephonic and online sales), royalties from its franchise
operations, as well as the operations of Fine Stationery,
an e-commerce retailer of personalized stationery,
invitations and announcements, which was sold in June
2015. (Revenues and operating losses attributable to this
business were not material in fiscal 2015.) Net revenues
during the fiscal year ended June 28, 2015 increased
0.2% primarily due to the incremental volume provided by
iFlorist, which was acquired in December 2013, offset by
lower order volume resulting from the Saturday place-
ment of Valentine’s Day. Excluding the impact of the
acquisition of iFlorist, revenue of the 1-800-Flowers.com
Consumer Floral segment decreased by 0.2% in com-
parison to fiscal 2014. Net revenues during the fiscal
year ended June 29, 2014 increased by 2.4% over the
prior year, due to increased order volumes, driven by the
acquisition of iFlorist and enhanced marketing and
merchandising programs that encourage our customers
to “wow” their gift recipients and “Never Settle For Less,”
offset by the loss of revenues from the severe weather
that impacted the Valentine’s Day holiday. Excluding the
impact of the acquisition of iFlorist in December 2013,
fiscal 2014 revenue growth within the 1-800-Flowers.com
Consumer Floral segment was 0.6%.
E-commerce revenues increased by 2.3% during the
year ended June 29, 2014. Revenue growth was attribut-
able to: i) improved merchandising programs (including
the development of innovative and original products such
as the expanded line of a-DOG-ables, Cheryl’s cookie
cards and Fannie May Berries), designed to “wow” our
customers’ gift recipients, ii) our “Just Because” and
The BloomNet Wire Service segment includes
revenues from membership fees as well as other product
and service offerings to florists. Net revenues during the
fiscal year ended June 28, 2015 increased 2.1%, as a
result of higher membership and transaction fees,
including the implementation of a new florist transaction
program, and increased accessorial service revenue
9
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
including directory advertising, partially offset by lower
product sales as a result of decreased demand and the
west coast dock strike. Net revenues during the fiscal
year ended June 29, 2014 increased 2.9%, as a result
of higher membership fees and transaction revenues,
driven in part by pricing initiatives and increases in
order volume from 1-800-Flowers.com and other
BloomNet members, reflecting continued increases
in market penetration for the Company’s expanded
suite of products and services.
The Gourmet Food & Gift Baskets segment includes
the operations of Harry & David, Cheryl’s, Fannie May
Confections, The Popcorn Factory, 1-800-Baskets/
DesignPac, and Stockyards.com. Revenue is derived
from the sale of gourmet fruits, cookies, baked gifts,
premium chocolates and confections, gourmet popcorn,
gift baskets, and prime steaks and chops through the
Company’s e-commerce sales channels (telephonic and
online sales) and company-owned and operated retail
stores under the Harry & David, Cheryl’s and Fannie May
brand names, as well as wholesale operations. Net
revenue during the fiscal year ended June 28, 2015
increased 143.6% in comparison to the prior year, driven
primarily by the incremental revenue generated by Harry
& David, which was acquired on September 30, 2014,
complemented by strong organic e-commerce growth
from Cheryl’s and 1-800-Baskets, partially offset by
reduced revenue from Fannie May due to the Thanksgiv-
ing Day warehouse fire. After adjusting for the estimated
lost revenue from the warehouse fire, and for the impact
of purchase accounting adjustments to reduce the
acquired value of Harry & David’s deferred revenue,
pro forma revenue for the Gourmet Food & Gift Baskets
segment increased 151.0% during the year ended June
28, 2015. Excluding the revenue contribution of Harry &
David, Gourmet Food & Gift Baskets, revenue growth,
adjusted for the estimated lost revenue from the Fannie
May warehouse fire, increased 7.8% during the year
ended June 28, 2015. Net revenue during the fiscal year
ended June 29, 2014 increased by 3.6% in comparison
to the prior year, primarily due to Cheryl’s e-commerce
growth and the continued rebound in DesignPac
wholesale gift basket sales, partially offset by the
impact of the severe weather during the year.
For fiscal 2016, the Company expects to grow
revenues across all three of its business segments with
consolidated revenue growth for the year anticipated to
be in the range of five-to-seven percent.
Gross Profit
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Gross profit $487,195
Gross margin % 43.4%
$315,673
41.7%
54.3%
3.4% $305,192
41.5%
Gross profit consists of net revenues less cost of
revenues, which is comprised primarily of florist fulfillment
costs (fees paid directly to florists), the cost of floral and
10
non-floral merchandise sold from inventory or through
third parties, and associated costs including inbound
and outbound shipping charges. Additionally, cost of
revenues include labor and facility costs related to
direct-to-consumer and wholesale production operations.
Gross profit increased 54.3% during the fiscal year
ended June 28, 2015 in comparison to the prior year,
primarily as a result of the incremental revenue and
associated gross margins generated by Harry & David,
which was acquired on September 30, 2014, as well as
organic growth across all segments, partially offset by the
impact of the revenues lost as a result of the Thanksgiving
Day fire at the Company’s Fannie May warehouse and
distribution center. After adjusting for estimated lost gross
profit from the warehouse fire of $6.8 million during the
year ended June 28, and for the impact of Harry & David
purchase accounting adjustments related to deferred
revenue of $1.6 million and step-up of inventory to fair
value of $4.8 million during the year ended June 28,
2015, gross profit during year ended June 28, 2015,
increased by 58.5% in comparison to the prior year.
Excluding the impact of acquisitions, organic gross profit,
adjusted for the estimated lost revenue from the ware-
house fire, increased 4.5% during the year ended June 28,
2015. Gross profit increased 3.4% during the fiscal year
ended June 29, 2014 in comparison to fiscal 2013, due to
revenue growth, including the acquisition of a majority
interest in iFlorist, combined with a 20 basis point expan-
sion of gross margin percentage, primarily attributable to
improvements within the Gourmet Food & Gift Basket and
BloomNet WireService segments, partially offset by the
impact of higher customer credits associated with the
severe weather experienced during the Valentine holiday.
Gross margin percentage increased 170 basis points
to 43.4% during the fiscal year ended June 28, 2015 in
comparison to the prior year, as a result of the aforemen-
tioned Harry & David acquisition, which earns higher
margins due to its vertically integrated operations, as well
as organic improvements across all business segments.
After adjusting for the estimated lost gross profit from the
warehouse fire for fiscal year ended June 28, 2015 and
for the impact of Harry & David purchase accounting
adjustments related to deferred revenue and step-up of
inventory to fair value for fiscal year ended June 28,
2015, pro forma gross margin percentage increased
to 43.9% for the fiscal year ended June 28, 2015.
Excluding the impact of acquisitions, organic gross
margin percentage, adjusted for the estimated lost
revenue from the warehouse fire, was 42.3% during
the fiscal year ended June 28, 2015.
The 1-800-Flowers.com Consumer Floral segment
gross profit increased by 0.5% during the fiscal year
ended June 28, 2015 in comparison to the prior year, due
to the higher revenue, as described above. Excluding the
impact of the acquisition of iFlorist, gross profit within the
1-800-Flowers.com Consumer Floral segment increased
by 0.3%. Gross margin percentage increased 10 basis
points to 39.2% during the fiscal year ended June 28,
2015 in comparison to the prior year as sourcing and
logistics improvements were offset by lower margins
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
earned by iFlorist. The 1-800-Flowers.com Consumer
Floral segment gross profit increased by 0.7% during the
fiscal year ended June 29, 2014 in comparison to fiscal
2013, due to higher revenue. During fiscal 2014, the
Company experienced a decline in the gross margin
percentage of 70 basis points as a result of lower margins
associated with the newly acquired iFlorist business, as
well as higher customer credits issued during the period
due to the severe weather during the Valentine holiday.
Excluding the impact of the iFlorist acquisition, gross
margin percentage decreased 40 basis points.
BloomNet Wire Service segment’s gross profit
increased by 6.7% and 7.7%, and gross margin percent-
age increased 240 basis points during each of the fiscal
years ended June 28, 2015 and June 29, 2014, as a
result of an increase in higher margin BloomNet
membership, directory and transaction fees, as well as
newly implemented transaction fees, offset in part by a
reduction in lower margin wholesale product revenues.
The Gourmet Food & Gift Baskets segment gross profit
increased by 159.5% during the fiscal year ended June
28, 2015 in comparison to the prior year, driven primarily
by the incremental revenue generated by Harry & David,
which was acquired on September 30, 2014, and strong
organic e-commerce growth from Cheryl’s and 1-800-
Baskets, partially offset by reduced revenue from Fannie
May, due to the Thanksgiving Day warehouse fire.
After adjusting for estimated lost gross profit from the
warehouse fire of $6.7 million during the year ended
June 28, 2015 and for the impact of Harry & David
purchase accounting adjustments related to deferred
revenue of $1.6 million and step-up of inventory to fair
value of $4.8 million during the year ended June 28,
2015, gross profit during the year ended June 28, 2015
increased by 172.0% in comparison to fiscal 2014.
Excluding the impact of acquisitions, organic gross profit,
adjusted for the estimated lost revenue from the ware-
house fire, increased 9.7% during the year ended June
28, 2015. Gross margin percentage increased 270 basis
points during the year ended June 28, 2015 to 44.4% as
a result of the Harry & David acquisition, which earns
higher margins due to its vertically integrated operations,
and due to the timing of the acquisition which excluded
the first quarter of Harry & David’s operations which
carries a lower gross margin due to the seasonality of its
business, as well as productivity improvements across
all brands within the segment. After adjusting for the
estimated lost gross profit from the warehouse fire for
the year ended June 28, 2015 and for the impact of
Harry & David purchase accounting adjustments related
to deferred revenue and step-up of inventory to fair value
for year ended June 28, 2015, pro forma gross margin
percentage increased 350 basis points to 45.2%.
Excluding the impact of the acquisition of Harry & David,
organic gross margin percentage, adjusted for the
estimated lost revenue from the warehouse fire,
increased 70 basis points to 42.4% during the year
ended June 28, 2015. The Gourmet Food & Gift Baskets
segment gross profit increased by 6.3% during the fiscal
year ended June 29, 2014 in comparison to fiscal 2013
due to revenue increases, as well as through gross
margin expansion of 110 basis points due to the opera-
tional improvements implemented at Fannie May, as well
as manufacturing and production efficiencies, partially
offset by promotional offers and customer service issues
resulting from the inclement weather during the year.
For fiscal 2016, the Company expects its gross margin
percentage will improve in comparison to fiscal 2015 as a
result of improvements in product sourcing, supply chain
and manufacturing efficiencies.
Marketing and Sales Expense
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Marketing and
sales $299,801 53.9% $194,847
4.4% $186,720
Percentage of
sales
26.7%
25.8%
25.4%
Marketing and sales expense consists primarily
of advertising and promotional expenditures, catalog
costs, online portal and search costs, retail store and
fulfillment operations (other than costs included in cost
of revenues) and customer service center expenses,
as well as the operating expenses of the Company’s
departments engaged in marketing, selling and
merchandising activities.
During the fiscal year ended June 28, 2015, marketing
and sales expenses increased 53.9% in comparison to
the prior year primarily as a result of the incremental
spend due to the acquisitions of Harry & David on
September 30, 2014, as well as higher labor and facility
costs associated with an increase in Fannie May store
count. The increase in marketing and sales as a percent-
age of net revenues during the year ended June 28, 2015
was due to the impact of the Harry & David acquisitions,
combined with the impact of the warehouse fire. Exclud-
ing the impact of the acquisitions, organic marketing and
sales as a percentage of net revenues, adjusted for the
estimated lost revenue from the warehouse fire, was
25.9% during the year ended June 28, 2015, comparable
with the prior year. During the fiscal year ended June 29,
2014, marketing and sales expenses increased 4.4%
compared to the prior year, as a result of: (i) increased
advertising programs implemented by the 1-800-
Flowers.com brand in order to spur demand, (ii) the
impact of the acquisition of iFlorist, and (iii) higher labor
due to increase in service center costs in order to improve
service levels and handle increased service calls caused
by the severe weather during the year. Although this
increase in advertising drove incremental volume, as a
result of the severe winter weather, culminating with the
Valentine blizzard, as well as lackluster consumer
demand, marketing and sales expense, as a percentage
of net revenues, increased from 25.4% in fiscal 2013 to
25.8% in fiscal 2014.
During the fiscal year ended June 28, 2015, the
Company added approximately 4.6 million (2.6 million
11
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
excluding the customers of the Harry & David acquisition
on September 30, 2014) new e-commerce customers,
compared to 2.4 million in fiscal 2014 and 2.3 million
in fiscal 2013. Excluding the Harry & David customers,
approximately 48% of customers who placed
e-commerce orders during fiscal 2015 were
repeat customers compared to 49% in fiscal 2014.
Technology and Development Expense
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Technology and
development
Percentage of
$ 34,745
54.3% $ 22,518 3.8% $21,700
sales
3.1%
3.0%
3.0%
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs associ-
ated with its websites, including hosting, design, content
development and maintenance and support costs related
to the Company’s order entry, customer service, fulfillment
and database systems.
Technology and development expenses increased
54.3% during the fiscal year ended June 28, 2015
compared to the prior year due to the technology and
development costs of Harry & David, which was acquired
on September 30, 2014. Technology spend as a percent-
age of net revenues increased to 3.1% during the fiscal
year ended June 28, 2015, compared to the prior year.
Excluding the impact of acquisitions, organic technology
and development expense as a percentage of net
revenues, adjusted for the estimated lost revenue from the
warehouse fire, was 3.0% during the fiscal year ended
June 28, 2015. During the fiscal year ended June 29,
2014, technology and development expense increased by
3.8% compared to the prior year, as a result of increased
license/maintenance costs to support the Company’s IT
infrastructure, as well as restructuring costs incurred to
realign personnel to accommodate the launch of the
Company’s new multi-branded portal during fiscal 2015.
During the fiscal years ended June 28, 2015, June 29,
2014 and June 30, 2013, the Company expended $52.1
million, $36.6 million and $37.3 million, respectively,
on technology and development, of which $17.4
million, $14.1 million, and $15.6 million, respectively,
has been capitalized.
General and Administrative Expense
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
General and
administrative
$ 85,908
56.9% $ 54,754 4.9% $ 52,188
Percentage of
sales
7.7%
7.2%
7.1%
General and administrative expense consists of
payroll and other expenses in support of the Company’s
executive, finance and accounting, legal, human re-
sources and other administrative functions, as well as
professional fees and other general corporate expenses.
General and administrative expense increased by
56.9% during the fiscal year ended June 28, 2015 in
comparison to the prior year, as a result of incremental
general and administrative expense of Harry & David,
acquired on September 30, 2014, and the related
acquisition and integration expenses of $9.6 million
during the fiscal year ended June 28, 2015. Excluding the
impact of acquisitions, organic general and administrative
expense as a percentage of net revenues, adjusted for
the estimated lost revenue from the warehouse fire, was
7.2% during the fiscal year ended June 28, 2015.
General and administrative expense increased by 4.9%
during fiscal 2014, compared to the prior year, as a result
of increased health care costs and worker’s compensa-
tion claims, bad debt expense, and annual compensation
rate increases, partially offset by decreases in perfor-
mance based bonuses.
Depreciation and Amortization
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Depreciation and
amortization
Percentage of
$ 29,124
46.7% $ 19,848 5.6% $ 18,798
sales
2.6%
2.6% 2.6%
Depreciation and amortization expense increased by
46.7% during the fiscal year ended June 28, 2015 in
comparison to the prior year, as a result of the incremen-
tal depreciation and amortization expenses of Harry &
David, acquired on September 30, 2014, including the
impact of the additional intangibles amortization. Depre-
ciation and amortization expense increased by 5.6%
during the fiscal year ended June 29, 2014 compared to
fiscal 2013, as a result of incremental expenses associ-
ated with the acquisition of iFlorist, as well as increased
capital spending, including technology upgrades.
12
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Interest Expense and other, net
Years Ended
June 28, June 29, June 30,
2015 % Change 2014 % Change 2013
(dollars in thousands)
Interest expense
and other, net
$ 7,303
438.2% $ 1,357 36.9% $ 991
Interest expense and other, net consists primarily of
interest expense and amortization of deferred financing
costs attributable to the Company’s credit facility, net of
income earned on the Company’s available cash
balances, as well as investment income by the
Company’s Non-Qualified Deferred Compensation
Plan, its equity interest in Flores Online, and foreign
currency transaction gains and losses for the
Company’s iFlorist subsidiary.
In order to finance the Harry & David acquisition, on
September 30, 2014, the Company entered into a Credit
Agreement with JPMorgan Chase Bank as administrative
agent, and a group of lenders (the “2014 Credit Facility”),
consisting of a $142.5 million five-year term loan (the
“Term Loan”) with a maturity date of September 30, 2019,
and a co-terminus revolving credit facility (the “Revolver”),
with a seasonally adjusted limit ranging from $100.0 to
$200.0 million, which may be used for working capital
(subject to applicable sublimits) and general corporate
purposes. The Term Loan is payable in 20 quarterly
installments of principal and interest beginning in
December 2014, with escalating principal payments at
the rate of 10% in years one and two, 15% in years three
and four, and 20% in year five, with the remaining
balance of $42.75 million due upon maturity. Upon
closing of the acquisition, the Company borrowed $136.7
million under the Revolver to repay amounts outstanding
under the Company’s and Harry & David’s previous
credit agreements, as well as to pay acquisition-related
transaction costs.
Interest expense and other, net increased 438.2%
during the fiscal year ended June 28, 2015 in comparison
to the prior year, as a result of the additional interest
expense associated with the Term Loan used to finance
the acquisition, related working capital requirements of
Harry & David, as well as losses on the sale of the
Company’s Fine Stationery ($0.5 million) and Pingg
($0.6 million) brands during June 2015. Interest expense
and other, net increased during the fiscal year ended
June 29, 2014 in comparison to fiscal 2013, due to losses
from its equity interest in Flores Online, partially offset
by decreases in interest expense on the Company’s
credit facility as a result of net reduction in borrowings
outstanding during the period, and increases in
investment income in the Company’s Non-Qualified
Deferred Compensation Plan.
Income Taxes
During the fiscal years ended June 28, 2015, June 29,
2014 and June 30, 2013, the Company recorded income
tax expense from continuing operations of $10.9 million,
$8.4 million and $9.1 million, respectively, resulting in an
13
effective tax rate of 36.1%, 37.6% and 36.6%, respec-
tively. The Company’s effective tax rate differed from the
U.S. federal statutory rate of 35% primarily due to the
impact of state income taxes, valuation allowance
changes, rate differences and tax settlements, partially
offset by various tax credits/deductions as well as
deductible stock-based compensation.
At June 28, 2015 the Company’s federal net operating
loss carryforwards were $2.5 million, which if not utilized,
will begin to expire in fiscal year 2025. The federal net
operating loss is subject to Section 382 limitations of $0.3
million per year. The Company’s foreign net operating loss
carryforward was $7.5 million, while the state net operating
losses were $6.2 million, before federal benefit, which if
not utilized, will begin to expire in fiscal year 2016.
Discontinued Operations
During the fourth quarter of fiscal 2013, the Company
made the strategic decision to divest the e-commerce and
procurement businesses of its Winetasting Network
subsidiary in order to focus on growth opportunities in
its Gourmet Foods and Gift Baskets business segment.
The Company closed on the sale of its e-commerce and
procurement businesses on December 31, 2013. The
Company had originally estimated a loss of $2.3 million
($1.5 million, net of tax), which was provided for during the
fourth quarter of fiscal 2013, but the loss was reduced to
$1.0 million, upon finalization of terms and closing on the
sale. As a result, the Company reversed $1.3 million ($0.8
million, net of tax) of its accrual for the estimated loss
during the fiscal year ended June 29, 2014. The Company
has classified the results of the e-commerce and procure-
ment business of The Winetasting Network as a discontin-
ued operation for the fiscal years 2014 and 2013.
Results for discontinued operations are as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands, except per share data)
Net revenues
from discontinued
$
operations
––
$ 1,669
$ 5,154
Loss from
discontinued
operations,
net of tax
Gain (loss)
on sale of
discontinued
operations,
net of tax
Income (loss)
$ ––
$ (86)
$ (1,889)
$ ––
$ 815
$ (1,512)
from discontinued
$
operations
––
$ 729
$ (3,401)
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The 2014 Credit Facility requires that while any
borrowings are outstanding the Company comply with
certain financial and non-financial covenants, including
the maintenance of certain financial ratios. Outstanding
amounts under the 2014 Credit Facility will bear interest
at the Company’s option at either: (i) LIBOR, plus a
spread of 175 to 250 basis points, as determined by
the Company’s leverage ratio, or (ii) ABR, plus a spread
of 75 to 150 basis points. The 2014 Credit Agreement is
secured by substantially all of the assets of the Company
and the Subsidiary Guarantors.
Despite the current challenging economic environ-
ment, the Company believes that cash flows from
operations along with available borrowings from its 2014
Credit Facility will be a sufficient source of liquidity. Due to
the seasonal nature of the Company’s business, and its
continued expansion into non-floral products, including
the acquisition of Harry & David, the Thanksgiving
through Christmas holiday season, which falls within the
Company’s second fiscal quarter, is expected to generate
nearly 56% of the Company’s annual revenues, and all of
its earnings. As a result, the Company expects to gener-
ate significant cash from operations during its second
quarter, and then utilize that cash for operating needs
during its fiscal third and fourth quarters, after which time
the Company expects to borrow against its Revolver to
fund pre-holiday manufacturing and inventory purchases.
Borrowings under the Revolver typically peak in Novem-
ber, at which time cash generated from operations during
the Christmas holiday shopping season are expected to
enable the Company to repay working capital borrowings
prior to the end of December.
Stock Repurchase Program
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transac-
tions, subject to general market conditions. The repur-
chase program is financed utilizing available cash.
In June 2015, the Company’s Board of Directors autho-
rized an increase of $25 million to its stock repurchase
plan. The Company repurchased a total of $8.4 million
(1,056,038 shares), $8.3 million (1,561,206 shares) and
$9.6 million (2,490,065 shares) during the fiscal years
ended June 28, 2015, June 29, 2014 and June 30, 2013,
respectively, under this program. As of June 28, 2015,
$27.3 million remains authorized under the plan.
Liquidity and Capital Resources
Cash Flows
At June 28, 2015, the Company had working capital
of $36.4 million, including cash and cash equivalents of
$27.9 million, compared to working capital of $17.5
million, including cash and cash equivalents of $5.2
million, at June 29, 2014.
Net cash provided by operating activities of $125.7
million for the fiscal year ended June 28, 2015 was
primarily related to net income, adjusted for non-cash
charges for depreciation and amortization, the write-off of
inventory related to the warehouse fire and stock-based
compensation, cash provided by changes in inventory,
including the impact related to the timing of the acquisi-
tion of Harry & David when inventory was coming to its
peak production level, prepaid items and trade receiv-
ables, partially offset by the establishment of an insur-
ance receivable related to the fire, and decreases in
accounts payable and accrued expenses.
Net cash used in investing activities of $163.6 million
was primarily attributable to the acquisition of Harry &
David on September 30, 2014 for $142.5 million ($132.0
million, net of cash acquired), capital expenditures
related to the Company’s technology infrastructure,
and the completion of the building expansion of
Cheryl’s bakery business to accommodate growth
of the Company’s cookie and brownie product line.
Net cash provided by financing activities of $60.6
million for the fiscal year ended June 28, 2015 was
attributable to borrowings under the Company’s 2014
Credit Facility used to finance the $142.5 million
acquisition of Harry & David on September 30, 2014,
offset by repayment of the Harry & David’s existing
revolving credit facility borrowings of $62.4 million, debt
issuance costs, and the acquisition of $8.4 million of
treasury stock. As of June 28, 2015 there were no
borrowings outstanding under the Company’s Revolver.
Credit Facility
In order to finance the acquisition of Harry & David, on
September 30, 2014, the Company entered into a Credit
Agreement with JPMorgan Chase Bank as administrative
agent, and a group of lenders (the “2014 Credit Facility”),
consisting of a $142.5 million five-year term loan (the
“Term Loan”) with a maturity date of September 30, 2019,
and a co-terminus revolving credit facility (the “Revolver”),
with a seasonally adjusted limit ranging from $100.0 to
$200.0 million, which may be used for working capital
(subject to applicable sublimits) and general corporate
purposes. The Term Loan is payable in 20 quarterly
installments of principal and interest beginning in
December 2014, with escalating principal payments at
the rate of 10% in years one and two, 15% in years three
and four, and 20% in year five, with the remaining
balance of $42.75 million due upon maturity. Upon
closing of the acquisition, the Company borrowed $136.7
million under the Revolver to repay amounts outstanding
under the Company’s and Harry & David’s previous credit
agreements, as well as to pay acquisition-related
transaction costs.
14
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Contractual Obligations
At June 28, 2015, the Company’s contractual obligations from continuing operations consist of:
Payments due by period
(in thousands)
Less than More than
Total 1 year 1 - 3 years 3 - 5 years 5 years
Long-term debt obligations
(including interest)
Operating lease obligations
Purchase commitments(*)
Total
$140,260
135,937
88,527
$364,724
$ 17,087
24,338
83,669
$ 125,094
$ 44,985
36,919
3,328
$ 85,232
$
78,188
22,485
1,380
$ 102,053
$
––
52,195
150
$ 52,345
(*) Purchase commitments consist primarily of inventory and equipment purchase orders 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 assump-
tions that affect the reported amount of assets, liabilities,
revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those
related to revenue recognition, inventory and long-lived
assets, including goodwill and other intangible assets
related to acquisitions. Management bases its estimates
and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for
making judgments about the carrying values of assets
and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting
policies, among others, affect its more significant judg-
ments and estimates used in preparation of its consoli-
dated financial statements.
Revenue Recognition
Net revenues are generated by e-commerce opera-
tions 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, net of discounts,
returns and credits. Net revenues are recognized primarily
upon product delivery and do not include sales tax. Net
revenues generated by the Company’s BloomNet Wire
Service operations include membership fees as well as
other products and service offerings to florists. Member-
ship fees are recognized monthly in the period earned,
and products sales are recognized upon product shipment
with shipping terms primarily FOB shipping point.
Initial franchise fees are recognized in income when
the Company has substantially performed or satisfied all
material services or conditions relating to the sale of the
franchise and the fees are nonrefundable. Area develop-
ment fees are nonrefundable and are recognized in
income on a pro-rata basis when the conditions for
revenue recognition under the individual area develop-
ment agreements are met. Both initial franchise fees and
area development fees are generally recognized upon
the opening of a franchise store or upon termination of
the agreement between the Company and the franchisee.
Accounts Receivable
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of its customers or franchisees to make required payments.
In establishing the appropriate provisions for customer
receivable balances, the Company makes assumptions
with respect to their future collectability. The Company’s
assumptions are based on an assessment of a customer’s
credit quality as well as subjective factors and trends,
including the aging of receivable balances. Once the
Company considers the factors above, an appropriate
provision is made, which takes into account the severity
of the likely loss on the outstanding receivable balance
based on the Company’s experience in collecting these
amounts. 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
Inventories are valued at the lower of cost or market
using the first-in, first-out method of accounting. The
Company also records an inventory obsolescence
reserve, which represents the difference between the cost
of the inventory and its estimated realizable value, based
on various product sales projections. This reserve is
determined by analyzing inventory skus based on age,
expiration, historical trends and requirements to support
forecasted sales. In addition, and as necessary, the
Company may establish specific reserves for future
known or anticipated events.
Business Combinations
The Company accounts for business combinations in
accordance with ASC Topic 805 which requires, among
other things, the acquiring entity in a business combina-
tion to recognize the fair value of all the assets acquired
and liabilities assumed; the recognition of acquisition-
15
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
related costs in the consolidated results of operations;
the recognition of restructuring costs in the consolidated
results of operations for which the acquirer becomes
obligated after the acquisition date; and contingent
purchase consideration to be recognized at their fair
values on the acquisition date with subsequent adjust-
ments recognized in the consolidated results of opera-
tions. The fair values assigned to identifiable intangible
assets acquired are determined primarily by using an
income approach which is based on assumptions and
estimates made by management. Significant assumptions
utilized in the income approach are based on company
specific information and projections which are not
observable in the market and are therefore considered
Level 3 measurements. The excess of the purchase price
over the fair value of the identified assets and liabilities is
recorded as goodwill. Operating results of the acquired
entity are reflected in the Company’s consolidated
financial statements from date of acquisition.
Goodwill
Goodwill represents the excess of the purchase price
over the fair value of the net assets acquired in each
business combination, with the carrying value of the
Company’s goodwill allocated to its reporting units, in
accordance with the acquisition method of accounting.
Goodwill is not amortized, but it is subject to an annual
assessment for impairment, which the Company performs
during the fourth quarter, or more frequently if events
occur or circumstances change such that it is more likely
than not that an impairment may exist.
The Company tests goodwill for impairment at the
reporting unit level. The Company identifies its reporting
units by assessing whether the components of its operat-
ing segments constitute businesses for which discrete
financial information is available and management of
each reporting unit regularly reviews the operating results
of those components. Goodwill impairment testing involves
a two-step process. The first step requires comparison of
the fair value of each of the reporting units to the respective
carrying value. If the carrying value of the reporting unit is
less than the fair value, no impairment exists and the
second step is not performed. If the carrying value of the
reporting unit is higher than the fair value, the second step
must be performed to compute the amount of the goodwill
impairment, if any. In the second step, the impairment is
computed by comparing the implied fair value of the
reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized for the excess.
The Company generally estimates the fair value of
a reporting unit using an equal weighting of the income
and market approaches. The Company uses industry
accepted valuation models and set criteria that are
reviewed and approved by various levels of management
and, in certain instances, the Company engages third-
party valuation specialists. Under the income approach,
the Company uses a discounted cash flow methodology
which requires management to make significant esti-
mates and assumptions related to forecasted revenues,
gross profit margins, operating income margins, working
capital cash flow, perpetual growth rates, and long-term
discount rates, among others. For the market approach,
the Company uses the guideline public company method.
Under this method the Company utilizes information from
comparable publicly traded companies with similar
operating and investment characteristics as the reporting
units, to create valuation multiples that are applied to
the operating performance of the reporting unit being
tested, in order to obtain their respective fair values.
The Company also reconciles the aggregate fair values
of its reporting units determined in the first step (as
described above) to its current market capitalization,
allowing for a reasonable control premium.
Based on the goodwill impairment test performed
during the fourth quarter of fiscal 2015, the estimated fair
value of the Company’s reporting units significantly
exceeded their respective carrying value (including
goodwill allocated to each respective reporting unit).
Future changes in the estimates and assumptions above
could materially affect the results of our reviews for
impairment of goodwill. However, as a measure of
sensitivity, a 45% decrease in the fair value of the
Company’s reporting units as of June 28, 2015, would
have had no impact on the carrying value of the
Company’s goodwill. In addition, a decrease of 100
basis points in our terminal (perpetual) growth rate or an
increase of 100 basis points in our weighted-average
cost of capital would still result in a fair value calculation
exceeding our book value for each of our reporting units.
Other Intangibles and Long-Lived Assets
Other intangibles consist of definite-lived intangible
assets (such as investment in licenses, customer lists,
and others) and indefinite-lived intangible assets (such
as acquired trade names and trademarks). The cost of
definite-lived intangible assets is amortized to reflect the
pattern of economic benefits consumed, over the esti-
mated periods benefited, ranging from 3 to 16 years,
while indefinite-lived intangible assets are not amortized.
Long-lived assets, such as definite-lived intangibles
and property, plant and equipment are reviewed for
impairment whenever changes in circumstances or
events may indicate that the carrying amounts are not
recoverable. When such events or changes in circum-
stances occur, a recoverability test is performed compar-
ing projected undiscounted cash flows from the use and
eventual disposition of an asset or asset group to its
carrying value. If the projected undiscounted cash flows
are less than the carrying value, then an impairment
charge would be recorded for the excess of the carrying
value over the fair value, which is determined by
discounting future cash flows.
The Company tests indefinite-lived intangible assets
for impairment at least annually, during the fourth quarter,
or whenever changes in circumstances or events may
indicate that the carrying amounts are not recoverable.
The impairment test for indefinite-lived intangible assets
encompasses calculating a fair value of an indefinite-
lived intangible asset and comparing the fair value to its
carrying value. If the carrying value exceeds the fair
16
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
value, impairment is recognized for the difference.
To determine fair value of other indefinite-lived intangible
assets, the Company uses an income approach, the
relief-from-royalty method. This method assumes that,
in lieu of ownership, a third party would be willing to pay
a royalty in order to obtain the rights to use the compa-
rable asset. Other indefinite-lived intangible assets’ fair
values require significant judgments in determining both
the assets’ estimated cash flows as well as the appropri-
ate discount and royalty rates applied to those cash flows
to determine fair value.
Based on the indefinite-lived intangible assets
impairment test performed during the fourth quarter of
fiscal 2015, the estimated fair value of the Company’s
intangibles exceeded their respective carrying value.
Future changes in the estimates and assumptions
above could materially affect the results of our reviews
for impairment of intangibles.
Income Taxes
The Company uses the asset and liability method to
account for income taxes. The Company has established
deferred tax assets and liabilities for temporary differ-
ences 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 recog-
nizes as a deferred tax asset, the tax benefits associated
with losses related to operations. Realization of these
deferred tax assets assumes that we will be able to
generate sufficient future taxable income so that these
assets will be realized. The factors that the Company
considers in assessing the likelihood of realization
include the forecast of future taxable income and
available tax planning strategies that could be imple-
mented to realize the deferred tax assets.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial
statements on a particular tax position are measured
based on the largest benefit that has a greater than a
50% likelihood of being realized upon settlement. The
amount of unrecognized tax benefits (“UTBs”) is adjusted
as appropriate for changes in facts and circumstances,
such as significant amendments to existing tax law, new
regulations or interpretations by the taxing authorities,
new information obtained during a tax examination, or
resolution of an examination. We recognize both accrued
interest and penalties, where appropriate, related to
UTBs in income tax expense. Assumptions, judgment and
the use of estimates are required in determining if the
“more likely than not” standard has been met when
developing the provision for income taxes.
Recent Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-05,
“Customer’s Accounting for Fees Paid in a Cloud Com-
puting Arrangement.” This standard provides guidance to
help entities determine whether a cloud computing
arrangement contains a software license that should be
accounted for as internal-use software or as a service
contract. Upon adoption, an entity has the option to
apply the provisions of ASU 2015-05 either prospectively
to all arrangements entered into or materially modified,
or retrospectively. This standard is effective for the
Company’s fiscal year ending July 2, 2017. We are
currently evaluating the potential impact of adopting
this guidance on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
“Simplifying the Presentation of Debt Issuance Costs,”
which amends ASC 835-30, “Interest – Imputation of
Interest.” In order to simplify the presentation of debt
issuance costs, ASU No. 2015-03 requires that debt
issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from
that debt liability, consistent with the presentation of a
debt discount. This presentation is consistent with the
guidance in Concepts Statement 6, which states that debt
issuance costs are similar to a debt discount and in effect
reduce the proceeds of borrowing, thereby increasing the
effective interest rate. Concepts Statement 6 further states
that debt issuance costs are not assets because they
provide no future economic benefit. This new guidance
is effective for the Company’s fiscal year ending July 2,
2017 and should be applied retrospectively.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers.” This amended
guidance will enhance the comparability of revenue
recognition practices and will be applied to all contracts
with customers. Expanded disclosures related to the
nature, amount, timing, and uncertainty of revenue
that is recognized are requirements under the
amended guidance. This guidance will be effective for
the Company’s fiscal year ending July 1, 2018 and may
be applied retrospectively. We are currently evaluating
the potential impact of adopting this guidance on our
consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08,
“Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity,” which amends
ASC 205, “Presentation of Financial Statements,” and
ASC 360, “Property, Plant, and Equipment.” ASU No.
2014-08 amends the requirements for reporting discon-
tinued operations and requires additional disclosures
about discontinued operations. Under the new guidance,
only disposals representing a strategic shift in operations
or that have a major effect on the Company’s operations
and financial results should be presented as discontin-
ued operations. This new accounting guidance is effective
for the Company’s fiscal year ending July 3, 2016, and
may be applied retrospectively. We are currently evaluat-
ing the potential impact of adopting this guidance on our
consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11,
“Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a
Tax Credit Carryforward Exists,” which amends ASC 740,
“Income Taxes.” The amendments provide guidance on
the financial statement presentation of an unrecognized
17
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Special Note Regarding Forward-Looking
Statements
This annual report contains forward-looking state-
ments within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking
statements represent the Company’s current expectations
or beliefs concerning future events and can generally be
identified by the use of statements that include words
such as “estimate,” “expects,” “project,” “believe,” “antici-
pate,” “intend,” “plan,” “foresee,” “likely,” “will,” or similar
words or phrases. These forward looking statements are
subject to risks, uncertainties and other factors, many of
which are outside of the Company’s control, which could
cause actual results to differ materially from the results
expressed or implied in the forward- looking statements,
including, among others: the Company’s ability to achieve
its guidance for revenue, Adjusted EBITDA and Adjusted
EPS; its ability to manage the significantly increased
seasonality of its business; its ability to integrate the
operations of acquired companies, including Harry &
David; its ability to cost effectively acquire and retain
customers; the outcome of contingencies, including legal
proceedings in the normal course of business; its ability to
compete against existing and new competitors; its ability
to manage expenses associated with sales and market-
ing and necessary general and administrative and
technology investments and general consumer sentiment
and economic conditions that may affect levels of
discretionary customer purchases of the Company’s
products. The Company undertakes no obligation to
publicly update any of the forward-looking statements,
whether as a result of new information, future events
or otherwise, made in this annual report or in any of its
SEC filings except as may be otherwise stated by the
Company. For a more detailed description of these and
other risk factors, and a list of definitions of non-GAAP
terms, including EBITDA and Free Cash Flow, among
others, please refer to the Company’s SEC filings
including the Company’s Annual Reports on Form 10-K
and its Quarterly Reports on Form 10-Q. Consequently,
you should not consider any such list to be a complete
set of all potential risks and uncertainties.
tax benefit, as either a reduction of a deferred tax asset or
as a liability, when a net operating loss carryforward, similar
tax loss, or a tax credit carryforward exists. The amendments
are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2013 and may be
applied on either a prospective or retrospective basis.
The provisions are effective for the Company’s first quarter
of fiscal year ending June 28, 2015. The adoption of these
provisions did not have a significant impact on the
Company’s consolidated financial statements.
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.
In order to finance the Harry & David acquisition, on
September 30, 2014, the Company entered into a Credit
Agreement with JPMorgan Chase Bank as administrative
agent, and a group of lenders (the “2014 Credit Facility”),
consisting of a $142.5 million five-year term loan (the
“Term Loan”) with a maturity date of September 30, 2019,
and a co-terminus revolving credit facility (the “Revolver”),
with a seasonally adjusted limit ranging from $100.0 to
$200.0 million, which may be used for working capital
(subject to applicable sublimits) and general corporate
purposes. The Term Loan is payable in 20 quarterly
installments of principal and interest beginning in
December 2014, with escalating principal payments at
the rate of 10% in years one and two, 15% in years three
and four, and 20% in year five, with the remaining
balance of $42.75 million due upon maturity. Upon
closing of the acquisition, the Company borrowed $136.7
million under the Revolver to repay amounts outstanding
under the Company’s and Harry & David’s previous credit
agreements, as well as to pay acquisition-related
transaction costs. As of June 28, 2015, the Company had
$131.8 million outstanding under its 2014 Credit Facility.
The Company does not enter into derivative transac-
tions for trading purposes, but rather, on occasion, to
manage its exposure to interest rate fluctuations. The
Company has managed its floating rate debt using
interest rate swaps in order to reduce its exposure to the
impact of changing interest rates on its consolidated
results of operations and future cash outflows for interest.
In July 2009, the Company entered into a $45.0
million notional amount swap agreement that exchanges
a variable interest rate (LIBOR) for a 1.92% fixed rate of
interest over the term of the agreement. This swap
matured on July 25, 2012. The Company had designated
this swap as a cash flow hedge of the interest rate risk
attributable to forecasted variable interest (LIBOR)
payments. The effective portion of the after tax fair
value gains or losses on this swap was included as a
component of accumulated other comprehensive income.
The Company did not have any open derivative positions
at June 28, 2015 and June 29, 2014.
18
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Quarterly Results of Operations
The following table provides unaudited quarterly consolidated results of operations for each quarter of fiscal years
2015 and 2014. 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.
Jun. 28, Mar. 29, Dec. 28, Sep. 28, Jun. 29, Mar. 30, Dec. 29, Sep. 29,
2015 2015 2014 2014 2014 2014 2013 2013
(in thousands, except per share data)
Net revenues:
E-commerce
Other
(telephonic/online) $178,830 $177,903 $409,082
125,193
534,275
293,850
240,425
49,461
228,291
130,156
98,135
54,334
232,237
136,915
95,322
Total net revenues
Cost of revenues
Gross Profit
Operating expenses:
71,629
9,427
23,910
7,519
112,485
(14,350)
70,574
10,389
22,772
7,825
111,560
(16,238)
122,026
9,329
25,558
8,679
165,592
74,833
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Interest expense
and other, net
Income (loss) from continuing
operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing
$ 84,038
42,665
126,703
73,390
53,313
35,572
5,600
13,668
5,101
59,941
(6,628)
$148,083 $139,918 $180,095 $ 80,880
42,168
123,048
71,751
51,297
86,242
266,337
155,360
110,977
39,286
187,369
107,513
79,856
39,673
179,591
106,048
73,543
51,131
5,756
12,810
5,191
74,888
51,581
6,045
13,865
4,932
76,423
4,968 (2,880)
57,656
5,319
14,267
5,036
82,278
34,479
5,398
13,812
4,689
58,378
28,699 (7,081)
2,281
1,631 2,638
753
398
249
418
292
(16,631)
(5,866)
(17,869)
(7,056)
72,195
26,655
(7,381)
(2,803)
4,570
1,813
(3,129)
(1,391)
28,281
10,798
(7,373)
(2,816)
operations
(10,765)
(10,813)
45,540
(4,578)
2,757
(1,738)
17,483
(4,557)
Income (loss) from discontinued
operations, net of tax
Gain (loss) on sale of discontinued
operations, net of tax
Income (Ioss) from discontinued
––
––
––
––
295
75
(374)
(82)
––
––
––
––
––
(62)
877
––
operations, net of tax
––
Net income (loss) $ (10,765) $ (10,813) $ 45,540
Less: Net loss attributable to
noncontrolling interest
(26)
(318)
(231)
––
––
––
(82)
$ (4,578) $ 3,052 $ (1,725) $ 17,986 $ (4,639)
295
503
13
(328)
(356)
(300)
(41)
––
Net income (loss) attributable to
1-800-FLOWERS.COM, Inc.
$ (10,739) $ (10,495) $ 45,771
$ (4,250) $ 3,408 $ (1,425) $18,027 $ (4,639)
Basic net income (loss) per common share
attributable to 1-800-FLOWERS.COM, Inc.
From continuing operations $ (0.16) $ (0.16) $ 0.71
From discontinued operations
Basic net income per
common share
(0.16)
(0.16)
0.71
––
$ (0.07)
–– –– ––
Diluted net income (loss) per common share
attributable to 1-800-FLOWERS.COM, Inc.
From continuing operations $ (0.16) $ (0.16) $ 0.68
From discontinued operations
–– ––
Diluted net income per
common share
(0.16)
(0.16)
––
0.68
Weighted average shares used in the calculation of
$ 0.05 $ (0.02) $ 0.27 $ (0.07)
0.00 0.00 0.01 0.00
(0.07)
0.05
(0.02)
0.28 (0.07)
$ (0.07)
––
$ 0.05 $ (0.02) $ 0.27 $ (0.07)
0.00 0.00 0.01 0.00
(0.07)
0.05
(0.02)
0.27
(0.07)
net income (loss) per common share:
Basic
Diluted
65,188
65,188
64,909
64,909
64,443
67,061
63,948
63,948
64,112
66,157
64,214
64,214
64,016
66,095
63,799
63,799
The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business,
and its continued expansion into non-floral products, including the acquisition of Harry & David on September 30, 2014, the Thanks-
giving through Christmas holiday season, which falls within the Company’s second fiscal quarter, is expected to generate nearly 56%
of the Company’s annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including
Mother’s Day, Valentine’s Day and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth
quarters in comparison to its fiscal first quarter. The Easter Holiday, which was on April 20th in fiscal 2014, fell on April 5th in fiscal
2015. As a result of the timing of Easter, during fiscal 2015 a portion of revenue and EBITDA associated with the Easter Holiday
shifted into the Company’s fiscal third quarter, from its fiscal fourth quarter of fiscal 2014. There will be a further shift of revenue and
EBITDA as Easter falls on March 27th in fiscal 2016.
19
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
June 28, June 29,
2015 2014
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Insurance receivable
Inventories
Deferred tax assets
Prepaid and other
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles, net
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Current maturities of long-term debt
Total current liabilities
Long-term debt
Deferred tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 17)
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,
42,875,291 and 38,119,398 shares issued in 2015 and 2014, respectively
Class B common stock, $.01 par value, 200,000,000 shares authorized,
39,310,044 and 42,058,594 shares issued in 2015 and 2014, respectively
Additional paid-in capital
Retained deficit
Accumulated other comprehensive loss
Treasury stock, at cost, 11,874,475 and 10,818,437 Class A shares in 2015 and
2014, respectively, and 5,280,000 Class B shares in 2015 and 2014
Total 1-800-FLOWERS.COM, Inc. stockholders’ equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
20
$ 27,940
16,191
2,979
93,163
4,873
14,822
159,968
170,100
77,097
82,125
––
12,656
$501,946
$ 35,425
73,639
14,543
123,607
117,563
42,680
7,840
291,690
––
429
$
5,203
13,339
––
58,520
5,156
9,600
91,818
60,147
60,166
44,616
2,002
8,820
$267,569
$ 24,447
49,517
343
74,307
––
649
6,495
81,451
––
381
420
393
319,108
305,510
(48,278) (68,565)
(46)
(371)
(62,832) (54,472)
183,228
208,449
2,890
1,807
186,118
210,256
$501,946
$267,569
Consolidated Statements of Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
Years Ended
June 28, June 29, June 30,
2015 2014 2013
Net revenues
Cost of revenues
Gross profit
Operating expenses:
$1,121,506
634,311
487,195
$756,345
440,672
315,673
$735,497
430,305
305,192
Marketing and sales
Technology and development
General and administrative
Depreciation and amortization
Total operating expenses
Operating income
Interest expense and other, net
Income from continuing operations before income taxes
Income tax expense from continuing operations
Income from continuing operations
Loss from discontinued operations, net of tax
Gain (loss) on sale of discontinued operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
Less: Net loss attributable to noncontrolling interest
Net income attributable to 1-800-FLOWERS.COM, Inc.
Basic net income (loss) per common share
attributable to 1-800-FLOWERS.COM, Inc.
From continuing operations
From discontinued operations
Basic net income per common share
Diluted net income (loss) per common share
attributable to 1-800-FLOWERS.COM, Inc.
From continuing operations
From discontinued operations
Diluted net income per common share
Weighted average shares used in the calculation of
net income (loss) per common share:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
299,801
34,745
85,908
29,124
449,578
37,617
7,303
30,314
10,930
19,384
––
––
––
$
19,384
(903)
20,287
$
$
$
0.31
0.00
0.31
$
$
0.30
0.00
0.30
64,976
67,602
194,847
22,518
54,754
19,848
291,967
23,706
1,357
22,349
8,403
13,946
(86)
815
729
$ 14,675
(697)
$ 15,372
$ 0.23
0.01
$ 0.24
$ 0.22
0.01
$ 0.23
64,035
66,460
186,720
21,700
52,188
18,798
279,406
25,786
991
24,795
9,073
15,722
(1,889)
(1,512)
(3,401)
$ 12,321
––
$ 12,321
$ 0.24
(0.05)
$ 0.19
$ 0.24
(0.05)
$ 0.19
64,369
66,792
21
Consolidated Statements of Comprehensive Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
June 28, June 29, June 30,
2015 2014 2013
$12,321
Net income
17
12,338
$19,384
Other comprehensive income (loss) (currency translation) (505)
18,879
$14,675
(75)
14,600
Comprehensive income
Less:
Net loss attributable to noncontrolling interest
Other comprehensive loss (currency translation)
attributable to noncontrolling interest
Comprehensive loss attributable to noncontrolling interest
Comprehensive income (loss) attributable to
(903)
(697)
(180)
(1,083)
(29)
(726)
––
––
––
1-800-FLOWERS.COM, Inc.
$19,962
$15,326
$12,338
See accompanying Notes to Consolidated Financial Statements.
22
Consolidated Statements of Stockholders’ Equity
1-800-FLOWERS.COM, Inc. and Subsidiaries
Years ended June 28, 2015, June 29, 2014 and June 30, 2013
(in thousands, except share data)
Accumulated Total
Common Stock Additional Other 1-800-FLOWERS.COM, Inc.
Class A Class B Paid-In Retained Comprehensive Treasury Stock Stockholders’ Noncontrolling Total
Shares Amount Shares Amount Capital Deficit Loss Shares Amount Equity Interest Equity
Balance at July 1, 2012
34,465,207
$ 344 42,138,465
$ 421
$ 293,814 $ (96,258)
$ (17)
12,047,166 $(36,556)
$ 161,748
$
Net income
Change in value of cash flow hedge
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Tax asset shortfall from
––
––
––
––
––
––
13,000
1,610,271
191,947
–– (13,000)
––
16
––
2
stock-based compensation
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
4,267
533
(34)
––
12,321
––
––
––
––
––
––
Balance at June 30, 2013
36,280,425
362 42,125,465
421
298,580 (83,937)
Net income
Translation adjustment
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Excess tax benefit from
stock-based compensation
Acquisition of Class A treasury stock
Noncontrolling interest
––
––
––
––
––
––
––
––
66,871
1,608,052
164,050
1 (66,871)
––
––
16
2
(1)
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
4,648
525
1,757
––
––
15,372
––
––
––
––
––
––
––
––
17
––
––
––
––
––
––
––
(46)
––
––
––
––
––
––
Net income
Translation adjustment
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Excess tax benefit from
stock-based compensation
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
2,748,550
1,154,173
853,170
27 (2,748,550)
––
12
––
9
(27)
––
––
––
––
––
––
––
––
––
––
––
––
––
5,950
5,533
2,115
––
20,287
––
––
––
––
––
––
––
(325)
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
12,321
17
––
4,283
535
––
––
2,490,065 (9,599)
(34)
(9,599)
14,537,231 (46,155)
169,271
––
––
––
––
––
––
––
––
––
––
––
––
1,561,206 (8,317)
––
––
––
––
––
––
––
––
––
––
––
––
––
4,664
527
1,757
(8,317)
––
––
5,962
5,542
––
––
1,056,038 (8,360)
2,115
(8,360)
Balance at June 29, 2014
38,119,398
381 42,058,594
420
305,510 (68,565)
(46)
16,098,437 (54,472)
183,228
––
––
––
––
––
––
––
––
––
$161,748
12,321
17
––
4,283
535
(34)
(9,599)
169,271
––
––
––
––
––
3,616
2,890
––
4,664
527
1,757
(8,317)
3,616
186,118
––
––
––
––
––
––
5,962
5,542
2,115
(8,360)
15,372
(697)
14,675
(46)
(29)
(75)
3
2
20,287
(903)
19,384
(325)
(180)
(505)
Balance at June 28, 2015
42,875,291
$ 429 39,310,044
$ 393
$ 319,108 $ (48,278)
$ (371)
17,154,475 $(62,832)
$ 208,449
$ 1,807 $210,256
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
June 28, June 29, June 30,
2015 2014 2013
Operating activities:
Net income
Reconciliation of net income to net cash
$ 14,675
$ 12,321
19,384
$
provided by operating activities, net of acquisitions:
Operating activities of discontinued operations
Loss/(gain) on sale of discontinued operations
Depreciation and amortization
Amortization of deferred financing costs
Deferred income taxes
Non-cash impact of write-offs related to warehouse fire
Bad debt expense
Stock-based compensation
Excess tax benefit from stock-based compensation
Other non-cash items
Changes in operating items, excluding the effects of
acquisitions:
Receivables
Insurance receivable
Inventories
Prepaid and other
Accounts payable and accrued expenses
Other assets
Other liabilities
Net cash provided by operating activities
Investing activities:
Acquisitions, net of cash acquired
Capital expenditures
Other, net
Investing activities of discontinued operations
Net cash used in investing activities
Financing activities:
Acquisition of treasury stock
Excess tax benefit from stock based compensation
Proceeds from exercise of employee stock options
Proceeds from bank borrowings
Repayment of notes payable and bank borrowings
Debt issuance cost
Other
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
––
––
29,124
1,501
2,471
29,522
1,295
5,962
(2,550)
1,439
8,331
(2,979)
26,390
8,047
(2,235)
(1,058)
1,089
125,733
(131,994)
(32,572)
963
––
(163,603)
(8,360)
2,550
5,542
239,500
(172,983)
(5,642)
––
60,607
22,737
5,203
27,940
$
1,587
(1,300)
19,848
306
1,454
––
1,656
4,664
(1,837)
755
(1,893)
––
(2,564)
436
2,660
(262)
2,355
42,539
(9,000)
(22,985)
(3)
500
(31,488)
(8,317)
1,837
527
127,000
(127,052)
––
3
(6,002)
5,049
154
5,203
$
(179)
2,348
18,798
420
(811)
––
1,085
4,283
(739)
483
(4,108)
––
(1,823)
(1,655)
4,368
(609)
463
34,645
(3,700)
(20,044)
(786)
––
(24,530)
(9,599)
739
535
62,000
(91,250)
(1,234)
(6)
(38,815)
(28,700)
28,854
154
$
Supplemental Cash Flow Information:
- Interest paid amounted to $4.3 million $1.0 million and $1.1 million, for the years ended June 28, 2015, June
29, 2014 and June 30, 2013, respectively.
- The Company paid income taxes of approximately $5.1 million, $7.0 million and $8.3 million, net of tax refunds
received, for the years ended June 28, 2015, June 29, 2014, and June 30, 2013, respectively.
See accompanying Notes to Consolidated Financial Statements.
24
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 1. Description of Business
For nearly 40 years, 1-800-FLOWERS® (1-800-356-
9377 or www.1800flowers.com) has been helping deliver
smiles for our customers with gifts for every occasion,
including fresh flowers and the finest selection of plants,
gift baskets, gourmet foods, confections, candles,
balloons and plush stuffed animals. As always, our 100%
Smile Guarantee® backs every gift.
The Company’s BloomNet® international floral wire
service (www.mybloomnet.net) provides a broad range of
quality products and value-added services designed to
help professional florists grow their businesses profitably.
The 1-800-FLOWERS.COM “Gift Shop” also includes
gourmet gifts such as premium, gift-quality fruits and other
gourmet items from Harry & David® (1-877-322-1200 or
www.harryanddavid.com), popcorn and specialty treats
from The Popcorn Factory® (1-800-541-2676 or
www.thepopcornfactory.com); cookies and baked gifts from
Cheryl’s® (1-800-443-8124 or www.cheryls.com); premium
chocolates and confections from Fannie May®
(www.fanniemay.com and www.harrylondon.com); gift
baskets and towers from 1-800-Baskets.com®
(www.1800baskets.com); premium English muffins and
other breakfast treats from Wolferman’s (1-800-999-1910
or www.wolfermans.com); carved fresh fruit arrangements
from FruitBouquets.com (www.fruitbouquets.com); and
top quality steaks and chops from Stock Yards®
(www.stockyards.com).
Note 2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include
the accounts of 1-800-FLOWERS.COM, Inc. and its
subsidiaries (collectively, the “Company”). All significant
intercompany accounts and transactions have been
eliminated in consolidation. During fiscal 2015 and 2014,
approximately 1% and 2%, respectively, of consolidated
net revenue came from international sources, whereas in
fiscal 2013 virtually all of the Company’s revenues had
been derived from domestic sources.
During the fourth quarter of fiscal 2013, the Company
made the strategic decision to divest the e-commerce
and procurement businesses of its Winetasting Network
subsidiary in order to focus on growth opportunities in its
Gourmet Foods and Gift Baskets business segment. The
Company closed on the sale of its Winetasting Network
business on December 31, 2013. The Company has
classified the results of the e-commerce and procurement
business of The Winetasting Network as a discontinued
operation for the fiscal years 2014 and 2013.
Fiscal Year
The Company’s fiscal year is a 52- or 53-week period
ending on the Sunday nearest to June 30. Fiscal years
2015, 2014 and 2013 consisted of 52 weeks which
ended on June 28, 2015, June 29, 2014 and June 30,
2013, respectively.
Use of Estimates
The preparation of financial statements in conformity
with U.S. generally accepted accounting principles
25
requires management to make estimates and assump-
tions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand
deposits with banks, highly liquid money market funds,
United States government securities, overnight repur-
chase 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 are stated at cost less
accumulated depreciation and amortization. Depreciation
expense is computed using the straight-line method over
the assets’ estimated useful lives. Amortization of lease-
hold improvements and capital leases is computed using
the straight-line method over the shorter of the estimated
useful lives and the initial lease terms. The Company
capitalizes certain internal and external costs incurred
to acquire or develop internal-use software. Capitalized
software costs are amortized on a straight-line basis
over the estimated useful life of the software. Orchards
in production, consisting of direct labor and materials,
supervision and other items, are capitalized as part of
capital projects in progress – orchards until the orchards
produce fruit in commercial quantities. Upon attaining
commercial levels of production the capital investments
in these orchards are recorded as land 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:
10 - 40
Buildings and building improvements (years)
Leasehold improvements (years)
3 - 10
Furniture, fixtures and production equipment (years) 3 - 10
3 - 7
Software (years)
15 - 35
Orchards in production and land improvements
Property, plant and equipment and other long-lived
assets are reviewed for impairment whenever changes
in circumstances or events may indicate that the carrying
amounts are not recoverable.
Goodwill
Goodwill represents the excess of the purchase price
over the fair value of the net assets acquired in each
business combination, with the carrying value of the
Company’s goodwill allocated to its reporting units, in
accordance with the acquisition method of accounting.
Goodwill is not amortized, but it is subject to an annual
assessment for impairment, which the Company performs
during the fourth quarter, or more frequently if events
occur or circumstances change such that it is more likely
than not that an impairment may exist.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The Company tests goodwill for impairment at the
reporting unit level. The Company identifies its reporting
units by assessing whether the components of its operat-
ing segments constitute businesses for which discrete
financial information is available and management of each
reporting unit regularly reviews the operating results of
those components. Goodwill impairment testing involves a
two-step process. The first step requires comparison of the
fair value of each of the reporting units to the respective
carrying value. If the carrying value of the reporting unit is
less than the fair value, no impairment exists and the
second step is not performed. If the carrying value of the
reporting unit is higher than the fair value, the second step
must be performed to compute the amount of the goodwill
impairment, if any. In the second step, the impairment is
computed by comparing the implied fair value of the
reporting unit goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized for the excess.
The Company generally estimates the fair value of
a reporting unit using an equal weighting of the income
and market approaches. The Company uses industry
accepted valuation models and set criteria that are
reviewed and approved by various levels of management
and, in certain instances, the Company engages third-
party valuation specialists. Under the income approach,
the Company uses a discounted cash flow methodology
which requires management to make significant esti-
mates and assumptions related to forecasted revenues,
gross profit margins, operating income margins, working
capital cash flow, perpetual growth rates, and long-term
discount rates, among others. For the market approach,
the Company uses the guideline public company method.
Under this method the Company utilizes information
from comparable publicly traded companies with similar
operating and investment characteristics as the reporting
units, to create valuation multiples that are applied to
the operating performance of the reporting unit being
tested, in order to obtain their respective fair values.
The Company also reconciles the aggregate fair values
of its reporting units determined in the first step (as
described above) to its current market capitalization,
allowing for a reasonable control premium.
Other Intangibles, net
Other intangibles consist of definite-lived intangible
assets (such as investment in licenses, customer lists,
and others) and indefinite-lived intangible assets (such
as acquired trade names and trademarks). The cost of
definite-lived intangible assets is amortized to reflect the
pattern of economic benefits consumed, over the esti-
mated periods benefited, ranging from 3 to 16 years,
while indefinite-lived intangible assets are not amortized.
Long-lived assets, such as definite-lived intangibles
and property, plant and equipment are reviewed for
impairment whenever changes in circumstances or
events may indicate that the carrying amounts are not
recoverable. When such events or changes in circum-
stances occur, a recoverability test is performed compar-
ing projected undiscounted cash flows from the use and
26
eventual disposition of an asset or asset group to its
carrying value. If the projected undiscounted cash flows
are less than the carrying value, then an impairment
charge would be recorded for the excess of the carrying
value over the fair value, which is determined by
discounting future cash flows.
The Company tests indefinite-lived intangible assets
for impairment at least annually, during the fourth quarter,
or whenever changes in circumstances or events may
indicate that the carrying amounts are not recoverable.
The impairment test for indefinite-lived intangible assets
encompasses calculating a fair value of an indefinite-
lived intangible asset and comparing the fair value to
its carrying value. If the carrying value exceeds the fair
value, impairment is recognized for the difference.
To determine fair value of other indefinite-lived intangible
assets, the Company uses an income approach, the
relief-from-royalty method. This method assumes that, in
lieu of ownership, a third party would be willing to pay a
royalty in order to obtain the rights to use the comparable
asset. Other indefinite-lived intangible assets’ fair values
require significant judgments in determining both the
assets’ estimated cash flows as well as the appropriate
discount and royalty rates applied to those cash flows to
determine fair value.
Business Combinations
The Company accounts for business combinations in
accordance with ASC Topic 805 which requires, among
other things, the acquiring entity in a business combina-
tion to recognize the fair value of all the assets acquired
and liabilities assumed; the recognition of acquisition-
related costs in the consolidated results of operations;
the recognition of restructuring costs in the consolidated
results of operations for which the acquirer becomes
obligated after the acquisition date; and contingent
purchase consideration to be recognized at their fair
values on the acquisition date with subsequent adjust-
ments recognized in the consolidated results of opera-
tions. The fair values assigned to identifiable intangible
assets acquired are determined primarily by using an
income approach which is based on assumptions and
estimates made by management. Significant assumptions
utilized in the income approach are based on company
specific information and projections which are not
observable in the market and are therefore considered
Level 3 measurements. The excess of the purchase price
over the fair value of the identified assets and liabilities is
recorded as goodwill. Operating results of the acquired
entity are reflected in the Company’s consolidated
financial statements from date of acquisition.
Deferred Catalog Costs
The Company capitalizes the costs of producing and
distributing its catalogs. These costs are amortized in
direct proportion to actual sales from the corresponding
catalog over a period not to exceed 12 months. Included
within prepaid and other current assets was $2.5million
and $0.2 million at June 28, 2015 and June 29, 2014
respectively, relating to prepaid catalog expenses.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Investments
The Company has certain investments in non-
marketable equity instruments of private companies.
The Company accounts for these investments using the
equity method if they provide the Company the ability to
exercise significant influence, but not control, over the
investee. Significant influence is generally deemed to
exist if the Company has an ownership interest in the
voting stock of the investee between 20% and 50%,
although other factors, such as representation on the
investee’s Board of Directors, are considered in determining
whether the equity method is appropriate. The Company
records equity method investments initially at cost, and
adjusts the carrying amount to reflect the Company’s
share of the earnings or losses of the investee. The
Company’s equity method investments are comprised of
a 32% interest in Flores Online, a Sao Paulo, Brazil
based internet floral and gift retailer, that the Company
made on May 31, 2012. The book value of this investment
was $2.9 million as of June 28, 2015 and $3.2 million as
of June 29, 2014, and is included in Other assets within
the consolidated balance sheets. The Company’s equity
in the net income (loss) of Flores Online for each of the
years ended June 28, 2015 and June 29, 2014 was
$(0.3) million and $(0.6) million.
Investments in non-marketable equity instruments
of private companies, where the Company does not
possess the ability to exercise significant influence,
are accounted for under the cost method. Cost method
investments are originally recorded at cost, and are
included within Other assets in the Company’s consoli-
dated balance sheets. The aggregate carrying amount of
the Company’s cost method investments was $0.7 million
as of June 28, 2015 and $0.8 million as of June 29, 2014.
In addition, the Company had notes receivable from a
company it maintains an investment in of $0.3 million as
of June 28, 2015 and $0.5 million as of June 29, 2014.
As described in Note 4 “Acquisitions”, on December 3,
2013, the Company increased its investment in iFlorist,
resulting in a majority ownership interest (56%), through
the conversion of notes receivable and the purchase of
additional shares from the Company’s founders. The
acquisition of a majority interest in iFlorist resulted in the
consolidation of iFlorist’s operations.
The Company also holds certain trading securities
associated with its Non-Qualified Deferred Compensation
Plan (“NQDC Plan”). These investments are measured
using quoted market prices at the reporting date and are
included in Other assets in the consolidated balance
sheets (see Note 10).
Each reporting period, the Company uses available
qualitative and quantitative information to evaluate its
investments for impairment. When a decline in fair value,
if any, is determined to be other-than-temporary, an
impairment charge is recorded in the consolidated
statement of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk
consist principally of cash and cash equivalents and
accounts receivable. The Company maintains cash and
27
cash equivalents with high quality financial institutions.
Concentration of credit risk with respect to accounts
receivable is 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 ($2.2 million
at June 28, 2015 and $2.4 million at June 29, 2014) have
been recorded based upon previous experience and
management’s evaluation.
Revenue Recognition
Net revenues are generated by e-commerce opera-
tions 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, net of discounts,
returns and credits. Net revenues are recognized primarily
upon product delivery and do not include sales tax. Net
revenues generated by the Company’s BloomNet Wire
Service operations include membership fees as well as
other products and service offerings to florists. Member-
ship fees are recognized monthly in the period earned,
and products sales are recognized upon product shipment
with shipping terms primarily FOB shipping point.
Initial franchise fees are recognized in income when
the Company has substantially performed or satisfied all
material services or conditions relating to the sale of the
franchise and the fees are nonrefundable. Area develop-
ment fees are nonrefundable and are recognized in
income on a pro-rata basis when the conditions for
revenue recognition under the individual area develop-
ment agreements are met. Both initial franchise fees and
area development fees are generally recognized upon
the opening of a franchise store or upon termination of
the agreement between the Company and the franchisee.
Cost of Revenues
Cost of revenues consists primarily of florist fulfillment
costs (fees paid directly to florists), the cost of floral and
non-floral merchandise sold from inventory or through
third parties, and associated costs including inbound and
outbound shipping charges. Additionally, cost of revenues
includes labor and facility costs related to manufacturing
and production operations.
Marketing and Sales
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal and search expenses, retail store and
fulfillment operations (other than costs included in cost
of revenues), and customer service center expenses,
as well as the operating expenses of the Company’s
departments engaged in marketing, selling and
merchandising activities.
The Company expenses all advertising costs, with the
exception of catalog costs (see Deferred Catalog Costs
above), at the time the advertisement is first shown.
Advertising expense was $130.6 million, $83.0 million
and $77.9 million for the years ended June 28, 2015,
June 29, 2014 and June 30, 2013, respectively.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 websites, including hosting, content development
and maintenance and support costs related to the
Company’s order entry, customer service, fulfillment and
database systems. Costs associated with the acquisition
or development of software for internal use are capitalized
if the software is expected to have a useful life beyond
one year and amortized over the software’s useful life,
typically three to seven years. Costs associated with repair
maintenance or the development of website content are
expensed as incurred as the useful lives of such software
modifications are less than one year.
Stock-Based Compensation
The Company records compensation expense
associated with restricted stock awards and other forms of
equity compensation based upon the fair value of stock-
based awards as measured at the grant date. The cost
associated with share-based awards that are subject
solely to time-based vesting requirements, less expected
forfeitures, is recognized over the awards’ service period
for the entire award on a straight-line basis. The cost
associated with performance-based equity awards is
recognized for each tranche over the service period,
based on an assessment of the likelihood that the
applicable performance goals will be achieved.
Derivatives and hedging
The Company does not enter into derivative
transactions for trading purposes, but rather, on occasion
to manage its exposure to interest rate fluctuations.
When entering into these transactions, the Company has
managed its floating rate debt using interest rate swaps
in order to reduce its exposure to the impact of changing
interest rates on its consolidated results of operations
and future cash outflows for interest. The Company did
not have any open derivative positions at June 28, 2015
and June 29, 2014.
Income Taxes
The Company uses the asset and liability method to
account for income taxes. The Company has established
deferred tax assets and liabilities for temporary differ-
ences 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 recog-
nizes as a deferred tax asset, the tax benefits associated
with losses related to operations. Realization of these
deferred tax assets assumes that we will be able to
generate sufficient future taxable income so that these
assets will be realized. The factors that the Company
considers in assessing the likelihood of realization
include the forecast of future taxable income and avail-
able tax planning strategies that could be implemented
to realize the deferred tax assets.
The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial
statements on a particular tax position are measured
based on the largest benefit that has a greater than a
50% likelihood of being realized upon settlement. The
amount of unrecognized tax benefits (“UTBs”) is adjusted
as appropriate for changes in facts and circumstances,
such as significant amendments to existing tax law, new
regulations or interpretations by the taxing authorities,
new information obtained during a tax examination, or
resolution of an examination. We recognize both accrued
interest and penalties, where appropriate, related to
UTBs in income tax expense. Assumptions, judgment and
the use of estimates are required in determining if the
“more likely than not” standard has been met when
developing the provision for income taxes.
Net Income (Loss) Per Share
Basic net income (loss) per common share is com-
puted using the weighted-average number of common
shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted-average
number of common and dilutive common equivalent
shares (consisting primarily of employee stock options
and unvested restricted stock awards) outstanding during
the period. Diluted net loss per share excludes the effect
of potential common shares (consisting primarily of
employee stock options and unvested restricted stock
awards) that would be antidilutive.
Recent Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-05,
“Customer’s Accounting for Fees Paid in a Cloud Com-
puting Arrangement.” This standard provides guidance to
help entities determine whether a cloud computing
arrangement contains a software license that should be
accounted for as internal-use software or as a service
contract. Upon adoption, an entity has the option to apply
the provisions of ASU 2015-05 either prospectively to all
arrangements entered into or materially modified, or
retrospectively. This standard is effective for the
Company’s fiscal year ending July 2, 2017. We are
currently evaluating the potential impact of adopting this
guidance on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
“Simplifying the Presentation of Debt Issuance Costs,”
which amends ASC 835-30, “Interest – Imputation of
Interest.” In order to simplify the presentation of debt
issuance costs, ASU No. 2015-03 requires that debt
issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from
that debt liability, consistent with the presentation of a
debt discount. This presentation is consistent with the
guidance in Concepts Statement 6, which states that debt
issuance costs are similar to a debt discount and in effect
reduce the proceeds of borrowing, thereby increasing the
effective interest rate. Concepts Statement 6 further states
that debt issuance costs are not assets because they
provide no future economic benefit. This new guidance is
effective for the Company’s fiscal year ending July 2,
2017 and should be applied retrospectively.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers.” This amended
28
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
guidance will enhance the comparability of revenue
recognition practices and will be applied to all contracts
with customers. Expanded disclosures related to the
nature, amount, timing, and uncertainty of revenue that
is recognized are requirements under the amended
guidance. This guidance will be effective for the
Company’s fiscal year ending July 1, 2018 and may
be applied retrospectively. We are currently evaluating
the potential impact of adopting this guidance on our
consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08,
“Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity,” which amends
ASC 205, “Presentation of Financial Statements,” and
ASC 360, “Property, Plant, and Equipment.” ASU No.
2014-08 amends the requirements for reporting discon-
tinued operations and requires additional disclosures
about discontinued operations. Under the new guidance,
only disposals representing a strategic shift in operations
or that have a major effect on the Company’s operations
and financial results should be presented as discontin-
ued operations. This new accounting guidance is effective
for the Company’s fiscal year ending July 3, 2016, and
may be applied retrospectively. We are currently evaluat-
ing the potential impact of adopting this guidance on our
consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11,
“Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists,” which amends ASC 740,
“Income Taxes.” The amendments provide guidance on
the financial statement presentation of an unrecognized
tax benefit, as either a reduction of a deferred tax asset or
as a liability, when a net operating loss carryforward,
similar tax loss, or a tax credit carryforward exists. The
amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15,
2013 and may be applied on either a prospective or
retrospective basis. The provisions are effective for the
Company’s first quarter of fiscal year ending June 28,
2015. The adoption of these provisions did not have a
significant impact on the Company’s consolidated
financial statements.
Reclassifications
Certain balances in the prior fiscal years have been
reclassified to conform to the presentation in the current
fiscal year.
Note 3 – Net Income Per Common Share
from Continuing Operations
The following table sets forth the computation of basic
and diluted net income per common share from continu-
ing operations:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands, except per share data)
Numerator:
Income from
continuing
operations $19,384 $13,946 $15,722
Less: Net loss
attributable to
noncontrolling interest
Income from continuing
(903)
(697)
––
operations attributable to
1-800-FLOWERS.COM, Inc. $20,287 $14,643 $15,722
Denominator:
Weighted average
shares outstanding
64,976
64,035
64,369
Effect of dilutive securities:
Employee stock
options (1)
Employee restricted
stock awards
Adjusted weighted-average
shares and assumed
1,561
1,083
786
1,065
2,626
1,342
2,425
1,637
2,423
conversions
67,602
66,460
66,792
Net income per common share
from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.
Basic $ 0.31 $ 0.23 $ 0.24
Diluted $ 0.30 $ 0.22 $ 0.24
Note (1): The effect of options to purchase 0.1 million, 1.2 million and 2.0
million shares for the years ended June 28, 2015, June 29, 2014 and June
30, 2013, respectively, were excluded from the calculation of net income
per share on a diluted basis as their effect is anti-dilutive.
Note 4. Acquisitions
Acquisition of Harry & David
On September 30, 2014, the Company completed its
acquisition of Harry & David, a leading multi-channel
specialty retailer and producer of branded premium gift-
quality fruit, gourmet food products and other gifts
marketed under the Harry & David brands. The transac-
tion, for a purchase price of $142.5 million, includes the
Harry & David’s brands and websites as well as its
headquarters, manufacturing and distribution facilities
and orchards in Medford, Oregon, a warehouse and
29
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
distribution facility in Hebron, Ohio and 48 Harry & David
retail stores located throughout the country.
During the quarter ended June 28, 2015, the
Company finalized the allocation of the purchase price to
the identifiable assets acquired and liabilities assumed
based on its estimates of their fair values on the acquisition
date. The determination of the fair values of the acquired
assets and assumed liabilities (and the related determina-
tion of estimated lives of depreciable tangible and identifi-
able intangible assets) requires significant judgment.
The estimates and assumptions include the projected
timing and amount of future cash flows and discount rates
reflecting risk inherent in the future cash flows. Of the
acquired intangible assets, $5.2 million was assigned to
customer lists, which are being amortized over the
estimated remaining lives of between 4 to 11 years,
$35.5 million was assigned to trademarks, $1.1 million was
assigned to leasehold positions and $16.0 million was
assigned to goodwill, which is not expected to be deductible
for tax purposes. The goodwill recognized in conjunction
with our acquisition of Harry & David is primarily related to
synergistic value created in terms of both operating costs
and revenue growth opportunities, enhanced financial and
operational scale, and other strategic benefits. It also
includes certain other intangible assets that do not qualify
for separate recognition, such as an assembled workforce.
The following table summarizes the final allocation of
the purchase price to the estimated fair values of assets
acquired and liabilities assumed at the date of the
acquisition, as well as adjustments made during the
measurement period:
Harry & David Harry & David
Preliminary Measurement Final
Purchase Price Period Purchase Price
Allocation Adjustments (1) Allocation
(in thousands) (in thousands) (in thousands)
Current Assets
Intangible Assets
Goodwill
Property, plant and
equipment
Other assets
Total assets
acquired
Current liabilities,
including
$124,245
17,209
$ 2,023
24,618
38,635 (22,593)
$126,268
41,827
16,042
91,023
111
14,056
(242)
105,079
(131)
271,223
17,862
289,085
short-term debt
104,335
178
104,513
Deferred tax
liabilities
Other liabilities
assumed
Total liabilities
assumed
Net assets
acquired
23,252
18,796
42,048
1,136
(1,112)
24
128,723
17,862
146,585
$142,500
$
––
$142,500
(1) The measurement period adjustments were due to the finalization of the
valuations related to property plant and equipment and intangible assets
30
and resulted in the following: an increase in property, plant and equipment
and intangible assets, with the related increase in long-term deferred tax
liabilities and corresponding decrease in goodwill. The measurement period
adjustments did not have a significant impact on the Company’s condensed
consolidated statements of income for the year ended June 28, 2015.
The estimated fair value of the acquired work in
process and finished goods inventory was determined
utilizing the income approach. The income approach
estimates the fair value of the inventory based on the net
retail value of the inventory less operating expenses and
a reasonable profit allowance. Raw materials inventory
was valued at book value, as there have not been any
significant price fluctuations or other events that would
materially change the cost to replace the raw materials.
The estimated fair value of the deferred revenue was
determined based on the costs to perform the remaining
services and/or satisfy the Company’s remaining obliga-
tions, plus a reasonable profit for those activities. These
remaining costs exclude sales and marketing expenses
since the Deferred Revenue has already been “sold,”
and no additional sales and marketing expenses will
be incurred. The reasonable profit to be earned on the
deferred revenue was estimated based on the profit
mark-up that the Company earns on similar services.
The estimated fair value of property, plant and
equipment was determined utilizing a combination of
the cost, sales comparison, market, and excess earnings
method approaches, as follows:
Under the cost approach a replacement cost of the
asset is first determined based on replacing the real
property with assets of equal utility and functionality,
developed based on both the indirect and the direct cost
methods. The indirect cost method includes multiplying
the assets’ historical costs by industry specific inflationary
trend factors to yield an estimated replacement cost.
In applying this method, all direct and indirect costs
including tax, freight, installation, engineering and other
associated soft costs were considered. The direct cost
method includes obtaining a current replacement cost
estimate from the Company and equipment dealers,
which includes all applicable direct and indirect costs.
An appropriate depreciation allowance is then applied
to the replacement cost based on the effective age of the
assets relative to the expected normal useful lives of the
assets, condition of the assets, and the planned future
utilization of the assets. The determination of fair value
also includes considerations of functional obsolescence
and economic obsolescence, where applicable.
The sales comparison approach was considered for
certain real estate property. Under the sales comparison
approach, an estimate of fair value is determined by
comparing the property being valued to similar properties
that have been sold within a reasonable period from the
valuation date, applying appropriate units of comparison.
The market approach was considered for certain
assets with active secondary markets including agricultural
equipment, automobiles, computer equipment, general
equipment, mobile equipment, packaging machinery and
semi-tractors. Under the market approach market,
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
comparables for the assets are obtained from equipment
dealers, resellers, industry databases, and published price
guides. The market comparables are then adjusted to the
subject assets based on age, condition or type of transac-
tion. All applicable direct and indirect costs are also
considered and reflected in the final fair value determination.
The fair value of orchards in production was deter-
mined based on the excess earnings method under the
income approach. This valuation approach assumed that
the orchards’ production could be sold independently
through a wholesale market rather than Harry & David’s
retail channel. The excess earnings method required
calculating future crop revenue as determined by
multiplying the future crop volume in tons to be produced
by the projected price per ton based on the USDA
“Agricultural Prices” report released January 31, 2015 by
the National Agricultural Statistics Services. Appropriate
expenses were deducted from the sales attributable to
the orchards and economic rents were charged for the
return on contributory assets. The after-tax cash flows
attributable to the asset were discounted back to their net
present value at an appropriate rate of return and
summed to calculate the value of the orchards.
The estimated fair value of the acquired trademarks
was determined using the relief from royalty method,
which is a risk-adjusted discounted cash flow approach.
The relief from royalty method values an intangible asset
by estimating the royalties saved through ownership of
the asset. The relief from royalty method requires identify-
ing the future revenue that would be generated by the
trademark, multiplying it by a royalty rate deemed to be
avoided through ownership of the asset and discounting
the projected royalty savings amounts back to the
acquisition date. The royalty rate used in the valuation
was based on a consideration of market rates for similar
categories of assets. The discount rate used in the
valuation was based on the Company’s weighted
average cost of capital, the riskiness of the earnings
stream association with the trademarks and the overall
composition of the acquired assets.
The estimated fair value of the acquired customer lists
was determined using the excess earnings method under
the income approach. This method requires identifying the
future revenue that would be generated by existing custom-
ers at the time of the acquisition, considering an appropriate
attrition rate based on the historical experience of the
Company. Appropriate expenses are then deducted from
the revenues and economic rents are charged for the return
on contributory assets. The after-tax cash flows attributable
to the asset are discounted back to their net present value at
an appropriate intangible asset rate of return and summed
to calculate the value of the customer lists.
Operating results of Harry & David are reflected in the
Company’s consolidated financial statements from the
date of acquisition, within its Gourmet Food & Gift Baskets
segment. Harry & David contributed net revenues of
$359.7 million and operating income of approximately
$24.6 million from September 30, 2014 through June 28,
2015. These amounts are not necessarily indicative of the
results of operations that Harry & David would have
realized had it continued to operate as a stand-alone
company during the period presented due to integration
activities since the acquisition date, and due to costs that
are now reflected in the Company’s unallocated corpo-
rate costs which are not allocated to Harry & David.
As required by ASC 805, “Business Combinations,”
the following unaudited pro forma financial information for
the year ended June 28, 2015 and June 29, 2014, give
effect to the Harry & David acquisition as if it had been
completed on July 1, 2013. The unaudited pro forma
financial information is prepared by management for
informational purposes only in accordance with ASC
805 and is not necessarily indicative of or intended to
represent the results that would have been achieved
had the acquisition been consummated as of the dates
presented, and should not be taken as representative of
future consolidated results of operations. The unaudited
pro forma financial information does not reflect any
operating efficiencies and/or cost savings that the
Company may achieve with respect to the combined
companies. The pro forma information has been
adjusted to give effect to nonrecurring items that are
directly attributable to the acquisition.
Year Ended
June 28, June 29,
2015 2014
Net revenues from
continuing operations
$1,152,103
$1,142,946
Income from continuing operations
attributable to
1-800-FLOWERS.COM, Inc.
Diluted net income per common share
$ 17,812
$
19,439
attributable to
1-800-FLOWERS.COM, Inc.
$ 0.26
$
0.29
The unaudited pro forma amounts above include the
following adjustments:
(1) An increase of net revenues and a decrease of cost of sales by $1.6
million and $4.8 million, to reflect the impact of purchase accounting
adjustments related to Harry & David’s deferred revenue and inventory fair
value step-up in the year ended June 28, 2015.
(2) A decrease of operating expenses by $17.4 million during the year
ended June 28, 2015, to eliminate non-recurring acquisition costs ($11.9
million during the year ended June 28, 2015), integration costs ($3.0 million
during the year ended June 28, 2015) and severance costs ($2.5 million
during the year ended June 28, 2015) directly related to the transaction.
(3) A decrease of operating expenses by $0.4 million during the year ended
June 29, 2014, to eliminate non-recurring acquisition costs directly related
to the transaction.
(4) An increase of operating expenses by $0.2 million during the year
ended June 29, 2014, to reflect the additional amortization expense related
to the increase in definite lived intangibles.
(5) An increase to interest expense by $1.1 million for the year ended June
28, 2015, and $4.8 million for the year ended June 29, 2014, respectively,
to reflect the incremental impact of the 2014 Credit Facility utilized to
finance the acquisition, assuming our new credit facility was in place on
July 1, 2013.
(6) The adjustments above were tax effected at the combined entity’s
assumed effective tax rate for the respective periods.
31
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Acquisition of Fannie May retail stores
On June 27, 2014, the Company and GB Chocolates
LLC (GB Chocolates) entered into a settlement agreement,
resulting in the termination of the GB Chocolates franchise
agreement, and its exclusive area development rights.
As a result, in fiscal 2014, the Company recognized the
previously deferred non-refundable area development
fees of $0.7 million. In addition, per the terms of the non-
performance Promissory Note, GB Chocolates paid $1.2
million as a result of its failure to complete its development
obligations under the 2011 Area Development Agreement
(the 2011 ADA). As a result, during the fourth quarter of
fiscal 2014, the Company recognized revenue of $1.0
million ($0.2 million had been previously recognized).
The Company has no plans to market the territories
covered in the 2011 ADA.
In conjunction with the settlement agreement, the
Company and GB Chocolates entered into an asset
purchase agreement whereby the Company repurchased
16 of the original 17 Fannie May retail stores sold to GB
Chocolates in November 2011. The acquisition was
accounted for using the purchase method of accounting
in accordance with FASB guidance regarding business
combinations. The purchase price of $6.4 million was
financed utilizing available cash balances.
During the quarter ended June 28, 2015, the Com-
pany finalized the allocation of the purchase price to the
identifiable assets acquired and liabilities assumed
based on our estimates of their fair values on the acquisi-
tion date. There have been no measurement period
adjustments. The following table summarizes the final
allocation of the purchase price to the estimated fair
values of assets acquired and liabilities assumed at
the date of the acquisition:
Final
Purchase Price Allocation
(in thousands)
Current Assets
Property, plant and equipment
Goodwill
Net assets acquired
$ 103
487
5,783
$6,373
Operating results of the acquired stores are reflected in
the Company’s consolidated financial statements from the
date of acquisition, within the Gourmet Food & Gift Baskets
segment. Pro forma results of operations have not been
presented, as the impact on the Company’s consolidated
financial results would not have been material.
Acquisition of Colonial Gifts Limited
On December 3, 2013, the Company completed
its acquisition of a controlling interest in Colonial Gifts
Limited (iFlorist). iFlorist, located in the UK, is a direct-to-
consumer marketer of floral and gift-related products sold
and delivered throughout Europe. The acquisition was
achieved in stages and was accounted for using the
acquisition method of accounting in accordance with
the Financial Accounting Standards Board’s (“FASB”)
guidance regarding business combinations.
Prior to December 3, 2013, the Company maintained
an investment in iFlorist in the amount of $1.6 million,
which was included on the Company’s balance sheet
within Other assets. This investment was accounted for
under the cost method, as the Company’s ownership
stake was 19.9%, and it did not have the ability to
exercise significant influence.
On December 3, 2013, the Company acquired an
additional interest in iFlorist, bringing the Company’s
ownership interest to 56.2%. The acquisition of the
additional interest was financed through the conversion
of $2.0 million of notes owed by iFlorist to the Company,
and a $1.6 million cash payment to iFlorist’s founders.
Concurrent with the additional investment, the Company
remeasured its initial equity investment in iFlorist, and
determined that the acquisition date fair value approxi-
mated the Company’s carrying value of $1.6 million, and
therefore no gain or loss was recognized. On the acquisi-
tion date, the Company also measured the fair value of
the noncontrolling interest which amounted to $3.6
million. The acquisition-date fair values of the Company’s
previously held equity interest in iFlorist and the
noncontrolling interest were determined based on the
market price the Company paid for its ownership interest
in iFlorist on the acquisition date, assuming that a 20%
control premium was paid to obtain the controlling
interest. The following summarizes the fair values of
the acquisition date purchase price components:
iFlorist Fair Value
of Purchase Price Components
(in thousands)
Cash
Converted debt
Initial equity investment
Noncontrolling interest
Total purchase price
$1,640
1,964
1,629
3,616
$8,849
During the quarter ended December 28, 2014, the
Company finalized the allocation of the purchase price to
the identifiable assets acquired and liabilities assumed
based on our estimates of their fair values on the acquisi-
tion date. The determination of the fair values of the
acquired assets and assumed liabilities (and the related
determination of estimated lives of depreciable tangible
and identifiable intangible assets) requires significant
judgment. The estimates and assumptions include the
projected timing and amount of future cash flows and
discount rates reflecting risk inherent in the future cash
flows. Of the acquired intangible assets, $0.7 million was
assigned to customer lists, which is being amortized over
the estimated remaining life of 3 years, $0.7 million was
assigned to trademarks, and $7.9 million was assigned to
goodwill, which is not expected to be deductible for tax
purposes. As a result of cumulative tax losses in the foreign
jurisdiction, offset in part by the deferred tax liability arising
from the amortizable customer lists which was considered
a source of future income, the Company concluded that a
full valuation allowance be recorded in such jurisdiction.
32
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
average cost of capital, the riskiness of the earnings
stream association with the trademarks and the overall
composition of the acquired assets.
The estimated fair value of the acquired customer lists
was determined using the with and without method. This
method calculates the debt-free cash flows generated
under two scenarios: the with and without. Under the with
scenario, it is assumed that the Company achieves full
projections and includes both existing customers as of
the valuation date as well as new customers acquired
during the course of normal business. The without
scenario, assumes that the Company has no existing
customers, but rather builds to management projections
as new customers are acquired. The differential between
the cash flows under the two scenarios is then discounted
to present value to determine the value of the customer
lists as of the valuation date.
Operating results of the Company’s membership
interest in iFlorist are reflected in the Company’s
consolidated financial statements from the date of
acquisition, essentially all of which is included within the
1-800-Flowers.com Consumer Floral segment. iFlorist’s
operations are not material to the Company’s consoli-
dated financial statements and as such pro forma results
of operations have not been presented.
Acquisition of 1-800-Flowers’ European trademarks
On March 11, 2013, the Company acquired the
European rights to various derivations of the 1-800-
Flowers’ tradename, trademark, URL’s and telephone
numbers from Flowerscorp Pty Ltd. for a purchase price of
$4.0 million, which is included within Other intangibles, net.
Note 5. Inventory
The Company’s inventory, stated at cost, which is not
in excess of market, includes purchased and manufac-
tured finished goods for sale, packaging supplies, raw
material ingredients for manufactured products and
associated manufacturing labor, growing crops and is
classified as follows:
June 28, June 29,
2015 2014
(in thousands)
Finished goods
Work-in-process
Raw materials
$43,254
16,020
33,889
$93,163
$30,859
8,566
19,095
$58,520
The following table summarizes the final allocation of
the purchase price to the estimated fair values of assets
acquired and liabilities assumed at the date of the
acquisition, as well as adjustments made during the
measurement period:
iFlorist iFlorist
Preliminary Measurement Final
Purchase Price Period Purchase Price
Allocation Adjustments (1) Allocation
(in thousands) (in thousands) (in thousands)
Current Assets
Intangible Assets
Goodwill
Property, plant and
equipment
Other assets
Total assets
acquired
Current liabilities,
including current
maturities of
long-term debt
Deferred tax
liabilities
Other liabilities
assumed
Total liabilities
assumed
Net assets
acquired
$
856
3,177
6,537
2,006
30
$
––
(1,709)
1,320
––
––
$
856
1,468
7,857
2,006
30
12,606
(389)
12,217
3,014
––
3,014
648
(389)
95
––
259
95
3,757
(389)
3,368
$
8,849
$
––
$
8,849
(1) The measurement period adjustments were due to the finalization of
valuations related to intangible assets and resulted in the following: a
decrease to intangible assets and the related long-term deferred tax
liabilities and an increase to goodwill. The measurement period adjustments
did not have a significant impact on our condensed consolidated
statements of income for the three and nine months ended March 29, 2015.
In addition, these adjustments did not have a significant impact on our
condensed consolidated balance sheet as of June 29, 2014. Therefore, we
have not retrospectively adjusted this financial information.
The estimated fair value of the acquired trademarks
was determined using the relief from royalty method,
which is a risk-adjusted discounted cash flow approach.
The relief from royalty method values an intangible asset
by estimating the royalties saved through ownership of
the asset. The relief from royalty method requires identify-
ing the future revenue that would be generated by the
trademark, multiplying it by a royalty rate deemed to be
avoided through ownership of the asset and discounting
the projected royalty savings amounts back to the
acquisition date. The royalty rate used in the valuation
was based on a consideration of market rates for similar
categories of assets. The discount rate used in the
valuation was based on the Company’s weighted
33
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 6. Goodwill and Intangible Assets
The following table presents goodwill by segment and the related change in the net carrying amount:
BloomNet Gourmet
Consumer Wire Food and
Floral Service Gift Baskets (1) Total
(in thousands)
Balance at June 30, 2013
$ 10,251
––
$
Acquisition of Fannie May
franchise stores
Adjustments
Acquisition of iFlorist
Balance at June 29, 2014
Harry & David acquisition
iFlorist measurement period
adjustment
iFlorist translation adjustment
Other
Balance at June 28, 2015
––
(97)
6,537
$ 16,691
––
1,320
(429)
––
$ 17,582
––
––
––
––
––
––
––
––
––
$
$
$
37,692
5,783
––
––
43,475
16,042
$
––
––
(2)
59,515
$
$ 47,943
5,783
(97)
6,537
$ 60,166
16,042
1,320
(429)
(2)
$ 77,097
(1) The total carrying amount of goodwill for all periods in the table above is reflected net of $71.1 million of accumulated impairment charges, which were
recorded in the GFGB segment during fiscal 2009.
There were no goodwill impairment charges in any segment during the years ended June 28, 2015, June 29, 2014 and
June 30, 2013.
The Company’s other intangible assets consist of the following:
June 28, June 29,
2015 2014
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
Trademarks with
indefinite lives
Total identifiable
intangible assets
14-16 years
3-10 years
5-8 years
$ 7,420 $ 5,727
14,595
2,597
22,919
21,815
3,665
32,900
$ 1,693
7,220
1,068
9,981
$ 7,420
17,313
2,538
27,271
$ 5,621
12,818
2,538
20,977
$ 1,799
4,495
––
6,294
72,144
––
72,144
38,322
––
38,322
$105,044
$22,919
$82,125
$65,593
$20,977
$44,616
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable. No material impairments were recognized for
the years ended June 28, 2015, June 29, 2014 and June 30, 2013.
The amortization of intangible assets for the years ended June 28, 2015, June 29, 2014 and June 30, 2013
was $.2.1 million, $1.6 million and $1.8 million, respectively. Future estimated amortization expense is as follows:
2016 - $2.1 million, 2017 - $1.5 million, 2018 – $1.3 million, 2019 - $0.7million, 2020 - $0.6 million and thereafter -
$3.8 million.
34
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 7. Property, Plant and Equipment
June 28, June 29,
2015 2014
(in thousands)
Land
Orchards in production and
land improvements
Building and building improvements
Leasehold improvements
Production equipment and
furniture and fixtures
Computer and
telecommunication equipment
Software
Capital projects in progress
- orchards
Accumulated depreciation and
amortization
$ 31,077
$
2,907
9,028
55,121
19,459
––
12,551
18,504
63,132
40,582
56,582
150,695
7,335
392,429
57,488
136,226
––
268,258
222,329
$170,100
208,111
$ 60,147
Depreciation expense for the years ended June 28,
2015, June 29, 2014 and June 30, 2013 was $27.0
million, $18.2 million, and $17.0 million, respectively.
Note 8. Accrued Expenses
Accrued expenses consisted of the following:
June 28, June 29,
2015 2014
(in thousands)
Payroll and employee benefits
Advertising and marketing
Other
$ 36,370 $ 22,601
11,803
15,113
$ 73,639 $ 49,517
11,923
25,346
Note 9. Long-Term Debt
The Company’s current and long-term debt consists of
the following:
June 28, June 29,
2015 2014
(in thousands)
Revolver (1)
Term Loan (1)
Bank loan (2)
Total debt
Less: current maturities of
long-term debt
Long-term debt
$
––
131,813
293
132,106
14,543
$117,563
$
$
––
––
343
343
343
––
(1) In order to finance the Harry & David acquisition, on September 30,
2014, the Company entered into a Credit Agreement with JPMorgan Chase
Bank as administrative agent, and a group of lenders (the “2014 Credit
Facility”), consisting of a $142.5 million five-year term loan (the “Term
35
Loan”) with a maturity date of September 30, 2019, and a co-terminus
revolving credit facility (the “Revolver”), with a seasonally adjusted limit
ranging from $100.0 to $200.0 million, which may be used for working
capital (subject to applicable sublimits) and general corporate purposes.
The Term Loan is payable in 20 quarterly installments of principal and
interest beginning in December 2014, with escalating principal payments
at the rate of 10% in years one and two, 15% in years three and four,
and 20% in year five, with the remaining balance of $42.75 million due upon
maturity. Upon closing of the acquisition, the Company borrowed $136.7
million under the Revolver to repay amounts outstanding under the
Company’s and Harry & David’s previous credit agreements, as well as to
pay acquisition-related transaction costs. There are no amounts outstand-
ing under the Revolver as of June 28, 2015.
The 2014 Credit Facility requires that while any borrowings are outstanding
the Company comply with certain financial and non-financial covenants,
including the maintenance of certain financial ratios. The Company was in
compliance with these covenants as of June 28, 2015. Outstanding amounts
under the 2014 Credit Facility bear interest at the Company’s option at either:
(i) LIBOR, plus a spread of 175 to 250 basis points, as determined by the
Company’s leverage ratio, or (ii) ABR, plus a spread of 75 to 150 basis
points. The 2014 Credit Agreement is secured by substantially all of the
assets of the Company and the Subsidiary Guarantors.
Future payments under the term loan are as follows: $14.2 million – 2016,
$19.6 million – 2017, $21.4 million – 2018, $26.7 million – 2019 and $49.9
million – 2020.
(2) Bank loan assumed through the Company’s acquisition of a majority
interest in iFlorist.
Note 10. Fair Value Measurements
Cash and cash equivalents, receivables, accounts
payable and accrued expenses are reflected in the
consolidated balance sheets at carrying value, which
approximates fair value due to the short-term nature of
these instruments. Although no trading market exists, the
Company believes that the carrying amount of its debt
approximates fair value due to its variable nature. The
Company’s investments in non-marketable equity
instruments of private companies are carried at cost and
are periodically assessed for other-than-temporary
impairment, when an event or circumstances indicate that
an other-than-temporary decline in value may have
occurred. The Company’s remaining financial assets and
liabilities are measured and recorded at fair value (see
table below). The Company’s non-financial assets, such
as definite lived intangible assets and property, plant and
equipment, are recorded at cost and are assessed for
impairment when an event or circumstance indicates that
an other-than-temporary decline in value may have
occurred. Goodwill and indefinite lived intangibles are
tested for impairment annually, or more frequently if
events occur or circumstances change such that it is more
likely than not that an impairment may exist, as required
under the accounting standards.
Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability, in
the principal or most advantageous market for the asset
or liability, in an orderly transaction between market
participants at the measurement date. The authoritative
guidance for fair value measurements establishes a fair
value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
measurements) and the lowest priority to unobservable
inputs (level 3 measurements). The three levels of the fair
value hierarchy under the guidance are described below:
Level 1 Valuations based on quoted prices in active
markets for identical assets or liabilities that the
entity has the ability to access.
Level 2 Valuations based on quoted prices for similar
assets or liabilities, quoted prices in markets
that are not active, or other inputs that are
observable or can be corroborated by
observable data for substantially the full term
of the assets or liabilities.
Level 3 Valuations based on inputs that are supported
by little or no market activity and that are significant
to the fair value of the assets or liabilities.
The following table presents by level, within the fair
value hierarchy, financial assets and liabilities measured
at fair value on a recurring basis:
Fair Value Measurements
Assets (Liabilities)
Carrying Value Level 1 Level 2 Level 3
(in thousands)
Assets (liabilities) as of June 28, 2015:
Trading securities
held in a
“rabbi trust” (1)
$3,118 $3,118 $ –– $ ––
$3,118
$3,118 $ –– $ ––
Fair Value Measurements
Assets (Liabilities)
Carrying Value Level 1 Level 2 Level 3
(in thousands)
Assets (liabilities) as of June 29, 2014:
Trading securities
held in a
“rabbi trust” (1)
$2,146 $2,146 $ –– $ ––
$2,146
$2,146 $ –– $ ––
(1) The Company has established a Non-qualified Deferred Compensation
Plan (Note 14 – Employee Retirement Plans) for certain members of senior
management. Deferred compensation plan assets are invested in mutual
funds held in a “rabbi trust” which is restricted for payment to participants
of the NQDC Plan Trading securities held in the rabbi trust are measured
using quoted market prices at the reporting date and are included in Other
assets, with the corresponding liability included in Other liabilities, in the
consolidated balance sheets.
to federal examination. Due to ongoing state examina-
tions and non-conformity with the federal statute of
limitations for assessment, certain states also remain
open from fiscal 2011. The Company commenced
operations in foreign jurisdictions in 2012. The
Company’s foreign income tax filings are open for
examination by its respective foreign tax authorities
in Canada and the United Kingdom
The Company’s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits as a
component of income tax expense. At June 28, 2015,
the Company has an unrecognized tax position of
approximately $0.6 million, including accrued interest
and penalties of $0.1 million. The Company believes
that no additional significant unrecognized tax positions
will be resolved over the next twelve months.
Significant components of the income tax provision
from continuing operations are as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands)
Current provision (benefit):
Federal
State
Foreign
$ 6,630
1,840
(11)
8,459
$ 6,439
1,247
11
7,697
$ 7,983
1,845
––
9,828
Deferred provision (benefit):
Federal
State
Foreign
1,970
631
(130)
2,471
773
28
(95)
706
(730)
(25)
––
(755)
Income tax expense
$10,930
$ 8,403
$ 9,073
A reconciliation of the U.S. federal statutory tax rate to
the Company’s effective tax rate is as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
Tax at U.S. statutory rates
35.0%
State income taxes, net
of federal tax benefit
35.0%
35.0%
3.8
2.6
Valuation allowance change
Rate differences
1.1 1.2
Tax settlements 1.4 (1.0)
Deductible stock-based
3.7
3.3
1.5 ––
(0.3)
1.1
Note 11. Income Taxes
Domestic production
compensation (1.3) (0.2) (0.1)
The Company files income tax returns in the U.S.
federal jurisdiction and various state and foreign jurisdic-
tions. The Company concluded its federal examination
by the Internal Revenue Service for fiscal year 2011,
however, fiscal years 2012 through 2014 remain subject
36
deduction (2.2) (1.9) (1.8)
Tax credits (3.9) (1.7) (1.2)
1.0 0.6
Other, net
(0.4)
36.1%
37.6%
36.6%
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 signifi-
cant components of the Company’s deferred income tax
assets (liabilities) are as follows:
Years Ended
June 28, June 29,
2015 2014
(in thousands)
Deferred income tax assets:
Net operating loss and
credit carryforwards
Accrued expenses
and reserves
Stock-based
compensation
Book in excess of
tax depreciation
Gross deferred
$
6,743
$ 4,342
5,921
3,622
––
6,178
3,420
1,322
income tax assets
15,262
Less: Valuation allowance (4,589) (2,241)
13,021
11,697
16,286
Deferred income tax liabilities:
Other intangibles (23,307) (6,512)
Tax in excess of
book depreciation (26,197) ––
(49,504) (6,512)
Net deferred income
tax assets (liabilities)
$ (37,807)
$ 6,509
A valuation allowance is provided when it is more
likely than not that some portion, or all, of the deferred tax
assets will not be realized. The Company has estab-
lished valuation allowances primarily for net operating
loss carryforwards in certain states and its United
Kingdom and Canada subsidiaries. At June 28, 2015 the
Company’s federal net operating loss carryforwards were
$2.5 million, which if not utilized, will begin to expire in
fiscal year 2025. The federal net operating loss is subject
to Section 382 limitations of $0.3 million per year. The
Company’s foreign net operating loss carryforward was
$7.5 million, while the state net operating losses were
$6.2 million, before federal benefit, which if not utilized,
will begin to expire in fiscal year 2016.
Note 12. Capital Stock
Holders of Class A common stock generally have the
same rights as the holders of Class B common stock,
except that holders of Class A common stock have one
vote per share and holders of Class B common stock
have 10 votes per share on all matters submitted to the
vote of stockholders. Holders of Class A common stock
and Class B common stock generally vote together as a
single class on all matters presented to the stockholders
for their vote or approval, except as may be required by
Delaware law. Class B common stock may be converted
into Class A common stock at any time on a one-for-one
share basis. Each share of Class B common stock will
automatically convert into one share of Class A common
stock upon its transfer, with limited exceptions. During
fiscal 2015, 2,748,550 shares of Class B common stock
were converted into shares of Class A common stock.
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transac-
tions, subject to general market conditions. The repur-
chase program is financed utilizing available cash. In
June 2015, the Company’s Board of Directors authorized
an increase of $25 million to its stock repurchase plan.
The Company repurchased a total of $8.4 million
(1,056,038 shares), $8.3 million (1,561,206 shares) and
$9.6 million (2,490,065 shares) during the fiscal years
ended June 28, 2015, June 29, 2014 and June 30, 2013,
respectively, under this program. As of June 28, 2015,
$27.3 million remains authorized under the plan.
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”). The Plan is a broad-based, long-
term incentive program that is intended to attract, retain
and motivate employees, consultants and directors to
achieve the Company’s long-term growth and profitability
objectives, and therefore align stockholder and employee
interests. The Plan provides for the grant to eligible
employees, consultants and directors of stock options,
share appreciation rights (“SARs”), restricted shares,
restricted share units, performance shares, performance
units, dividend equivalents, and other share-based
awards (collectively “Awards”).
Note 13. Stock Based Compensation
The Plan is administered by the Compensation
Committee or such other Board committee (or the entire
Board) as may be designated by the Board (the “Commit-
tee”). At June 28, 2015, the Company has reserved
approximately 12.5 million shares of common stock for
issuance, including options previously authorized for
issuance under the 1999 Stock Incentive Plan.
The amounts of stock-based compensation expense
recognized in the periods presented are as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands, except per share data)
Stock options
Restricted stock awards
Total
Deferred income tax benefit
Stock-based compensation
$ 459
5,503
5,962
2,087
$ 420
4,244
4,664
1,738
$ 477
3,806
4,283
1,555
expense, net
$3,875 $2,926
$2,728
37
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Stock based compensation expense is recorded
within the following line items of operating expenses:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands)
Marketing and sales
Technology and
development
General and administrative
Total
$1,866
$1,261
$1,499
392
3,704
298
3,105
$5,962 $4,664
428
2,356
$4,283
Stock-based compensation expense has not been
allocated between business segments, but is reflected as part
of Corporate overhead. (Refer to Note 15. Business Segments).
Stock Options
The weighted average fair value of stock options on
the date of grant, and the assumptions used to estimate
the fair value of the stock options using the Black-Scholes
option valuation model, were as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
Weighted average fair
value of options granted
Expected volatility
Expected life (in years)
Risk-free interest rate
Expected dividend yield
$4.86
52%
7.3
1.9%
0.0%
$3.16
61%
6.6
1.6%
0.0%
$2.95
72%
6.4
0.7%
0.0%
The expected volatility of the option is determined
using historical volatilities based on historical stock prices.
The Company estimated the expected life of options granted
based upon the historical weighted average. The risk-free
interest rate is determined using the yield available for zero-
coupon U.S. government issues with a remaining term equal
to the expected life of the option. The Company has never
paid a dividend, and as such the dividend yield is 0.0%.
The following table summarizes stock option activity during the year ended June 28, 2015:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Term Value (000s)
Outstanding beginning of period 4,339,790 $ 3.80
Granted 75,000 $ 8.83
Exercised (853,170) $ 6.44
Forfeited/Expired (216,474) $ 8.44
Outstanding end of period 3,345,146 $ 2.93
Options vested or expected to
4.3 years $24,910
vest at end of period
Exercisable at June 28, 2015
3,241,485 $ 2.93 4.2 years $24,141
2,095,246 $ 3.04 3.1 years $15,371
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 2015 and the exercise price, multiplied by the number of in-the-
money options) that would have been received by the option holders had all option holders exercised their options on June 28,
2015. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for
the years ended June 28, 2015, June 29, 2014 and June 30, 2013 was $3.6 million, $0.4 million, and $0.6 million, respectively.
The following table summarizes information about stock options outstanding at June 28, 2015:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Options Contractual Life Exercise Options Exercise
Exercise Price Outstanding (years) Price Exercisable Price
1.69 - 1.79
$
$
2.22 - 2.88
$ 3.11 - 3.11
3.26 - 9.25
$
$ 9.74 - 10.20
1,003,500
1,053,000
959,755
276,391
52,500
3,345,146
5.3
6.3
0.9
4.2
5.9
4.3
$ 1.79
$ 2.62
$ 3.11
$ 6.32
$ 9.99
$ 2.93
38
501,000
422,600
959,755
184,391
27,500
2,095,246
$ 1.79
$ 2.61
$ 3.11
$ 6.09
$ 9.80
$ 3.04
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
As of June 28, 2015, the total future compensation cost
related to non-vested options not yet recognized in the state-
ment of operations was $1.8 million and the weighted aver-
age period over which these awards are expected to be
recognized was 3.9 years.
Restricted Stock
The Company grants shares of Common Stock to its
employees that are subject to restrictions on transfer and risk
of forfeiture until fulfillment of applicable service conditions
and, in certain cases, holding periods (Restricted Stock).
The following table summarizes the activity of
non-vested restricted stock during the year ended
June 28, 2015:
Weighted
Average
Grant Date
Shares Fair Value
Non-vested – beginning of period 2,686,685 $ 3.90
Granted 976,882 $ 8.09
Vested (1,154,173) $ 3.48
Forfeited (167,342) $ 7.14
Non-vested - end of period 2,342,052 $ 5.62
The fair value of non-vested shares is determined
based on the closing stock price on the grant date. As of
June 28, 2015, there was $8.1 million of total unrecog-
nized compensation cost related to non-vested restricted
stock-based compensation to be recognized over a
weighted-average period of 2.6 years.
Note 14. Employee Retirement Plans
The Company has a 401(k) Profit Sharing Plan
covering substantially all of its eligible employees.
All employees who have attained the age of 21 are
eligible to participate upon completion of one month of
service. Participants may elect to make voluntary contri-
butions to the 401(k) plan in amounts not exceeding
federal guidelines. On an annual basis the Company,
as determined by its board of directors, may make certain
discretionary contributions. Employees are vested in the
Company’s contributions based upon years of service.
The Company suspended all contributions during fiscal
years 2015, 2014 and 2013.
The Company also has a nonqualified supplemental
deferred compensation plan for certain executives
pursuant to Section 409A of the Internal Revenue Code.
Participants can defer from 1% up to a maximum of 100%
of salary and performance and non-performance based
bonus. The Company will match 50% of the deferrals made
by each participant during the applicable period, up to a
maximum of $2,500. Employees are vested in the
Company’s contributions based upon years of participation
in the plan. Distributions will be made to participants upon
termination of employment or death in a lump sum, unless
installments are selected. As of June 28, 2015 and June
29, 2014, these plan liabilities, which are included in
Other liabilities within the Company’s Consolidated
Balance Sheet, totaled $3.1 million and $2.1 million,
respectively. The associated plan assets, which are subject
to the claims of the creditors, are primarily invested in
mutual funds and are included in Other assets-long term.
Company contributions during the years ended June 28,
2015, June 29, 2014 and June 30, 2013 were less than
$0.1 million. Gains and losses on these investments, were
$0.2 million, $0.3 million and $0.2 million for the years
ended June 28, 2015, June 29, 2014 and June 30, 2013,
are included in Interest expense and other, net, within the
Company’s Consolidated Statements of Income.
39
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 15. Business Segments
The Company’s management reviews the results of
the Company’s operations by the following three busi-
ness segments:
(cid:127) 1-800-Flowers.com Consumer Floral,
(cid:127) BloomNet Wire Service, and
(cid:127) Gourmet Food and Gift Baskets
Segment performance is measured based on
contribution margin, which includes only the direct
controllable revenue and operating expenses of the
segments. As such, management’s measure of profitabil-
ity for these segments does not include the effect of
corporate overhead (see (2) below), nor does it include
depreciation and amortization, other income/expense
and income taxes, or stock-based compensation and
certain Harry & David transaction/integration costs, both
of which are included within corporate overhead. Assets
and liabilities are reviewed at the consolidated level by
management and not accounted for by segment.
Net Revenues
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands)
Net revenues:
1-800-Flowers.com
Consumer Floral
BloomNet Wire
Service (1)
Gourmet Food &
Gift Baskets (1)
Corporate
Intercompany
$ 422,199
$421,336
$411,526
85,968
84,199
81,822
613,953
251,990
243,225
1,020
797
789
eliminations (1,634) (1,977) (1,865)
Total net revenues
$1,121,506
$756,345
$735,497
Operating Income from Continuing Operations
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands)
Segment Contribution Margin:
1-800-Flowers.com
Consumer Floral $43,529 $ 40,252 $ 47,193
BloomNet Wire
Service (1)
Gourmet Food &
Gift Baskets (1)
Segment Contribution
Margin Subtotal
29,398 26,715 25,611
74,889 27,122 20,345
147,816 94,089 93,149
Corporate (2) (81,075) (50,535) (48,565)
Depreciation and
amortization (29,124) (19,848) (18,798)
Operating income $ 37,617 $ 23,706 $ 25,786
(1) Refer to Note 18 - Fire at the Fannie May warehouse and distribution
facility. On November 27, 2014, a fire occurred at the Company’s Maple
Heights, Ohio warehouse and distribution facility. As a result of the fire,
the Company had limited supplies of its Fannie May Fine Chocolates and
Harry London Chocolates products available in its retail stores as well as
for its ecommerce and wholesale channels during its fiscal second and
third quarter. As a result, the Company’s revenues and income from
operations were negatively impacted. The Company does not believe
that there will be any further significant impact from this issue beyond
the year ended June 28, 2015.
(2) 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, and during the year ended June 28, 2015 acquisition and
integration costs (including severance) related to the acquisition of Harry &
David, in the amount of $9.6 million. In order to leverage the Company’s
infrastructure, these functions are operated under a centralized manage-
ment 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 segments based upon usage, are
included within corporate expenses, as they are not directly allocable to a
specific segment. The Company has commenced integrating Harry & David
into its operating platforms, and as such, their operating costs have been
classified in a similar manner.
40
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 16. Discontinued Operations
During the fourth quarter of fiscal 2013, the Company
made the strategic decision to divest the e-commerce
and procurement businesses of its Winetasting Network
subsidiary in order to focus on growth opportunities in
its Gourmet Foods and Gift Baskets business segment.
The Company closed on the sale of its e-commerce and
procurement businesses on December 31, 2013. The
Company had originally estimated a loss of $2.3 million
($1.5 million, net of tax), which was provided for during the
fourth quarter of fiscal 2013, but the loss was reduced to
$1.0 million, upon finalization of terms and closing on the
sale. As a result, the Company reversed $1.3 million ($0.8
million, net of tax) of its accrual for the estimated loss
during the fiscal year ended June 29, 2014. The Company
has classified the results of the e-commerce and procure-
ment business of The Winetasting Network as a discontin-
ued operation for the fiscal years 2014 and 2013.
Results for discontinued operations are as follows:
Years Ended
June 28, June 29, June 30,
2015 2014 2013
(in thousands, except per share data)
Net revenues from
discontinued
operations $
Loss from
discontinued
operations,
net of tax $
Gain (loss) on
sale of discontinued
operations,
net of tax $
Income (loss) from
–– $ 1,669 $ 5,154
–– $ (86) $(1,889)
discontinued
operations $ –– $ 729 $(3,401)
Note 17. Commitments and Contingencies
Leases
The Company currently leases office, store facilities,
and equipment under various leases through fiscal 2030.
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. These
leases are classified as either capital leases, operating
leases or subleases, as appropriate.
As of June 28, 2015 future minimum rental payments
under non-cancelable operating leases with initial terms
of one year or more consist of the following:
Operating
Leases
(in thousands)
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
$ 24,338
20,940
15,980
12,658
9,826
52,195
$135,937
At June 28, 2015, the total future minimum sublease
rentals under non-cancelable operating sub-leases for
land and buildings were $3.0 million.
Rent expense was approximately $28.3 million, $17.7
million and $17.7 million for the years ended June 28,
2015, June 29, 2014 and June 30, 2013, respectively.
Other Commitments
The Company’s purchase commitments consist
primarily of inventory, equipment and technology purchase
orders made in the ordinary course of business, most of
which have terms less than one year. As of June 28, 2015,
the Company had fixed and determinable off-balance
sheet purchase commitments with remaining terms in
excess of one year of approximately $4.9 million, primarily
related to the Company’s technology infrastructure.
Litigation
From time to time, the Company is subject to legal
proceedings and claims arising in the ordinary course of
business:
In re Trilegiant Corporation, Inc. (Frank v.Trilegiant
Corporation, Inc., et al):
On November 10, 2010, a purported class action
complaint was filed in the United States District Court
for the Eastern District of New York naming the Company
(along with Trilegiant Corporation, Inc., Affinion, Inc. and
Chase Bank USA, N.A.) as defendants in an action
purporting to assert claims against the Company alleging
violations arising under the Connecticut Unfair Trade
Practices Act (“CUTPA”) among other statutes, and for
breach of contract and unjust enrichment in connection
with certain post-transaction marketing practices in
which certain of the Company’s subsidiaries previously
engaged in with certain third-party vendors. On Decem-
ber 23, 2011, plaintiff filed a notice of voluntary dismissal
seeking to dismiss the entire action without prejudice.
The court entered an Order on November 28, 2012,
41
–– $ 815 $(1,512)
The Company had approximately $2.5 million in
unused stand-by letters of credit as of June 28, 2015.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
dismissing the case in its entirety. This case was subse-
quently refiled in the United States District Court for the
District of Connecticut.
On March 6, 2012 and March 15, 2012, two additional
purported class action complaints were filed in the United
States District Court for the District of Connecticut naming
the Company and numerous other parties as defendants
in actions purporting to assert claims substantially similar
to those asserted in the lawsuit filed on November 10,
2010. In each case, plaintiffs seek to have the respective
case certified as a class action and seek restitution and
other damages, each in an amount in excess of $5.0
million. On April 26, 2012, the two Connecticut cases
were consolidated with a third case previously pending
in the United States District Court for the District of
Connecticut in which the Company is not a party (the
“Consolidated Action”). A consolidated amended com-
plaint was filed by plaintiffs on September 7, 2012,
purporting to assert claims substantially similar to those
originally asserted. The Company moved to dismiss the
consolidated amended complaint on December 7, 2012,
which was subsequently refiled at the direction of the
Court on January 16, 2013.
On December 5, 2012, the same plaintiff from the
action voluntarily dismissed in the United States District
Court for the Eastern District of New York filed a purported
class action complaint in the United States District Court
for the District of Connecticut naming the Company and
numerous other parties as defendants, purporting to
assert claims substantially similar to those asserted in the
consolidated amended complaint (the “Frank Action”). On
January 23, 2013, plaintiffs in the Consolidated Action
filed a motion to transfer and consolidate the action filed
on December 5, 2012 with the Consolidated Action. The
Company intends to defend each of these actions
vigorously.
On January 31, 2013, the court issued an order to
show cause directing plaintiffs’ counsel in the Frank
Action, also counsel for plaintiffs in the Consolidated
Action, to show cause why the Frank Action is distinguish-
able from the Consolidated Action such that it may be
maintained despite the prior-pending action doctrine.
On June 13, 2013, the court issued an order in the
Frank Action suspending deadlines to answer or to
otherwise respond to the complaint until 21 days after
the court decides whether the Frank Action should be
consolidated with the Consolidated Action. On July 24,
2013 the Frank Action was reassigned to Judge Vanessa
Bryant, before whom the Consolidated Action is currently
pending, for all further proceedings. On August 14, 2013,
other defendants filed a motion for clarification in the
Frank Action requesting that Judge Bryant clarify the
order suspending deadlines.
On March 28, 2014, the Court issued a series of
rulings disposing of all the pending motions in both the
Consolidated Action and the Frank Action. Among other
things, the Court dismissed several causes of action,
leaving pending a claim for CUTPA violations stemming
from Trilegiant’s refund mitigation strategy and a claim for
unjust enrichment. Thereafter, the Court consolidated the
Frank case into the Consolidated Action. On April 28,
2014 plaintiffs moved for leave to appeal the various
rulings against them to the United States Court of
Appeals for the Second Circuit and to have a partial final
judgment entered dismissing those claims that the Court
had ordered dismissed. The Company filed its Answer to
the Complaint on May 12, 2014. On March 26, 2015, the
Court denied plaintiffs’ motions and the parties are now
engaged in discovery.
Edible Arrangements:
On November 20, 2014, a complaint was filed in the
United States District Court for the District of Connecticut
by Edible Arrangements LLC and Edible Arrangements
International, LLC, alleging that the Company’s use of the
terms “Fruit Bouquets,” “Edible,” “Bouquet,” “Edible Fruit
Arrangements,” Edible Arrangements,” and “DoFruit” and
its use of a six petal pineapple slice design in connection
with marketing and selling edible fruit arrangements
constitutes trademark infringement, false designation of
origin, dilution, and contributory infringement under the
federal Lanham Act, 29 USC § 1114 and 1125(a),
common law unfair competition, and a violation of the
Connecticut Unfair Trade Practices Act, Connecticut
General Statutes § 42-110b (a). The Complaint alleges
Edible Arrangements has been damaged in the amount
of $97,411,000. The Complaint requests a declaratory
judgment in favor of Edible Arrangements, an injunction
against the Company’s use of the terms and design,
an accounting and payment of the Company’s profits
from its sale of edible fruit arrangements, a trebling of the
Company’s profits from such sales or of any damages
sustained by Edible Arrangements, punitive damages,
and attorneys’ fees. On November 24, 2014, the Com-
plaint was amended to add a breach of contract claim for
use of these terms and the design, based on a contract
that had been entered by one of the Company’s remote
subsidiaries prior to its acquisition by the Company.
On January 29, 2015, the Plaintiffs amended the
Complaint to add one of the Company’s subsidiaries and
to claim its damages were $ 101,436,000. The Company
filed an Answer and a Counterclaim on February 27,
2015. The Answer asserts substantial defenses, including
fair use by the Company of generic and descriptive terms,
as expressly permitted under the Lanham Act, invalidity of
Edible Arrangements’ trademark registrations on grounds
of fraud and trademark misuse, lack of exclusive rights on
the part of Edible Arrangements, functionality of the
claimed design mark, acquiescence, estoppel, and
Edible Arrangements’ use of the claimed trademarks
in violation of the antitrust laws.
The Counterclaim seeks a declaratory judgment of
lack of infringement and invalidity of claimed marks,
cancellation of Edible Arrangements’ registrations due
to its fraud and misuse, genericism, and lack of second-
ary meaning as to any terms deemed descriptive, and
damages in an amount to be determined for violation of
the antitrust provisions of the federal Sherman Act and
the Connecticut Unfair Trade Practices Act.
Discovery has begun and Edible Arrangements filed
a motion to dismiss the Company’s Sherman Act and
42
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
for Fannie May Fine Chocolates and Harry London
Chocolates products at its production facility in Canton,
Ohio and to shift warehousing and distribution operations
to alternate Company facilities, product availability was
severely limited, impacting revenue and earnings during
the fiscal second and third quarters of fiscal 2015. The
Company does not believe that there will be any further
significant impact on revenues from this issue beyond
the year ended June 28, 2015.
While no insurance recoveries have been recorded
to date related to lost sales, the Company expects that
its property and business interruption insurance will
cover these losses.
The following table reflects the incremental costs
related to the fire and related insurance recovery for
the year ended June 28, 2015:
Loss on inventory
Other fire related costs
$ 29,522
3,487
33,009
Less: Fire related recoveries (33,009)
––
Fire related charges, net
$
Through June 28, 2015, the Company has incurred
fire related costs totaling $33.0 million, including a $29.5
million write-down of inventory. Based on the provisions
of the Company’s insurance policies and management’s
estimates, the losses incurred have been reduced by
the estimated insurance recoveries. The Company has
determined that recovery of the incurred losses, including
amounts related to the retentions described above,
is probable and recorded $33.0 million of insurance
recoveries through June 28, 2015. Through June 28,
2015, the Company received $30.0 million of insurance
proceeds, representing an advance of funds. As a result,
the insurance receivable balance was $3.0 million as of
June 28, 2015.
Connecticut Unfair Trade Practices Act claims. The
Company filed its brief in opposition to the motion to
dismiss on July 10, 2015. The parties are awaiting a
decision from the Court. By Order dated May 4, 2015,
the court ordered a phasing of the case and bifurcated
the antitrust Counterclaim from the infringement claims.
The Company believes its Counterclaims to the
Edible Arrangements’ claims are meritorious and that
there are substantial defenses to both of the claims
above and expects to defend the claims vigorously.
There are no assurances that additional legal actions
will not be instituted in connection with the Company’s
former post-transaction marketing practices involving
third party vendors nor can we predict the outcome of any
such legal action. At this time, we are unable to estimate a
possible loss or range of possible loss for the aforemen-
tioned actions for various reasons, including, among
others: (i) the damages sought are indeterminate, (ii) the
proceedings are in the very early stages and in the Frank
v. Trilegiant Corporation, Inc. matter, the court has not yet
ruled as to whether the classes will be certified, and (iii)
there is uncertainty as to the outcome of pending motions.
As a result of the foregoing, we have determined that the
amount of possible loss or range of loss is not reasonably
estimable. However, legal matters are inherently unpre-
dictable and subject to significant uncertainties, some of
which may be beyond our control.
Note 18. Fire at the Fannie May Warehouse
and Distribution Facility
On November 27, 2014, a fire occurred at the
Company’s Maple Heights, Ohio warehouse and
distribution facility. While the fire did not cause any
injuries, the building was severely damaged, rendering
it inoperable for the key calendar 2014 holiday season,
and all Fannie May and Harry London confections in
the facility were destroyed. As a result, the Company
had limited supplies of its Fannie May Fine Chocolates
and Harry London Chocolates products available in its
retail stores as well as for its ecommerce and wholesale
channels during the holiday season. While the Company
implemented contingency plans to increase production
43
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
1-800-Flowers.com, Inc.
Carle Place, NY
We have audited the accompanying consolidated
balance sheets of 1-800-Flowers.com, Inc. and subsidiar-
ies as of June 28, 2015 and June 29, 2014 and the
related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for the years
then ended. These consolidated financial statements
are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assur-
ance about whether the consolidated financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used
and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of 1-800-Flowers.com, Inc. and
subsidiaries at June 28, 2015 and June 29, 2014, and
the results of their operations and their cash flows
for each of the years then ended, in conformity with
accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), 1-800-Flowers.com, Inc. and
subsidiaries internal control over financial reporting as of
June 28, 2015, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated September 11,
2015 expressed an unqualified opinion thereon.
BDO USA, LLP
Melville, New York
September 11, 2015
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 sheet of 1-800-FLOWERS.COM, Inc. and Subsid-
iaries (the Company) as of June 30, 2013, and the related
consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flow for the year
then ended. These financial statements are the responsibil-
ity of the Company’s management. Our responsibility is to
express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assur-
ance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclo-
sures 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consoli-
dated financial position of 1-800-FLOWERS.COM, Inc.
and Subsidiaries at June 30, 2013, and the consolidated
results of their operations and their cash flows for the
year then ended, in conformity with U.S. generally
accepted accounting principles.
Jericho, New York
September 13, 2013
44
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is
defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act as a process designed by, or under the
supervision of, the Company’s principal executive and
principal financial officers and effectuated by the
Company’s board of directors, management and other
personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with U.S. generally accepted accounting principles (“U.S.
GAAP”), 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 U.S. GAAP, and that
receipts and expenditures of the Company are being
made in accordance with authorization of management
and directors of the Company; and
(cid:127) 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. Projections of any evaluation of effec-
tiveness 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, including the Company’s Chief
Executive Officer and Chief Financial Officer, assessed
the effectiveness of the Company’s internal control over
financial reporting based on criteria established in
Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), (the COSO
criteria). Based on this assessment, management
concluded that the Company’s internal control over
financial reporting was effective as of June 28, 2015.
Management has excluded the September 30, 2014
acquisition of Harry & David Holdings, Inc. from its
assessment of internal controls over financial reporting
as permitted in the year of acquisition under Securities
and Exchange Commission guidance. Harry & David
constituted approximately 32% of the Company’s total
assets as of June 28, 2015 and contributed approxi-
mately 32% of the Company’s total net revenues for
the fiscal year ended June 28, 2015.
The Company’s independent registered public
accounting firm, BDO USA, LLP, audited the effective-
ness of the Company’s internal control over financial
reporting as of June 28, 2015. BDO USA, LLP’s report on
the effectiveness of the Company’s internal control over
financial reporting as of June 28, 2015 is set forth below.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
1-800-Flowers.com, Inc.
Carle Place, NY
We have audited 1-800-Flowers.com, Inc. and
subsidiaries’ (the “Company”) internal control over
financial reporting as of June 28, 2015, based on criteria
established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission (the COSO criteria).
The Company’s management is responsible for maintain-
ing effective internal control over financial reporting and
for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material re-
spects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit
also included performing such other procedures as we
considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is
a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting prin-
ciples, 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
45
Report of Independent Registered Public Accounting Firm (continued)
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As indicated in the accompanying Management’s
Report on Internal Control Over Financial Reporting,
management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting
did not include the internal controls of Harry & David
Holdings, Inc. (“Harry & David”), which was acquired on
September 30, 2014, and which is included in the
consolidated balance sheets of 1-800-Flowers.com, Inc.
and subsidiaries as of June 28, 2015, and the related
consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for the year
then ended. Harry & David constituted approximately
32% of the Company’s total assets as of June 28, 2015
and contributed approximately 32% of the Company’s
total net revenues for the fiscal year ended June 28,
2015. Management did not assess the effectiveness of
internal control over financial reporting of Harry & David
because of the timing of the acquisition which was
completed on September 30, 2014. Our audit of internal
control over financial reporting of 1-800-Flowers.com, Inc.
and subsidiaries also did not include an evaluation of the
internal control over financial reporting of Harry & David.
In our opinion, 1-800-Flowers.com, Inc. and subsidiar-
ies maintained, in all material respects, effective internal
control over financial reporting as of June 28, 2015,
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 June 28,
2015 and June 29, 2014, and the related consolidated
statements of income, comprehensive income, stockhold-
ers’ equity, and cash flows for each of the years then
ended and our report dated September 11, 2015
expressed an unqualified opinion thereon.
BDO USA, LLP
Melville, New York
September 11, 2015
Market for Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market Information
1-800-FLOWERS.COM’s Class A common stock
trades on The NASDAQ Global Select Market under the
ticker symbol “FLWS.” There is no established public
trading market for the Company’s Class B common
stock. The following table sets forth the reported high
and low sales prices for the Company’s Class A
common stock for each of the fiscal quarters during the
fiscal years ended June 28, 2015 and June 29, 2014.
High Low
Year ended June 28, 2015
June 30, 2014 – September 28, 2014
$ 7.49
September 29, 2014 – December 28, 2014 $ 9.31
$13.46
December 29, 2014 – March 29, 2015
$13.19
March 30, 2015 – June 28, 2015
Year ended June 29, 2014
July 1, 2013 – September 29, 2013
$ 7.17
September 30, 2013 – December 29, 2013 $ 5.75
$ 5.88
December 30, 2013 – March 30, 2014
$ 5.95
March 31, 2014 – June 29, 2014
$ 4.96
$ 7.12
$ 7.05
$ 9.36
$ 5.15
$ 4.53
$ 4.65
$ 4.97
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. During fiscal 2015, 2,748,550
shares of Class B common stock were converted into
shares of Class A common stock.
Holders
As of September 1, 2015, there were approximately
257 stockholders of record of the Company’s Class A
common stock, although the Company believes that
there is a significantly larger number of beneficial
owners. As of September 1, 2015, there were approxi-
mately 13 stockholders of record of the Company’s
Class B common stock.
Dividend Policy
The Company has never declared or paid any
cash dividends on its Class A or Class B common
stock. 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.
Purchases of Equity Securities by the Issuer
The Company has a stock repurchase plan through
which purchases can be made from time to time in the
open market and through privately negotiated transac-
46
Market for Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities (continued)
tions, subject to general market conditions. The repurchase program is financed utilizing available cash.
In June 2015, the Company’s Board of Directors authorized an increase of $25 million to its stock repurchase plan.
The Company repurchased a total of $8.4 million (1,056,038 shares), $8.3 million (1,561,206 shares) and $9.6
million (2,490,065 shares) during the fiscal years ended June 28, 2015, June 29, 2014 and June 30, 2013,
respectively, under this program. As of June 28, 2015, $27.3 million remains authorized under the plan.
The following table sets forth, for the months indicated, the Company’s purchase of common stock during the fiscal
year ended June 28, 2015, which includes the period June 30, 2014 through June 28, 2015:
Total Number of Dollar Value of
Shares Purchased as Shares that May Yet
Part of Publicly Be Purchased Under
Total Number of Average Price Announced Plans or the Plans or Programs
Period Shares Purchased Paid Per Share (1) Programs (in thousands)
(in thousands, except average price paid per share)
6/30/14 - 7/27/14
7/28/13 - 8/31/14
9/1/14 - 9/28/14
9/29/14 - 10/26/14
10/27/14 - 11/23/14
11/24/14 - 12/28/14
12/29/14 - 1/25/15
1/26/15 - 2/22/15
2/23/15 - 3/29/15
3/30/15 - 4/26/15
4/27/15 - 5/24/15
5/25/15 - 6/28/15
Total
86.9
92.9
31.8
––
416.2
67.8
72.4
22.5
––
––
75.9
189.6
1,056.0
$5.58
$5.14
$5.44
––
$8.02
$7.79
$7.59
$7.40
––
––
$9.80
$9.90
86.9
92.9
31.8
––
416.2
67.8
72.4
22.5
––
––
75.9
189.6
$7.90
1,056.0
$10,145
$ 9,665
$ 9,492
$ 9,492
$ 6,152
$ 5,621
$ 5,070
$ 4,903
$ 4,903
$ 4,903
$ 4,157
$27,272
(1) Average price per share excludes commissions and other transaction fees.
Comparison of 5 Year Cumulative Total Return*
Among 1-800-Flowers.com, Inc., the Russell 2000 Index
and the NASDAQ Non-Financial Index
■
1-800-FLOWERS.COM, INC.
▼
Russell 2000
●
Nasdaq Non-Financial
*$100 invested on 6/30/10 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.
47
One Old Country Road, Suite 500
Carle Place, NY 11514
(516) 237-6000
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements
represent the Company’s current expectations or beliefs
concerning future events and can generally be identified by
the use of statements that include words such as “estimate,”
“expects,” “project,” “believe,” “anticipate,” “intend,” “plan,” “fore-
see,” “likely,” “will,” or similar words or phrases. These forward-
looking statements are subject to risks, uncertainties and
other factors, many of which are outside of the Company’s
control, which could cause actual results to differ materially
from the results expressed or implied in the forward-looking
statements, including, among others: the Company’s ability
to achieve its guidance for revenue, Adjusted EBITDA and
Adjusted EPS; its ability to manage the significantly increased
seasonality of its business; its ability to integrate the opera-
tions of acquired companies, including Harry & David; its
ability to cost effectively acquire and retain customers; the
outcome of contingencies, including legal proceedings in
the normal course of business; its ability to compete against
existing and new competitors; its ability to manage expenses
associated with sales and marketing and necessary general
and administrative and technology investments and general
consumer sentiment and economic conditions that may
affect levels of discretionary customer purchases of the
Company’s products. The Company undertakes no obliga-
tion to publicly update any of the forward-looking state-
ments, whether as a result of new information, future events
or otherwise, made in this annual report or in any of its SEC
filings except as may be otherwise stated by the Company.
For a more detailed description of these and other risk fac-
tors, and a list of definitions of non-GAAP terms, including
EBITDA and Free Cash Flow, among others, please refer to
the Company’s SEC filings including the Company’s Annual
Reports on Form 10-K and its Quarterly Reports on Form
10-Q. Consequently, you should not consider any such list
to be a complete set of all potential risks and uncertainties.
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
BDO USA, LLP
401 Broadhollow Road
Suite 201
Melville, NY 11747
(631) 501-9600
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, Inc.
may be obtained by visiting the Investor
Relations section at www.1800flowersinc.com,
by calling 516-237-6113, or by writing to:
Investor Relations
1-800-FLOWERS.COM, Inc.
One Old Country Road, Suite 500
Carle Place, NY 11514
One Old Country Road
Suite 500
Carle Place, NY 11514
www.1800flowers.com
(516) 237-6000