2 0 1 7 A N N U A L R E P O R T
C U S TO M E R E X P E R I E N C E I S O U R N U M B E R O N E P R O D U C T
A maniacal focus on providing the very
best customer experience – that is what
sets 1-800-FLOWERS.COM, Inc. apart.
As part of our ongoing mission to
deliver smiles, the Company continues
to explore and
embrace new
and emerging
technolo-
gies aimed at
enhancing and
innovating the
way customers
interact with
our portfolio of brands.
Most recently, 1-800-FLOWERS.COM, Inc. was an early
adopter of the new Google Assistant transaction
feature, providing gift-givers the ease and conve-
nience of voice or text ordering. Other initiatives in
fiscal 2017 included 1-800-Flowers.com’s launch of
an online Customer Service Hub, enabling self-service
and live chat support for order tracking and more,
as well as the implementation of delivery windows,
allowing customers to schedule specific hours for
order arrival. Additionally, the Company’s interactive
marketing and merchandising teams have been hard
at work, elevating the overall
shopping experience for the
Harry & David
brand online.
These efforts
are culminating
in a completely
updated brand
look and feel,
along with new
online features
and functional-
ity, including updates
to the popular Gift List and a new, dedicated portal for
business-to-business gift-givers. The Company has also
prioritized the curation of thoughtful content, advice
and guidance to further solidify its reputation as a
trusted gifting and celebrations resource for customers.
These initiatives illustrate 1-800-FLOWERS.COM, Inc.’s
relentless commitment to enhancing the customer
experience, while always providing best-in-class ser-
vice. As consumer behavior continues to shift at a rapid
pace, the Company remains focused on identifying the
best ways to engage with and serve our customers’
celebratory needs – wherever, whenever and however
they prefer to shop.
A B O U T 1 - 800 - F LO W E R S . CO M , I N C .
1-800-FLOWERS.COM, Inc. is a leading provider of gifts for all celebratory occasions. For the past 40 years,
1-800-Flowers.com® has been helping deliver smiles to customers with a 100% Smile Guarantee® backing every
gift. The 1-800-FLOWERS.COM, Inc. family of brands also includes everyday gifting and entertaining products
from Harry & David®, The Popcorn Factory®, Cheryl’s® cookies, 1-800-Baskets.com®, Wolferman’s®, Moose Munch®
premium popcorn, Personalization Universe®, Simply ChocolateSM and FruitBouquets.com. The Company also of-
fers top-quality steaks and chops from Stock Yards®. Service offerings such as Celebrations Passport®, Celebrations
Rewards® and Celebrations Reminders® are designed to deepen relationships with customers across all brands.
The Company’s BloomNet® international floral wire service provides a broad-range of products and services de-
signed to help professional florists grow their businesses profitably. Additionally, the Company operates Napco,
a resource for floral gifts and seasonal decor and DesignPac Gifts, LLC, a manufacturer of gift baskets and towers.
1-800-FLOWERS.COM, Inc. was named to the Stores® 2017 Hot 100 Retailers List by the National Retail Federation
and also received the Gold award in the “Best Artificial Intelligence” category at the Data & Marketing Association’s
2017 International ECHO Awards for the Company’s groundbreaking implementation of an artificial intelligence-
powered online gift concierge, Gwyn®. Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global
Select Market, ticker symbol: FLWS.
F I N A N C I A L H I G H L I G H T S
(From Continuing Operations)
JULY 2,
2017
JULY 3,
2016
JUNE 28,
2015
JUNE 29,
2014
JUNE 30,
2013
(in millions, except percentages and per share data)
Total Net Revenues
Gross Profit Margin
Operating Expense Ratio
Adjusted EBITDA(1)
Adjusted EPS
$1,193.6
43.6%
39.7%
$1,173.0 $1,121.5
43.4%
40.1%
$ 87.2(2) $ 85.7(4) $ 80.7(6)
$ 0.43(5) $ 0.34(7)
$ 0.43(3)
44.1%
40.4%
$756.3
41.7%
38.6%
$ 48.6
$ 0.22
$735.5
41.5%
38.0%
$ 49.1
$ 0.24
(1) Excludes stock-based compensation and non-qualified supplementary retirement plan investment appreciation and depreciation.
(2) Adjusted EBITDA for fiscal 2017 excludes the items included in footnote (1), as well as Harry & David severance costs.
(3) Adjusted EPS for fiscal 2017 excludes Harry & David severance charges and the gain on the sale of Fannie May Confections Brands. Fiscal year 2017 EPS as reported was $0.65.
(4) Adjusted EBITDA for fiscal 2016 excludes the items included in footnote (1), as well as litigation settlement costs and integration costs, including severance costs, associated with
Harry & David and the rightsizing of Fannie May.
(5) Adjusted EPS for fiscal 2016 excludes the gain from insurance recovery on the Fannie May warehouse fire, loss on the sale of iflorist, the impairment of foreign equity method investment, Harry
& David integration costs, litigation settlement costs, as well as severance expenses associated with Harry & David and the rightsizing of Fannie May. Fiscal year 2016 EPS as reported was $0.55.
(6) Adjusted EBITDA for fiscal 2015 excludes the items in footnote (1), and includes Harry & David’s fiscal 2015 first quarter loss in order to present comparable full-year results and excludes
one-time costs associated with the acquisition and integration of Harry & David and the impact of the Fannie May warehouse fire in November 2014.
(7) Adjusted EPS for fiscal 2015 includes Harry & David’s fiscal 2015 first quarter loss in order to present comparable full-year results and excludes one-time costs associated with the acquisi-
tion and integration of Harry & David and the impact of the Fannie May warehouse fire in November 2014. Fiscal year 2015 EPS, as reported, was $0.30.
(8) Comparable revenues measures GAAP revenues adjusted for the effects of acquisitions, dispositions and other items affecting period to period comparability.
TOTA L R E V E N U E S
(From Continuing Operations In Millions)
Adjusted EBITDA1
$1,173
$1,122
$1,194
F Y 17 % R E V E N U E S
BloomNet® Wire Service
7%
Gourmet Food & Gift Baskets
$756
$736
$49.1
$48.6
$85.74
$87.22
$80.76
FY13
FY14
FY17
FY15
Fiscal 2017 Achievements
FY16
56%
37%
by Category
July – September
(Fiscal 1st Quarter)
Consumer Floral
April – June
(Fiscal 4th Quarter)
14%
by Season
20%
20%
46%
• Grew Comparable Revenues(8) 3.1 percent to $1.19 Billion
• Grew Adjusted EBITDA 1.8 percent to $87.2 Million
• Completed sale of Fannie May Confections Brands to
Ferrero International S.A. for $115 Million* (*$103.6 million
net of working capital adjustments)
January – March
(Fiscal 3rd Quarter)
October – December
(Fiscal 2nd Quarter)
Financial Report Insert
See inside rear cover pocket
TO O U R S H A R E H O L D E R S
2017 was another year of successful growth
for the Company. Comparable revenues rose
3.1% percent for the year, which represents an
acceleration from prior years. Our net income,
earnings per share, EBITDA and free cash flow
also rose year-over-year. In addition, during
the year we made the strategic decision to
sell the Fannie May Confections business. As a
result of the sale, our balance sheet and finan-
cial condition have never been stronger. This
financial strength provides us with significant
flexibility to further invest in our growth, both
organically and through acquisitions. In ad-
dition, in October 2017 our Board of Directors
raised the share repurchase authorization to
$30 million.
early acceptance of our new digital marketing
services also contributed.
During the year, BloomNet opened a west coast
distribution center housed on Harry & David’s
Medford, Oregon campus. We also continued to
expand BloomNet’s product offering – adding the
new Bayberry Road line of jewelry and accesso-
ries – a unique product line that helps our florist
customers expand their offerings and grow their
businesses. We are confident these initiatives will
enable BloomNet to build on the positive trends
we are seeing in its business, during fiscal 2018.
During fiscal 2017, our Gourmet Food and Gift
Baskets brands began to gain meaningful trac-
tion in demand for everyday gifting occasions.
Positive Results Across Our
Celebratory Ecosystem
During 2017, we achieved positive results and strengthened
momentum across our entire portfolio of leading gift brands.
Both of our floral businesses continued their growth trajectory.
The 1-800-Flowers.com brand continued to expand its market
leadership position, with comparable growth of 5.7% during the
year. BloomNet also experienced growth, up more than 2.6%
compared with the prior year. Revenue growth for these brands
was driven by strong everyday gifting demand combined with
strong growth for the Valentine’s Day holiday. We continue to
make strategic investments in marketing and customer service,
and are confident these investments will provide long-term ben-
efits to 1-800-Flowers.com brand equity, and further enhance its
leading market position. Our increased investments in customer
service are already yielding results in the form of historically high
customer satisfaction metrics. These investments help us deepen
the relationships we have with our customers and increase their
purchase frequency and retention.
Consumer Floral also achieved a strong contribution margin driven
by the key attributes of the 1-800-Flowers.com brand; truly original
gifts that help our customers express themselves perfectly; a car-
ing team that is obsessed with service, and a customer experience
that is constantly being enhanced to make it easier for our customers
to deliver a smile.
BloomNet’s growth was driven by membership transaction fees
and increased product sales in new channels, such as garden
centers and nurseries. Positive results in directory ad sales and
Harry & David, Cheryl’s Cookies, The Popcorn Factory and
1-800-Baskets.com brands experienced robust growth for Birth-
day, Thank You, New Baby and Sympathy occasions. This growth
is being driven by an increased focus on innovative new products
designed specifically to help our customers send smiles for every-
day celebrations.
We are deeply committed to increasing our customers’ awareness
of our everyday gifting offerings. This is a key focus for our gour-
met food and gift baskets brands and we are pleased with the
progress we are making in this area as we continue to experience
growth in this segment.
In our Harry & David business, during the second half of the
fiscal year, we saw consumer demand growing at a healthy rate,
reflecting the benefits of some of the changes that have been
implemented, including: the consolidation of digital marketing
responsibilities for Harry & David under our enterprise marketing
and customer insights team; an increase in digital advertising
programs in display, video, affiliates, social and mobile; the
increased use of new software tools in our consolidated customer
database to enhance targeting and to streamline catalog circula-
tion; and numerous enhancements to our multi-brand website,
specifically to improve navigation for Harry & David’s important
gift list functionality.
Harry & David also continued to expand and enhance its product
offering with the successful rebranding of its Moose Munch line:
adding hip new iconography to appeal to a younger customer
demographic and adding new “snack-size” packaging to take
advantage of the growth in sales of premium popcorn treats.
As a result, you will be seeing more and more Moose Munch
products showing up on the shelves of convenience stores and
other local retailers as we gradually expand distribution through-
out the country.
In addition to adding more than $100 million to our already strong
balance sheet, the sale of Fannie May to Ferrero International S.A.
included a strategic commercial partnership. This provides us with
access to Fannie May and Harry London products as well as Fer-
rero’s world-renowned chocolate confectionery brands.
Investing for Growth
We continued to execute on our vision to build a best in class
“Celebratory Ecosystem.”
In early fiscal 2018, we launched our newest brand, Simply
Chocolate, an exciting new destination for people to discover a
curated assortment of chocolate gifts and join a passionate com-
munity celebrating the love of chocolate. The Simply Chocolate
marketplace features a broad range of iconic premium chocolate
brands, including Fannie May, Ghirardelli and Godiva as well
as some of the hottest chocolatiers and innovative artisans in
the world, such as Norman Love, Vosges and Max Brenner,
among others.
We also added the Personalization Universe brand to our multi-
brand website. With Personalization Universe, our customers can
purchase customizable gifts for the special people in their lives,
complete with names, photos, logos and more. This platform
enables our customers to deliver a one-of-a-kind gift that is sure
to be appreciated.
Both sites were launched prior to the peak holiday season to in-
troduce them to the millions of customers who will be visiting our
sites for their holiday gifting and celebratory needs.
For Harry & David, we have unveiled a fresh look, feel and tone
across the website, mobile site, catalogs, emails and social media
channels. As part of this brand refresh, new features
and functionality have been introduced to elevate the gift-
giving experience.
The launch of these two new brands, as well as the comprehen-
sive refresh of the Harry & David brand, reflect our continued
investments in the key areas that provide us with leverage to
accelerate growth. These include our operating capabilities, such
as manufacturing, distribution and product development and our
technology platforms, including our robust website and industry-
leading mobile sites.
Continuing the Momentum
We have momentum in our Consumer Floral business where
the 1-800-Flowers.com brand continues to extend its market
leading position.
We have momentum in our BloomNet business where our unique
offering of innovative products and services and unsurpassed
quality continues to separate BloomNet from the legacy
wire services.
And, we have momentum in our Gourmet Food and Gift Baskets
businesses, including growing customer demand for Harry &
David, increasing traction in everyday gifting across all the
brands and solid growth in our gift baskets business in both
the direct-to-consumer and wholesale channels.
Importantly, we are also seeing positive trends in our customer
file. We are growing the active customer files across the Company
and we are increasing the life-time value metrics within the file,
including purchase frequency, retention and average spend.
We are doing this by being deeply focused on constantly en-
hancing our customers’ experience by introducing them to our
“All Star” family of brands, by providing them with value-added
loyalty programs, including Celebrations Passport®, Celebrations
Rewards® and Celebrations Reminders® and by always investing
and innovating in how and where we engage with our customers.
We are excited about the year ahead and we are well positioned
to drive revenue growth across all three of our business segments
in fiscal 2018. We have a solid plan in place to drive bottom line
growth across the Company and to further build shareholder value.
As we look to the new year, we are focused on building on the
positive trends we are seeing in our business. We have an experi-
enced and proven management team along with all our very tal-
ented and hardworking associates across the Company. Together
this represents a formidable force for the execution of our plans
to deliver strong results for our shareholders.
I am very proud of this team and pleased with the progress we
have made, as well as the exciting opportunities which lay ahead.
I would like to thank all our associates for their commitment to
constantly improving our customers’ experience and for helping
to Deliver Smiles.
We thank all our shareholders for their continued support.
Chris McCann, President & CEO
2 0 1 8
J A N U A R Y
Januaryj a n u a r y
J a n u a r y
JANUARY
Millions of customers depend on
1-800-FLOWERS.COM, Inc. to help
them deliver smiles. Complement-
ing our delicious gourmet foods
and beautiful floral creations is
our commitment to providing the
finest customer experience. Toward
this goal, we are rolling out several
initiatives designed to enhance how
customers interact with us. Among
these is a new online self-service
hub offering a comprehensive
range of personalized information
about each customer’s order.
Other enhancements to our web-
sites include guided navigation,
improved express checkout, SMS
messaging, increased site speed and
delivery calendar/window updates.
Further optimizing the customer
experience from order through
delivery is our highly talented
customer service team. Exemplify-
ing our dedication to excellence,
the 1-800-Flowers.com® floral brand
recorded the best customer care
metrics in its history during FY17
and 1-800-Flowers.com was also
awarded the prestigious Gold
Stevie “e-Commerce Customer
Service” award.
7
14
21
28
S U N D AY
M O N D AY
T U E S D AY
1
New Year’s Day
8
2
9
15
Martin Luther King Jr.’s
Birthday (observed)
16
22
29
23
30
THURSDAY
F R I D AY
S AT U R D AY
4 1
11
18
25
5
12
19
26
6
13
20
27
W E D N E S D AY
3
10
17
24
31
2 0 1 8
F E B R U A R Y
Februaryf e b r u a r y
f e b r u a r y
FEBRUARY
Perhaps no other occasion embodies
emotional feelings quite like Valen-
tine’s Day. Helping every customer
express the perfect sentiment on
Cupid’s special day and all other
gifting occasions throughout the
year is our team, along with an
exceptional collection of top quality
gifts. In fiscal 2017, the Company
continued its obsession with making
certain each customer chooses the
right gift for the right person to cre-
ate the brightest of smiles. Whether
it’s magnificent floral arrangements
from 1-800-Flowers.com®, freshly
carved Fruit Bouquets by
1800flowers.comSM or delectable
gifts from our gourmet food brands
including Harry & David®, Cheryl’s®
cookies, The Popcorn Factory®,
1-800-Baskets.com®, Wolferman’s®
and Stock Yards®, every gift has been
specifically crafted to assist custom-
ers in connecting with the important
people in their lives.
1
4
11
18
25
S U N D AY
M O N D AY
T U E S D AY
5
12
6
13
19
Presidents’ Day
20
26
27
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
2
Groundhog Day
3
9
16
23
10
17
24
1
8
7
14
Valentine’s Day
15
22
21
28
m a r c h
March
m a r c h
2 0 1 8
H
C
R
A
M
MARCH
march
In many ways, retail florists repre-
sent the heartbeat of their local
business communities. BloomNet®
– the floral industry’s leading wire
service innovator and a provider of
products and services designed to
help thousands of local professional
florists increase their profitability –
continually works to foster a sense
of community among florists across
the nation. In fiscal 2017, BloomNet®
expanded the scope of its “Floriology”
collection of services. New courses
were added to the renowned
Floriology Institute in Jacksonville,
Florida where florists and floral
designers gather to exchange ideas
and benefit from hands-on training
with leading industry experts. In
addition, floriologyinstitute.com
was launched, providing informative
videos, insightful blog posts and
information about the latest design
techniques, as well as ideas for
enhancing flower shop operations.
Also part of the BloomNet® portfolio
of florist resources is Floriology®
Magazine, filled with step-by-step
design ideas and inspiring
success stories.
2
S U N D AY
M O N D AY
T U E S D AY
4
11
18
25
5
12
19
26
6
13
20
First Day of Spring
27
2
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
29
2
9
16
23
3
10
17St. Patrick’s Day
24
30
Passover Begins at Sunset
31
7
14
21
28
First Day of Spring
2 0 1 8
April APRIL
April
april
A P R I L
l
i
r
p
a
During fiscal 2017 and into fiscal
2018, 1-800-FLOWERS.COM, Inc.
broadened its focus on deepening
relationships with customers by
expanding its constantly evolving
“Celebratory Ecosystem” and
increasing the Company’s product
offering. Leveraging our multi-brand
website, extensive distribution
capabilities, unparalleled customer
service and ongoing deployment
of leading-edge technologies, we
widened our revenue opportunities
with the introduction of two
exciting product lines. The new
Personalization Universe® brand
features more than 10,000
one-of-a-kind gifts, including every-
thing from piggy banks, storybooks
and puzzles to home decor, wine
bottles, sympathy items and much
more – each personalized for individual
recipients. The new Simply ChocolateSM
brand offers a destination for indi-
viduals to discover a curated assort-
ment of gifts and join a passionate
community celebrating the love
of chocolate.
S U N D AY
M O N D AY
T U E S D AY
1
Easter
April Fools Day
8
15
22
2
9
16
3
10
17
23
Administrative Professionals’
Week Begins
24
29
30
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
4
11
18
52
12
19
2 5
Administrative Professionals’ Day
26
6
13
20
27
7
14
21
28
2
S U N D AY
M O N D AY
T U E S D AY
2 0 1 8
Y
A
MayM
May
may
MAY
m a y
MAY
Of course, the month of May is all
about Mom, an opportunity to
show how much we appreciate that
uniquely special person who guided
our first steps and lovingly shaped
us into the people we are today. As
our customers do for so many other
celebratory occasions throughout
the year, they know they can depend
on 1-800-FLOWERS.COM, Inc. for
thoughtful gifts that are sure to melt
mom’s heart. For Mother’s Day 2017,
the Company took the celebration a
step further, engaging the market-
place and increasing sales opportuni-
ties by conducting a fun survey urg-
ing people to recall those sometimes
quirky “Mom-ism” expressions many
of us fondly remember. Among the
top sayings: “Because I said so”; “Don’t
worry, everything will be OK”; “You’ll
always be my baby”; and “I’m always
here to listen.”
1
7
6
13
Mother’s Day
14
1 1
8
15
22
21
20
27
28
Memorial Day
(observed)
29
2
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
2 1
9
16
23
30
3
10
17
24
31
4
5
Cinco dé Mayo
11
National Bring Your
Mom to Work Day
12
18
25
29
19
26
30
S U N D AY
M O N D AY
T U E S D AY
2 0 1 8
j u n e
June
JUNE
e
n
u
j
JUNE
june
Innovation is in our DNA at
1-800-FLOWERS.COM, Inc. In fiscal
2017 we continued to embrace
emerging technologies that are
enhancing customer engagement in
mobile commerce and across social
platforms. The Company is an early
adopter of new advancements in
Artificial Intelligence (A.I.) and
machine learning that are driving
the next wave of “Conversational
Commerce,” including Facebook
Messenger bots and Amazon Alexa
platform skills that use natural
language text or spoken voice
commands to help customers
search for and send great gifts. We
have also recently launched several
other cutting-edge initiatives. These
include the introduction of Gwyn®
(Gifts when you need) – an online
personal gift concierge powered by
IBM’s Watson A.I. platform – and we
have implemented Google Assistant
technology enabling customers
to select gifts and place orders via
voice or text using Android phones
and other devices.
3
10
1
4
11
17
Father’s Day
18
24
25
2
5
12
19
26
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
7
14
Flag Day
15
21
First Day of Summer
22
28
29
6
13
20
27
2
9
16
23
30
S U N D AY
M O N D AY
T U E S D AY
2 0 1 8
Y
L
j u l y
July
JULY
U
J
JULY
july
Everyone knows that the calendar
year is filled with traditional gifting
occasions. However, the wonder-
ful ability to create smiles with
the right gifts does not end there.
1-800-FLOWERS.COM, Inc. is con-
stantly conveying to its customers
that each and every day can be
perfect for thoughtful gifting. The
Company’s 1-800-Flowers.com®
brand is an industry leader in every-
day gifting and we are leveraging
the relationship customers have
with the brand to extend that
market leadership to our gourmet
food gift brands and increase
customer interactions. These efforts
are generating stronger opportuni-
ties to capture a larger share of our
customers’ year-round gifting deci-
sions for such everyday occasions as
birthdays, thank-yous, get well senti-
ments, graduations, congratulations
and expressions of sympathy.
2
1
8
15
22
2
9
16
23
29
Parents’ Day
30
3
10
17
24
31
2
W E D N E S D AY
4
Independence Day
5
11
18
25
12
19
26
THURSDAY
F R I D AY
S AT U R D AY
6
13
20
27
7
14
Bastille Day
21
28
2 0 1 8
august
AugustA u g u s t
august
A U G U S T
In fiscal 2017, the BloomNet® wire
service broadened its spectrum
of services designed to help retail
florists grow their businesses. An
example is the launch of BloomNet’s
Floriology Digital Marketing
Services program. The program
was created to assist retail florists in
building their brand loyalty while
boosting their web sales. As part of
the program, BloomNet® Technolo-
gies experts collaborate with florists
to maximize such important tools
as Search Engine Optimization and
Search Engine Marketing, working
to assure that florists’ shops rank
near the top on SEO results pages,
and generating visits and touches
from local and mobile customers
alike. Adding to the opportunities
for retail florists, BloomNet’s Napco
division unveiled its 2018 Spring &
Garden Trends Report, keeping
florists a vital step ahead of what
today’s floral and garden consumers
are looking for.
5
12
19
26
S U N D AY
M O N D AY
T U E S D AY
6
National Friendship
Week Begins
7
13
20
27
14
21
28
A U G U S T
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
0 1
8
15
22
29
2
9
16
23
30
3
10
17
24
31
4
11
18
25
2 0 1 8
s e p t e m b e r
September
SEPTEMBER
September
Each year during the late summer
and into the early fall, the rich soil
of the picturesque countryside in
Medford, Oregon yields what are
considered by many the juiciest
peaches and most flavorful pears in
the world. The legacy and more than
100 years of agricultural experience
behind Harry & David® peaches and
Royal Riviera® pears began way back
in 1914 when brothers Harry and
David Holmes took over the family
orchards. Today, thousands of trees
in those same orchards are meticu-
lously cared for and their delicious
fruits are harvested with the very
same expertise and attention to
quality the Holmes brothers had
always demanded. This level of care
provides a truly sumptuous taste ex-
perience for Harry & David custom-
ers and their lucky recipients.
S U N D AY
M O N D AY
T U E S D AY
1
4
2
3
Labor Day
9
Grandparents Day
Rosh Hashanah Begins at Sunset
10
11
Patriot Day
16
17
18
Yom Kippur Begins at Sunset
23
First Day of Fall
24
25
30
Patriot Day
W E D N E S D AY
2
5
12
19
26
6
13
20
27
THURSDAY
F R I D AY
S AT U R D AY
1
8
15
22
29
7
14
21
28
2 0 1 8
October
October
O C T O B E R
OCTOBER
Everyone likes to be rewarded for
their hard work, recognized for their
achievements, and thanked for their
assistance. Helping to express all
those thoughts and many more is the
1-800-FLOWERS.COM, Inc. Corporate
Gifts division. During fiscal 2017
and into fiscal 2018, the division
developed and launched several
dedicated business-to-business self
serve portals designed to support
the business gifting market and drive
incremental awareness of the Com-
pany’s B2B services, brands and prod-
ucts. Exclusive partnerships were also
established with a number of top
companies in the Telecom industry,
driving business gifting promotions
to a long list of companies and their
many employees and members.
Additionally, new partnerships
were created within the airline
industry, offering frequent flyers the
opportunity to earn miles for their
purchases of 1-800-FLOWERS.COM, Inc.
products and helping to encourage
repeat purchases.
1
S U N D AY
M O N D AY
T U E S D AY
1
8
Columbus Day (observed)
2
9
7
National Children’s Day
14
21
28
15
22
29
16
National Boss’s Day
23
30
1
W E D N E S D AY
3
4
11
18
25
10
17
24
31
Halloween
THURSDAY
F R I D AY
S AT U R D AY
5
12
19
26
6
13
20 Sweetest Day
27
S U N D AY
M O N D AY
T U E S D AY
2 0 1 8
n o v e m b e r
November
NOVEMBER
November
2
1
4
The holiday season has arrived, fam-
ily and friends are gathering, and it’s
the perfect time to share mouth-
watering possibilities that are sure
to make the season extra special.
Utilizing a combination of creating
brands internally and via acquisition,
1-800-FLOWERS.COM, Inc. has built a
uniquely broad offering of gourmet
food gifts encompassing an “All
Star” family of leading gift brands.
Customers can choose a wide
range of palate-pleasing selections
from Harry & David®, Cheryl’s®
cookies, Wolferman’s®, The Popcorn
Factory® and Simply ChocolateSM,
along with amazing fresh fruit ar-
rangements from Fruit Bouquets by
1800flowers.comSM and overflowing
gift baskets from 1-800-Baskets.com®.
Indeed, it’s a wonderful way to
share a smile during the holidays
and to also express thoughtful senti-
ments for an ever-widening array of
celebratory occasions throughout
the entire year.
2
5
11
Veterans Day
12
18
25
19
26
6
Election Day
13
20
27
2
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
1
8
2
9
15
16
22
Thanksgiving Day
23
29
30
7
14
21
28
3
10
17
24
2 0 1 8
d e c e m b e r
December
December
DECEMBER
Enhancing the shopping experi-
ence is an ongoing top priority for
1-800-FLOWERS.COM, Inc. In fiscal
2017, the Company’s Harry & David®
brand began developing several
new features including key func-
tionality enhancements across its
website, mobile site, catalogs, emails
and social media channels. The
brand then strategically launched
those features for customers to
take advantage of during the 2017
holidays. Among the many new
features and functions are: all-new
website design and easier site
navigation; enhancements to its Gift
List; a new corporate gifting portal;
the ability for customers to send up
to 100 different gifts in their cart
to separate recipients; new mobile
payment methods including Apple
Pay and PayPal; new multi-media
content; and more precise online
order tracking.
2
9
S U N D AY
M O N D AY
T U E S D AY
1
4
11
18
25
Christmas Day
Hanukkah Begins at Sunset
3
16
23
10
17
24
30
31
W E D N E S D AY
THURSDAY
F R I D AY
S AT U R D AY
0 2
5
12
19
6
13
20
1
8
15
7
14
21
First Day of Winter
22
Christmas Day
26
First Day of Kwanzaa
27
28
29
B O A R D O F D I R E C TO R S
James F. McCann
Founder and
Executive Chairman
1-800-FLOWERS.COM, Inc.
Christopher G. McCann
President and
Chief Executive Officer
1-800-FLOWERS.COM, Inc.
Geralyn R. Breig
Former President
Clarks, Americas Region
Celia R. Brown
Former EVP
Group HR Director
Willis Group
James A. Cannavino
IBM Company
Senior Vice President
Retired
Eugene F. DeMark C.P.A.
Area Managing Partner
KPMG, LLP, Retired
BankUnited Director
Leonard J. Elmore
Network Television
Sports Analyst
Attorney at Law
Sean P. Hegarty
Managing Partner
Hegarty & Company
Katherine Oliver
Principal
Bloomberg Associates
Larry Zarin
Senior Vice President
Chief Marketing Officer
Express Scripts, Inc.
Retired
Fiscal Year 2017
Financial Report
Selected Financial Data
1-800-FLOWERS.COM, Inc. and Subsidiaries
The selected consolidated statement of operations data for the years ended July 2, 2017, July 3, 2016 and June 28, 2015 and the
consolidated balance sheet data as of July 2, 2017 and July 3, 2016, 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 June 29, 2014 and June 30, 2013, and the selected consolidated balance sheet data as of June 28, 2015, June 29, 2014 and
June 30, 2013, 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 income and balance sheet data. The Company
acquired Harry & David in September 2014, acquired iFlorist in December 2013 (subsequently disposed in October 2015), Pingg
Corp. in May 2013 (subsequently disposed of in June 2015), and Fine Stationery, Inc. in May 2011 (subsequently disposed of in
June 2015). The following financial data reflects the results of operations of these subsidiaries since their respective dates of
acquisition. In May 2017, the Company completed the disposition of its Fannie May business. The following data reflects the results
of operations of these subsidiaries until their dates of disposition. 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. As a result, the Company has classified the results of Winetasting Network
as discontinued operations for fiscal 2014, 2013 and 2012. 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.
2
Selected Financial Data (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
*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.” The Company adopted this ASU in fiscal 2017, and the impact of the adoption of the new guidance was to reclassify $3.6 million of deferred
financing costs previously included within “Other Assets” to “Long-term debt” in the consolidated balance sheets as of July 3, 2016 – see Note 2. in Notes
to Consolidated Financial Statements for details. We have not reclassified other fiscal years for the purposes of this presentation.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
1-800-FLOWERS.COM, Inc. and Subsidiaries
Business Overview
1-800-FLOWERS.COM, Inc. and its subsidiaries
(collectively, the “Company”) is a leading provider of
gourmet food and floral gifts for all occasions. For the
past 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 Celebra-
tions suite of services including Celebrations Passport
Free Shipping Program, Celebrations Rewards and
Celebrations Reminders, are all designed to engage
with customers and deepen relationships as a one-stop
destination for all celebratory and gifting occasions. In
2017, 1-800-FLOWERS.COM, Inc. was named as the
Gold Winner for The Golden Bridge Awards in the “New
Products and Services” category for the company’s
groundbreaking implementation of an artificial intelli-
gence-powered online gift concierge, Gwyn®. Earlier in
the year, 1-800-Flowers.com was awarded the Gold
Stevie “e-Commerce Customer Service” Award, recogniz-
ing the company’s innovative use of online technologies
and social media to service the needs of customers.
In addition, 1-800-FLOWERS.COM, Inc. was recognized
as one of Internet Retailer’s Top 300 B2B e-commerce
companies in 2015 and was also recently named in
Internet Retailer’s 2016 Top Mobile 500 as one of the
world’s leading mobile commerce sites. 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).
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, Inc. “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);
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).
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. As such, the Company expects that its
revenues will continue to be closely tied to changes in
consumer sentiment.
The Company has organized its operations into three
categories, or segments: Consumer Floral, BloomNet
Wire Service and Gourmet Foods & Gift Baskets, reflect-
ing the way the Company evaluates its business perfor-
mance and manages its operations.
On May 30, 2017, the Company completed the sale of
the outstanding equity of Fannie May Confections Brands,
Inc., including its subsidiaries, Fannie May Confections,
Inc. and Harry London Candies, Inc. (“Fannie May”) to
Ferrero International S.A., a Luxembourg corporation
3
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
(“Ferrero”). The Company and Ferrero also entered into
a transition services agreement whereby the Company
will provide certain post-closing services to Ferrero and
Fannie May related to the business of Fannie May and a
commercial agreement with respect to the distribution of
certain Ferrero and Fannie May products.
On September 30, 2014, the Company completed its
acquisition of Harry & David Holdings, Inc. (“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.
During fiscal 2017, the Company was able to achieve
a number of operational and financial milestones:
(cid:127) Continued improved operating results – Overall
revenues were $1.194 billion, an increase of 1.8% in
comparison to fiscal 2016 (up 3.1% after adjusting for
several issues affecting year over year comparability,
discussed in more detail below within results of
operations). Income from operations improved from
$43.3 million in fiscal 2016 to $46.4 million in fiscal
2017, while Adjusted EBITDA improved from $85.7
million in fiscal 2016 to $87.2 million in fiscal 2017.
These results were driven by revenue growth and
improved operating performance within the Consumer
Floral and BloomNet Wire Service segments, despite
the competitive and promotional environment in which
these businesses operate. These favorable results
were partially offset by underperformance within the
Gourmet Foods & Gift Baskets segment, primarily
reflecting revenue declines within the Harry & David
brand during the December 2016 holiday season.
(cid:127) Strengthened balance sheet - Throughout fiscal 2017,
the Company continued its responsible stewardship of
shareholders’ capital. On May 30, 2017, the Company
completed the sale of its Fannie May and Harry
London brands, at a price of $115.0 million, which,
when adjusted for a seasonal working capital
reduction of $11.4 million, resulted in a gain of $14.6
million, while adding approximately $103.6 million of
cash to its balance sheet. When combined with the
Company’s improved operating results and amended
credit facility, which in December 2016 was extended
by approximately two years, to December 23, 2021,
the Company believes that its strong balance sheet,
and growing cash flows, provide it with significant
liquidity and flexibility to invest and enhance future
growth, both organically, as well as through potential
acquisitions.
(cid:127)
Investment in business operations – In fiscal 2017, the
Company continued to invest in the key areas that will
allow for accelerated growth in the future, including:
(i) Manufacturing, production and distribution -
expanded production capacity for Cheryl’s, Harry
& David orchard plantings and manufacturing,
as well as fulfillment technology upgrades,
(ii) Technology – improved multi-brand website
functionality and industry award winning mobile
transactional platforms, and
(iii) Business Intelligence – customer database mining
to effectively market and target key demographics
(cid:127) Multi-Brand Customer Initiatives - The Company
continued to expand its multi-brand customer
initiatives, a key ingredient in our strategy to enhance
customer engagement and facilitate long-term growth.
The multi-brand website provides the customer with
an enriched shopping experience using cross-brand
marketing and merchandising programs and through
the use of the Company’s Celebrations suite of
services, including Celebrations Passport free
shipping, Rewards and Reminders membership
programs.
(cid:127)
Innovation and positioning for emerging technologies
– The Company has built a reputation as an innovator
and an early adopter of new technologies. This
was illustrated by the Company’s initiatives in
Conversational Commerce, including:
(i) Floral industry-first applications on Facebook’s
Messenger platform
(ii) Voice enabled skill on Amazon’s Alexa platform
(iii) Our own, Artificial Intelligence (“A.I.”) -powered gift
concierge Gwyn® – which leverages IBM’s
Watson platform to help us engage customers in a
natural-language conversation to help guide them
to the perfect gift across all of our brands.
Recognizing the need to balance the Company’s short
and long-term operating and financial objectives, a key
tenet of the Company’s fiscal 2018 strategy, now that the
sale of Fannie May has been completed, is to refocus
efforts to grow revenues in the Gourmet Foods & Gift
Baskets segment, with specific emphasis on re-invigorat-
ing growth within Harry & David, while continuing to extend
the 1-800-Flowers brand’s market leadership position.
Reflecting the sale of the Fannie May business in
fiscal 2017, the Company expects fiscal 2018 consoli-
dated revenues to be in a range of $1.14 billion - to -
$1.16 billion. In terms of bottom-line results, the Company
expects EPS in a range of $0.46 - to - $0.48 (anticipating
a normalized effective tax rate of 35 percent), and
EBITDA in a range of $90 million - to - $93 million.
Definitions of non-GAAP financial measures:
We sometimes use financial measures derived from
consolidated financial information, but not presented in
our financial statements prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”).
Certain of these are considered “non-GAAP financial
measures” under the U.S. Securities and Exchange
Commission rules. See below for the definitions and the
reasons we use these non-GAAP financial measures.
Where applicable, see the Category Information and the
Results of Operations sections below for reconciliations
of these non-GAAP measures to their most directly
comparable GAAP financial measures.
4
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Comparable revenues:
Comparable revenues measures GAAP revenues
adjusted for the effects of acquisitions, dispositions,
timing factors and other items affecting period to period
comparability – see Results of Operations section below
for details on how comparable revenues were calculated
in each of the fiscal years presented.
We believe that this measure provides management
and investors with a more complete understanding of
underlying revenue trends of established, ongoing
operations by excluding the effect of activities which are
subject to volatility and can obscure underlying trends.
Management recognizes that the term “comparable
revenues” may be interpreted differently by other compa-
nies and under different circumstances. Although this may
have an effect on comparability of absolute percentage
growth from company to company, we believe that these
measures are useful in assessing trends of the Company
and its segments, and may therefore be a useful tool in
assessing period-to-period performance trends.
EBITDA and Adjusted EBITDA:
We define EBITDA as net income (loss) before
interest, taxes, depreciation and amortization. Adjusted
EBITDA is defined as EBITDA, adjusted for certain items
affecting period to period comparability. Adjusted EBITDA
for fiscal 2017 excludes certain charges including
severance and investment gains associated with the
Company’s non-qualified 401k executive compensation
plan, EBITDA and Adjusted EBITDA for fiscal 2016
exclude investment losses associated with the
Company’s non-qualified 401k executive compensation
plan, litigation settlement costs, as well as final integra-
tion costs, including severance expenses, associated
with Harry & David and the rightsizing of the Fannie May
operations, prior to disposition.
The Company presents EBITDA and Adjusted EBITDA
because it considers such information meaningful
supplemental measures of its performance and believes
such information is frequently used by the investment
community in the evaluation of similarly situated compa-
nies. The Company uses EBITDA and Adjusted EBITDA
as factors used to determine the total amount of incentive
compensation available to be awarded to executive
officers and other employees. The Company’s credit
agreement uses EBITDA and Adjusted EBITDA to
measure compliance with covenants, such as leverage
and coverage. EBITDA and Adjusted EBITDA are also
used by the Company to evaluate and price potential
acquisition candidates.
EBITDA and Adjusted EBITDA have limitations as
analytical tools and should not be considered in isolation
or as a substitute for analysis of the Company’s results as
reported under GAAP. Some of the limitations are: (a)
EBITDA and Adjusted EBITDA do not reflect changes in,
or cash requirements for, the Company’s working capital
needs; (b) EBITDA and Adjusted EBITDA do 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
5
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 require-
ments for such capital expenditures. EBITDA should only
be used on a supplemental basis combined with GAAP
results when evaluating the Company’s performance.
Category contribution margin:
We define category contribution margin as earnings
before interest, taxes, depreciation and amortization,
before the allocation of corporate overhead expenses.
When viewed together with our GAAP results, we
believe that category contribution margin provides manage-
ment and users of the financial statements information about
the performance of our business segments.
Category contribution margin is used in addition to
and in conjunction with results presented in accordance
with GAAP and should not be relied upon to the exclusion
of GAAP financial measures. The material limitation
associated with the use of the category contribution
margin is that it is an incomplete measure of profitability
as it does not include all operating expenses or non-
operating income and expenses. Management compen-
sates for these limitations when using this measure by
looking at other GAAP measures, such as operating
income and net income.
Adjusted net income and Adjusted net income per
common share:
We define Adjusted net income and Adjusted net income
per common share as net income and net income per
common share adjusted for certain items affecting period to
period comparability. Adjusted net income and Adjusted net
income per common share for fiscal 2017 exclude certain
charges including Harry & David severance and the gain on
the sale of Fannie May. Adjusted net income and Adjusted net
income per common share for fiscal 2016 exclude: (i) the gain
from insurance recovery on the Fannie May warehouse fire,
(ii) loss on the sale of iFlorist, and the impairment of a foreign
equity method investment, (iii) Harry & David integration
costs, (iv) litigation settlement costs as well as (vi) severance
expenses associated with Harry & David and the rightsizing
of the Fannie May operations, prior to disposition.
We believe that Adjusted net income and Adjusted net
income per common share are meaningful measures
because they increase the comparability of period to
period results.
Since these are not measures of performance calcu-
lated in accordance with GAAP, they should not be
considered in isolation of, or as a substitute for, GAAP Net
income and net income per common share as indicators of
operating performance and they may not be comparable to
similarly titled measures employed by other companies.
Category Information
The table on the following page 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.
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
6
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of Net income to Adjusted (non-GAAP) income attributable
to 1-800-FLOWERS.COM, Inc.:
Years Ended
July 2, July 3,
2017 2016
(in thousands)
Net income
Less: Net loss attributable to noncontrolling interest
Income attributable to 1-800-FLOWERS.COM, Inc.
Adjustments to reconcile income attributable to 1-800-FLOWERS.COM, Inc. to
Adjusted (non-GAAP) income attributable to 1-800-FLOWERS.COM, Inc.
$ 44,041 $ 35,868
(1,007)
––
36,875
44,041
14,607 ––
Deduct: Gain from sale of Fannie May
19,611
––
Deduct: Gain from insurance recovery on warehouse fire
2,121
––
Add back: Loss on sale/impairment of iFlorist
1,728
––
Add back: Impairment of foreign equity method investment
828
––
Add back: Harry & David integration costs
1,500
––
Add back: Litigation costs
Add back: Severance costs
756 1,437
Add back: Income tax expense/ (benefit) effect on adjustments (1,025) 3,633
$ 29,165 $ 28,511
Adjusted (non-GAAP) income attributable to 1-800-FLOWERS.COM, Inc.
Net income per common share attributable to 1-800-FLOWERS.COM, Inc.
Basic
Diluted
Adjusted (non-GAAP) net income per common share attributable to 1-800-FLOWERS.COM, Inc.
Basic
Diluted
Weighted average shares used in the calculation of GAAP income and
Adjusted (non-GAAP) income per common share attributable to 1-800-FLOWERS.COM, Inc
Basic
Diluted
$ 0.68 $ 0.57
$ 0.65 $ 0.55
$ 0.45 $ 0.44
$ 0.43 $ 0.43
65,191 64,896
67,735 67,083
7
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Reconciliation of income attributable to 1-800-Flowers.com, Inc. to Adjusted EBITDA, (Non-GAAP), excluding
stock-based compensation:
Years Ended
July 2, July 3,
2017 2016
(in thousands)
Income attributable to 1-800-FLOWERS.COM, Inc.
Add:
$ 44,041 $ 36,875
4,957 7,597
Interest expense and other, net
33,376 32,384
Depreciation and amortization
Income tax expense 11,968 15,579
Loss on sale/impairment of iFlorist –– 2,121
Impairment of foreign equity method investment –– 1,728
Less:
Net loss attributable to noncontrolling interest –– 1,007
Income tax benefit –– ––
Gain from sale of Fannie May
14,607 ––
Gain from insurance recovery on warehouse fire –– 19,611
EBITDA (non-GAAP)
79,735 75,666
Add: Integration costs –– 828
Add: Litigation settlement –– 1,500
Add: Compensation Charge related to NQ Plan Investment Appreciation 988 (122)
Add: Severance costs 756 1,437
Adjusted EBITDA (non-GAAP) 81,479 79,309
Add: Stock-based compensation 5,694 6,343
Adjusted EBITDA (non-GAAP), excluding stock-based compensation $ 87,173 $ 85,652
(a) 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, and Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the
organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based
upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.
8
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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
2017 and 2015, which ended on July 2, 2017 and June
28, 2015, respectively consisted of 52 weeks. Fiscal year
2016, which ended on July 3, 2016, consisted of 53 weeks.
Net Revenues
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Net revenues:
E-Commerce $ 896,762
296,863
Other
$1,193,625
1.6% $ 882,782 3.9% $ 849,853
6.8%
2.3%
271,653
290,242
4.6% $1,121,506
1.8% $1,173,024
Net revenues consist primarily of the selling price of
the merchandise, service or outbound shipping charges,
less discounts, returns and credits.
During the year ended July 2, 2017, net revenues
increased 1.8% in comparison to the prior year, as a
result of growth within the Company’s Consumer Floral
and BloomNet segments, with the 1-800-Flowers.com
brand continuing to extend its market leadership position,
driven by increased demand throughout the year,
particularly during the Valentine’s Day holiday. The
increases above were partially offset by a decline in
Harry & David revenues, due to the closure of a number
of underperforming retail locations, and a reduction in
e-commerce demand, primarily during the Christmas
holiday selling season, and the timing of certain factors
including: (i) the closing of the Company’s sale of the
Fannie May Confection Brands business on May 30,
2017, (ii) a 52-week fiscal year in fiscal 2017 versus 53-
week fiscal year in fiscal 2016, reflecting the Company’s
retail calendar, and (iii) the shift of Harry & David’s Fruit of
the Month Club® cherries shipment out of the Company’s
fiscal fourth quarter in fiscal 2017, due to a late harvest,
into the first quarter of fiscal 2018. On a comparable
basis, adjusting fiscal year 2016 GAAP revenues to
remove: (i) the 53rd week ($8.0 million), (ii) Fannie May’s
June 2016 revenues ($4.8 million) and (iii) the June 2016
Harry & David Fruit of the Month Club® cherry shipment
($2.4 million), net revenues during fiscal 2017 increased
3.1% in comparison to fiscal 2016.
During the year ended July 3, 2016, net revenues
increased 4.6% in comparison to the prior year, as a
result of growth within the Gourmet Food and Gift Baskets
segment due to the incremental revenue generated by
Harry & David, which was acquired on September 30,
2014 (pre-acquisition revenues generated by Harry &
David during the quarter ended September 28, 2014 was
$29.4mm), the impact on prior year revenues of the
Thanksgiving Day Fannie May warehouse fire (estimated
to be $17.3mm), organic growth of 1-800-Flowers.com,
Cheryl’s and 1-800-Baskets wholesale gift business, and
the impact of the 53rd week in fiscal 2016, partially offset
by the impact of the Sunday date placement of Valentine’s
9
Day, and the dispositions of the iFlorist and Fine
Stationery businesses in October 2015 and June 2015,
respectively (which generated a combined $12.1 million
of incremental revenues in the prior year), slower
recovery by the Fannie May brand after the fire, and a
year-over-year reduction in the Harry & David store count.
On a comparable basis, adjusting fiscal year 2016
GAAP revenues to remove the 53rd week ($8.3 million)
and adjust fiscal year 2015 GAAP revenues to: (i) add
Harry & David, first quarter of 2015 revenues ($29.4
million), (ii) add the estimated revenue impact of the
Fannie May fire ($17.3 million), (iii) add Harry & David
purchase accounting adjustments ($1.6 million), and
(iv) remove Fine Stationery and iFlorist revenues ($12.1
million), net revenues during fiscal 2016 increased 0.6%
in comparison to fiscal 2015.
E-commerce revenues (combined online and tele-
phonic sales channels) increased 1.6% during the year
ended July 2, 2017 compared to the prior year, as a result
of the aforementioned e-commerce growth within the
Company’s Consumer Floral segment, partially offset by
unfavorable e-commerce growth within the Gourmet
Foods & Gift Baskets segment due to the Company’s sale
of the Fannie May Confection Brands business on May
30, 2017, a decrease in demand within the Harry & David
brand during the Christmas Holidays, and the shift of
Harry & David’s Fruit of the Month Club® cherries
shipment out of the Company’s fiscal fourth quarter in
fiscal 2017, due to a late harvest, into the first quarter of
fiscal 2018, as well as the impact of the 53rd week in fiscal
2016. The Company fulfilled approximately 12.3 million
e-commerce orders, with an average order value of
$73.12, during fiscal 2017, representing increases of
0.6% and 1.0%, respectively, compared to fiscal 2016.
E-commerce revenues increased 3.9%, during the
year ended July 3, 2016 compared to the prior year, due
to growth within the Gourmet Food and Gift Baskets
segment, as a result of the incremental revenue gener-
ated by Harry & David, which was acquired on Septem-
ber 30, 2014, the impact on prior year revenues of the
Thanksgiving Day Fannie May warehouse fire, organic
growth within the 1-800-Flowers.com Cheryl’s brands,
and the impact of the 53rd week, and partially offset by
the impact of the dispositions of iFlorist and Fine Statio-
nery in October 2015 and June 2015, respectively, and
the anticipated decline in revenues due to the Sunday
date placement of Valentine’s Day. The Company fulfilled
approximately 12.2 million e-commerce orders, with an
average order value of $72.64, during fiscal 2016,
representing increases of 1.4% and 2.4%, respectively,
compared to fiscal 2015.
Other revenues, comprised of the Company’s
BloomNet Wire Service segment, as well as the whole-
sale and retail sales channels of the 1-800-Flowers.com
Consumer Floral and Gourmet Food and Gift Baskets
segments, increased by 2.3% and 6.8% during fiscal
2017 and fiscal 2016, respectively. The increase in fiscal
2017 was attributable to the BloomNet segment which
increased revenues through improvements in member-
ship, transaction and ancillary service fees, as well as
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
from the Gourmet Food and Gift Baskets segment,
resulting from wholesale growth within the Fannie May,
Harry & David and 1-800-Baskets wholesale gift busi-
nesses. This favorability was partially offset by a decrease
in retail store sales within Fannie May, due to a decline in
customer traffic, as well as a decline in Harry & David
retail store sales due to the closure of several
underperforming locations. The increase in fiscal 2016
was due to growth within the Gourmet Food and Gift
Baskets segment, resulting from the incremental revenue
generated by Harry & David, which was acquired on
September 30, 2014, organic growth of Cheryl’s and
1-800-Baskets wholesale gift business, and the impact on
prior year revenues of the Thanksgiving 2014 Fannie May
warehouse fire, partially offset by the Sunday date
placement of Valentine’s Day and a year-over-year
reduction in the Harry & David store count.
The 1-800-Flowers.com Consumer Floral segment
includes the operations of the 1-800-Flowers.com brand,
which derives revenue from the sale of consumer floral
products through its e-commerce sales channels (tele-
phonic and online sales) and royalties from its franchise
operations, as well as iFlorist, a UK based e-commerce
retailer of floral products (through the date of its disposi-
tion in October 2015), and Fine Stationery, an e-com-
merce retailer of stationery products (through the date of
its disposition in June 2015). Net revenues during the
fiscal year ended July 2, 2017 increased 4.5%, as a result
of increased order demand throughout the year, and
during the Valentine’s Day holiday in particular, when the
Company was able to leverage the holiday’s Tuesday
date placement, in comparison to the prior year when
Valentine’s Day fell on a Sunday. The brand was success-
ful at growing its “everyday” business , including birth-
days, anniversaries, sympathy and “just because,” due to
expanded merchandise assortments, including the
Flirty Feline® floral arrangement, and efforts to capitalize
on its same day/next day delivery capabilities. These
increases were partially offset by the impact of the 53rd
week fiscal 2016, reflecting the Company’s retail calen-
dar. On a comparable basis, adjusting fiscal 2016 GAAP
revenues to remove the 53rd week ($4.8 million), fiscal
2017 net revenues increased 5.7% in comparison to
fiscal 2016. Net revenues during the fiscal year ended
July 3, 2016 decreased 0.9% as a result of lower order
volume resulting from the Sunday date placement of
Valentine’s Day, and the dispositions of iFlorist and
Fine Stationery, partially offset by organic growth by the
1-800-Flowers.com brand and the impact of the 53rd
week. On a comparable basis, adjusting fiscal year 2016
GAAP revenues to remove the 53rd week ($4.8 million)
and adjust fiscal year 2015 GAAP revenues to remove
Fine Stationery and iFlorist revenues ($12.1 million),
fiscal 2016 net revenues increased 0.8% in comparison
to fiscal 2015.
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 July 2, 2017 increased 2.6% in com-
parison to the prior year, due to an increase in order
volume processed through the network, driven primarily
by the increase in 1-800-Flowers volume noted above,
which enabled BloomNet to generate increased member-
ship, transaction and ancillary revenue improvements.
These improvements were partially offset by lower
wholesale product revenue as a result of decreased
demand and network shop count. Net revenues during
the fiscal year ended July 3, 2016 decreased 0.6% due to
lower transaction and ancillary fee revenues as a result of
unfavorable shop to shop order volume sent through the
network due in part to the Sunday date placement of
Valentine’s Day, partially offset by increased revenue as a
result of BloomNet initiatives including the annualization
of a florist transaction program implemented in the 3rd
quarter of fiscal 2015.
The Gourmet Food & Gift Baskets segment includes
the operations of Harry & David, Wolferman’s, Stockyards,
Cheryl’s, Fannie May (through the date of its disposition in
May 2017), The Popcorn Factory and 1-800-Baskets/
DesignPac. 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 (through the
date of its disposition in May 2017) brand names, as well
as wholesale operations. Net revenue during the fiscal
year ended July 2, 2017 was consistent with fiscal 2016,
as revenue growth within the Popcorn Factory, 1-800-
Baskets/DesignPac, Fannie May and Cheryl’s brands was
offset by a decline in Harry & David revenues, due to the
closure of a number of underperforming retail locations,
and a reduction in e-commerce demand, primarily during
the Christmas holiday selling season, and the timing of
certain factors including: (i) the Company’s sale of the
Fannie May Confection Brands business on May 30,
2017, (ii) a 52-week fiscal year in fiscal 2017 versus 53-
week fiscal year in fiscal 2016, reflecting the Company’s
retail calendar, and (iii) the shift of Harry & David’s Fruit of
the Month Club® cherries shipment out of the Company’s
fiscal fourth quarter in fiscal 2017, due to a late harvest,
into the first quarter of fiscal 2018. On a comparable
basis, adjusting fiscal year 2016 GAAP revenues to
remove: (i) the 53rd week ($3.2 million), (ii) Fannie May’s
June 2016 revenues ($4.8 million) and (iii) the June 2016
Harry & David Fruit of the Month Club® cherry shipment
($2.4 million), net revenues during fiscal 2017 increased
1.6% in comparison to fiscal 2016.
Net revenue during the fiscal year ended July 3,
2016 increased 9.2% in comparison to the prior year,
as a result of the incremental revenue generated by
Harry & David, which was acquired on September 30,
2014, and the impact on prior year revenues of the
Thanksgiving Day Fannie May warehouse fire, organic
growth of Cheryl’s and 1-800-Baskets wholesale gift
business, and the impact of the 53rd week. On a compa-
rable basis, adjusting fiscal year 2016 GAAP revenues to
remove the 53rd week ($3.5 million) and adjust fiscal
year 2015 GAAP revenues to: (i) add Harry & David, first
quarter of 2015 revenues ($29.3 million), (ii) add esti-
mated revenue impact of the Fannie May fire ($16.9
10
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
million), (iii) add Harry & David purchase accounting
adjustments ($1.6 million), net revenues during fiscal
2016 increased 0.8% in comparison to fiscal 2015.
In fiscal 2018, the Company expects to grow
revenues across all three of its business segments
with consolidated revenue in a range of $1.14 billion to
$1.16 billion.
Gross Profit
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Gross profit $520,281
Gross margin % 43.6%
$517,458
44.1%
0.5%
6.2% $487,195
43.4%
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
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 0.5% during the fiscal year
ended July 2, 2017 in comparison to the prior year,
primarily as a result of the incremental revenue noted
above, partially offset by a decline in gross profit margin
as a result of annual shipping rate increases, product mix,
and increased promotions during the year.
Gross profit increased 6.2% during the fiscal year
ended July 3, 2016 in comparison to the prior year,
primarily as a result of the incremental revenue noted
above, as well as a 70 basis points increase in gross
profit margin due to sourcing and logistics synergy
savings, the mix of sales associated with the recovery
from the Thanksgiving Day Fannie May warehouse fire,
and the impact of purchase accounting adjustments
related to Harry & David’s inventory fair value step-up
in the year ended June 28, 2015.
The 1-800-Flowers.com Consumer Floral segment
gross profit increased by 4.1% during the fiscal year
ended July 2, 2017, in comparison to the prior year, as a
result of the increase in revenues noted above, partially
offset by a 20 basis point decrease in gross profit margin,
from 40.8% to 40.6%. This decrease in gross profit margin
was primarily due to annual shipping rate increases, as
well as increased promotional activity during the year.
The 1-800-Flowers.com Consumer Floral segment gross
profit increased by 2.9% during the fiscal year ended
July 3, 2016 in comparison to the prior year, due to an
improvement in gross profit percentage of 160 basis
points driven by the benefit of synergy savings, which
reduced shipping costs, as well as sourcing improve-
ments and reductions in discounts, partially offset by the
decrease in revenues noted above.
BloomNet Wire Service segment’s gross profit
increased by 2.9% during the fiscal year ended July 2,
11
2017 in comparison to the prior year, as a result of the
increase in sales noted above, as well as a 20 basis
point increase in gross margin percentage, from 56.3%
to 56.5%, related to sales mix. BloomNet Wire Service
segment’s gross profit increased by 0.5% during the fiscal
year ended July 3, 2016, in comparison to the prior year,
while gross margin percentage increased 60 basis
points, as a result of sales mix and lower rebates associ-
ated with the decline in shop-to-shop order volume.
The Gourmet Food & Gift Baskets segment gross profit
decreased by 1.9% during the fiscal year ended July 2,
2017, in comparison to the prior year, due to a decrease
of 80 basis points in gross profit margins, from 44.4% to
43.6%, as revenues were consistent with the prior year.
The decrease in gross profit margin percentage was due
to declines at Harry & David and Fannie May as a result
of product mix and unfavorable volume-related absorp-
tion, partially offset by favorable gross profit margins at
Cheryl’s and DesignPac due to production process
improvements and reduced shipping expenses due to
improved ground shipping conversion rates.
The Gourmet Food & Gift Baskets segment gross profit
increased by 9.2% during the fiscal year ended July 3, 2016
in comparison to the prior year, as a result of the increase in
revenues noted above. Gross margin percentage of 44.4%
was consistent with the prior year as the difficulties encoun-
tered by Fannie May in its efforts to recover after the fire
were offset by the impact of purchase accounting adjust-
ments related to Harry & David’s inventory fair value step-up
in the year ended June 28, 2015.
In fiscal 2018, the Company expects its gross profit to
improve due to sales growth and stronger gross profit
margin as a result of various initiatives we are implement-
ing in manufacturing and the supply/fulfillment chain.
Marketing and Sales Expense
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Marketing and
sales $317,527 -0.2%
$318,175
6.1% $299,801
Percentage of
sales
26.6%
27.1%
26.7%
Marketing and sales expense consists primarily of
advertising and promotional expenditures, catalog costs,
online portal and search costs, retail store and fulfillment
operations (other than costs included in cost of revenues)
and customer service center expenses, as well as the
operating expenses of the Company’s departments
engaged in marketing, selling and merchandising activities.
Marketing and sales expenses declined slightly and
decreased as a percentage of revenues (26.6% in fiscal
2017 vs. 27.1% in fiscal 2016), as a result of a decrease
in labor costs due to a reduction in performance based
bonuses, as well as reductions in labor and facility costs
associated with closure of a number of underperforming
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Harry & David retail locations, partially offset by higher
marketing spend within the Consumer Floral segment,
primarily around the Mother’s Day holiday.
Marketing and sales expenses increased 6.1%
(27.1% as a percentage of revenues) during the fiscal
year ended July 3, 2016 compared to the prior year
(26.7% as a percentage of revenues) primarily due to the
incremental marketing expenses of Harry & David, which
was acquired on September 30, 2014.
During the fiscal year ended July 2, 2017, the Com-
pany added approximately 3.6 million new e-commerce
customers, compared to 3.5 million in both fiscal
2016 and 2015. Approximately 48% of customers who
placed e-commerce orders during fiscal 2017 were
repeat customers compared to approximately 50% in
both fiscal 2016 and fiscal 2015.
Technology and Development Expense
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Technology and
development
Percentage of
$ 38,903
-0.8% $39,234 12.9% $34,745
sales
3.3%
3.3%
3.1%
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 decreased
0.8% (3.3% as a percentage of revenues) during the
fiscal year ended July 2, 2017 compared to the prior year
(3.3% as a percentage of revenues) primarily due to
lower labor costs, due to reduced headcount and a
reduction in performance based bonuses, partially offset
by increased license and maintenance costs related to
system security, and platform improvements.
Technology and development expenses increased
12.9% (3.3% as a percentage of revenues) during the
fiscal year ended July 3, 2016 compared to the prior year
(3.1% as a percentage of revenues) primarily due to the
incremental technology and development costs of Harry
& David, which was acquired on September 30, 2014.
During the fiscal years ended July 2, 2017, July 3,
2016 and June 28, 2015, the Company expended $59.2
million, $60.6 million and $52.1 million, respectively, on
technology and development, of which $20.3 million,
$21.4 million, and $17.4 million, respectively, has been
capitalized.
12
General and Administrative Expense
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
General and
administrative
$ 84,116
-0.3% $ 84,383 -1.8% $ 85,908
Percentage of
sales
7.0%
7.2%
7.7%
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 decreased 0.3%
(7.0% as a percentage of revenues) during the fiscal year
ended July 2, 2017 in comparison to the prior year (7.2%
as a percentage of revenues), as result of lower labor
costs due to decreases in performance based bonuses,
as well as certain prior year expenses that were not
incurred in the current year, including Harry and David
integration costs and the Edible Arrangements litigation
settlement. These decreases were partially offset by
increased health insurance costs, headcount and
expense related to the Company’s Non-Qualified
Deferred Compensation Plan (“NQDC”)(The Company
has established an NQDC for certain members of senior
management. The plan assets are classified as trading
securities (see Note 10. in Notes to Consolidated
Financial Statements for details) – in fiscal 2017, the
Company recorded labor expense of approximately $1.0
million (compared to a benefit of $0.1 million during fiscal
2016), within “General and administrative” expenses,
associated with an increase in amounts owed to partici-
pants due to the appreciation of the fair value of partici-
pant directed investments. The corresponding offset to
this expense is an equivalent amount of investment
income, which is recorded in “Other (income) expense,
net”. Trading securities held in the NQDC are measured
using quoted market prices at the reporting date and are
included in the “Other assets,” with the corresponding
liability to participants included in the “Other liabilities”
within the consolidated balance sheets.
General and administrative expense decreased 1.8%
(7.2% as a percentage of revenues) during the fiscal year
ended July 3, 2016 in comparison to the prior year (7.7%
as a percentage of revenues), as result of synergistic
savings, integration expenses incurred in the prior year,
and a decrease in performance based bonuses and
integration expenses, partially offset by the incremental
general and administrative expenses of Harry & David,
which was acquired on September 30, 2014.
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Depreciation and Amortization
Years Ended
Other (income) Expense, net
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Depreciation and
amortization
Percentage of
$ 33,376
3.1% $ 32,384 11.2% $ 29,124
sales
2.8%
2.8% 2.6%
Depreciation and amortization expense increased
by 3.1% during the fiscal year ended July 2, 2017
in comparison to the prior year, as a result of recent
increases in capital expenditures, primarily in support of
the Company’s technology infrastructure, partially offset
by the impact of the disposition of Fannie May.
Depreciation and amortization expense increased
by 11.2% during the fiscal year ended July 3, 2016 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, as well
as a result of the Company’s technology improvements.
Interest Expense, net
Years Ended
July 2, July 3, June 28,
2017 % Change 2016 % Change 2015
(dollars in thousands)
Interest expense,
net
$ 5,821
-12.8% $ 6,674 16.0% $ 5,753
Interest expense, net consists primarily of interest
expense and amortization of deferred financing costs
attributable to the Company’s credit facility (See Note 9.
in Notes to Consolidated Financial Statements for details
regarding the 2016 Credit Facility), net of income earned
on the Company’s available cash balances.
Interest expense, net decreased 12.8% during the
year ended July 2, 2017 in comparison to the prior year,
due to the reduction in the outstanding Term Debt due to
principal payments during the year, partially offset by a
$0.3 million write-off of deferred financing costs as a
result of amending the Company’s credit facility in
December 2016, and an overall increase in interest rates.
Interest expense, net increased 16.0% during the year
ended July 3, 2016 in comparison to the prior year, as a
result of the additional interest expense and deferred
financing costs associated with the term debt used to
finance the Harry & David acquisition, entered into on
September 30, 2014 and the additional interest expense
on the Company’s revolver to fund the working capital
requirements of Harry & David during the first quarter of
the fiscal year.
13
(dollars in thousands)
Other (income) expense,
net $ (15,471) 4.3% $(14,839) 1,057.4% $1,550
Other (income) expense, net for the year ended July 2,
2017 consists primarily of a $14.6 million gain on the sale
of Fannie May (see Note 4. in Notes to Consolidated
Financial Statements for details), a $1.0 million investment
gain related to the Company’s Non-Qualified Deferred
Compensation Plan (see “General and Administrative”
expense above), partially offset by a $0.1 million loss
related to the Company’s equity in the net loss of Flores
Online (see Note 2. in Notes to Consolidated Financial
Statements for details).
Other (income) expense, net for the year ended July 3,
2016 consists primarily of a $19.6 million gain on
insurance recoveries related to the Fannie May ware-
house fire (see Note 17. in Notes to Consolidated
Financial Statements for details), offset by a $2.1 million
loss on sale of iFlorist (see Note 4. in Notes to Consoli-
dated Financial Statements for details), a $1.7 million
impairment of the Company’s investment in Flores Online
(see Note 2. in Notes to Consolidated Financial State-
ments for details), and a $0.7 million impairment of cost
method investments (see Note 2. in Notes to Consoli-
dated Financial Statements for details).
Income Taxes
During the fiscal years ended July 2, 2017, July 3,
2016 and June 28, 2015, the Company recorded income
tax expense from continuing operations of $12.0 million,
$15.6 million and $10.9 million, respectively, resulting in
an effective tax rate of 21.4%, 30.3% and 36.1%, 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, tax settlements, various tax
credits/deductions as well as deductible stock-based
compensation, as well as the tax effect of the Fannie May
disposition (see Note 11. in Notes to Consolidated
Financial Statements for details).
At July 2, 2017 the Company’s total federal capital
loss carryforwards were $23.7 million, which if not
utilized, will expire in fiscal 2022. The Company’s state
capital loss carryforwards was $1.0 million, which if not
utilized, will begin to expire in fiscal 2022.The Company’s
foreign net operating loss carryforward was $2.4 million,
while the state net operating losses were $4.6 million,
before federal benefit, which if not utilized, will begin to
expire in fiscal 2018.
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Liquidity and Capital Resources
Cash Flows
At At July 2, 2017, the Company had working capital
of $132.2 million, including cash and cash equivalents
of $149.7 million, compared to working capital of 45.8
million, including cash and cash equivalents of $27.8
million at July 3, 2016.
Net cash provided by operating activities of $61.0
million for the fiscal year ended July 2, 2017 was prima-
rily related to net income, adjusted for non-cash charges
for depreciation and amortization, stock-based compen-
sation, deferred income taxes, bad debt expense and the
gain on the sale of Fannie May, partially offset by working
capital changes primarily related to timing of collection of
trade receivables, accelerated inventory production to
mitigate the impact of labor shortages experienced during
the prior holiday season, partially offset by decreases in
accounts payable and accrued expenses as a result of
the timing of the inventory build.
Net cash provided by investing activities of $78.3
million was attributable to the proceeds from the sale of
Fannie May, partially offset by capital expenditures
related to the Company’s technology infrastructure and
Gourmet Foods & Gift Baskets production equipment.
Cash proceeds from the sale of Fannie May excludes an
$8.5 million of seasonal working capital adjustment, paid
by the Company, to Ferrero, in the first quarter of fiscal
2018. Fiscal 2018 capital spending is expected to be
consistent with fiscal 2017.
Net cash used in financing activities of $17.4 million
for the fiscal year ended July 2, 2017 was for term debt
repayment on borrowings under the Company’s Credit
Facility of $5.5 million, and the acquisition of $10.7 million
of treasury stock, and $1.5 million of debt issuance costs
related to the 2016 Amended Credit Agreement (see
Note 9. in Notes to Consolidated Financial Statements for
details), partially offset by proceeds from exercises of
employee stock options of $0.3 million. As of July 2, 2017
there were no borrowings outstanding under the
Company’s Revolver.
Credit Facility
See Note 9. in Notes to Consolidated Financial
Statements for details regarding the 2016 Credit Facility.
The Company believes that cash on hand, combined
with cash flows from operations and available borrowings
from its 2016 Credit Facility, will be a sufficient source of
liquidity during fiscal 2018. 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 50% of the
Company’s annual revenues, and all of its earnings. As a
result, the Company expects to generate 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 manufac-
turing and inventory purchases. Borrowings under the
Revolver, which will be significantly lower than prior year
as a result of cash generated from the sale of Fannie May,
typically peak in November, 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 transactions,
subject to general market conditions. The repurchase
program is financed utilizing available cash. In October
2016, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $25 million.
The Company repurchased a total of $10.7 million
(1,120,706 shares), $15.2 million (1,714,550 shares) and
$8.4 million (1,056,038 shares) during the fiscal years
ended July 2, 2017, July 3, 2016 and June 28, 2015,
respectively, under this program. As of July 2, 2017, $17.2
million remains authorized under the plan. On August 30,
2017, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $30.0 million.
Contractual Obligations
At July 2, 2017, 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(*)
Unrecognized tax liabilities
Total
$123,657
88,471
74,251
400
$286,779
$ 10,275
13,772
71,549
––
$ 95,597
$ 28,397
20,387
2,683
200
$ 51,666
$
84,985
14,903
19
200
$
––
39,409
––
––
$ 100,106
$ 39,409
(*) Purchase commitments consist primarily of inventory and equipment purchase orders made in the ordinary course of business.
14
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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 product and service offerings to florists. Member-
ship fees are recognized monthly in the period earned,
and products sales are recognized upon product ship-
ment with shipping terms primarily FOB shipping point.
Accounts Receivable
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability
of its customers or franchisees to make required pay-
ments. 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 assess-
ment 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 deterio-
rate, 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-
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 operating segments constitute busi-
nesses for which discrete financial information is available
and management of each reporting unit regularly reviews
the operating results of those components.
In applying the goodwill impairment test, the Company
has the option to perform a qualitative test (also known as
“Step 0”) or a two-step quantitative test (consisting of
“Step 1” and “Step 2”). Under the Step 0 test, the Com-
15
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
pany first assesses qualitative factors to determine
whether it is more likely than not that the fair value of the
reporting units is less than its carrying value. Qualitative
factors may include, but are not limited to economic
conditions, industry and market considerations, cost
factors, overall financial performance of the reporting unit
and other entity and reporting unit specific events.
If after assessing these qualitative factors, the Company
determines it is “more-likely-than-not” that the fair value
of the reporting unit is less than the carrying value, then
performing the two-step quantitative test is necessary.
The first step (“Step 1”) of the two-step quantitative
test 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 (“Step
2”) is not performed. If the carrying value of the reporting
unit is higher than the fair value, Step 2 must be per-
formed to compute the amount of the goodwill impair-
ment, if any. In Step 2, 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 Com-
pany 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.
During fiscal 2017 and fiscal 2016 the Company
performed a Step 0 analysis and determined that it
was not “more likely than not” that the fair values of
the reporting units were less than their carrying
amounts. During fiscal 2015, the Company performed the
two-step quantitative impairment test and determined that
the estimated fair value of the Company’s reporting units
significantly exceeded their respective carrying values
(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 34% decrease in the fair value of the
Company’s reporting units as of July 2, 2017, 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, 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.
Definite-lived intangibles 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 circumstances occur, a recoverability
test is performed comparing 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. In
applying the impairment test, the Company has the option
to perform a qualitative test (also known as “Step 0”) or a
quantitative test. Under the Step 0 test, the Company
assesses qualitative factors to determine whether it is
more likely than not that an indefinite-lived intangible
asset is impaired. Qualitative factors may include, but are
not limited to economic conditions, industry and market
considerations, cost factors, financial performance, legal
and other entity and asset specific events. If after assess-
ing these qualitative factors, the Company determines it is
“more-likely-than-not” that the indefinite-lived intangible
asset is impaired, then performing the quantitative test is
necessary. The quantitative impairment test for indefinite-
lived intangible assets encompasses calculating a fair
value of an indefinite-lived intangible asset and compar-
ing 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 ap-
proach, 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
16
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
as the appropriate discount and royalty rates applied to
those cash flows to determine fair value.
During fiscal 2017 and fiscal 2016 the Company
performed a Step 0 analysis and determined that it is not
“more likely than not” that the fair values of the indefinite-
lived intangibles were less than their carrying amounts.
During fiscal 2015, the Company performed the quantita-
tive impairment test and determined that the estimated
fair value of the Company’s intangibles exceeded their
respective carrying value. Future changes in the esti-
mates 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 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.
Recent Accounting Pronouncements
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. As we continue to evaluate the impact of this
ASU, we have determined that the new standard will
impact the following areas: the costs of producing and
distributing the Company’s catalogs will be expensed
upon shipment, instead of being capitalized and amor-
tized in direct proportion to the actual sales; gift card
breakage will be estimated based on the historical
pattern of gift card redemption, rather than when redemp-
tion is considered remote; the Company will defer
revenue at the time the Celebrations Reward loyalty
points are earned using a relative fair value approach,
rather than accruing a liability equal to the incremental
cost of fulfilling its obligations. We have further identified
the timing of revenue recognition for e-commerce orders
(shipping point versus destination) as a potential issue in
our analysis, which is not expected to change the total
amount of revenue recognized, but could accelerate the
timing of when revenue is recognized. We plan to adopt
this guidance beginning with the first quarter in the fiscal
year ending June 30, 2019 on a retrospective basis with
a cumulative adjustment to retained earnings. We are
continuing to evaluate the impact that this ASU, and
related amendments and interpretive guidance, will have
on our consolidated financial statements, including the
related disclosures.
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
the carrying amount of the debt liability, and not recorded
as a separate asset. The Company adopted this standard
effective July 4, 2016 and applied it retrospectively to all
periods presented. The impact of the adoption of the
new guidance was to reclassify $3.6 million of deferred
financing costs previously included within “Other Assets”
to “Long-term debt” in the consolidated balance sheets
as of July 3, 2016.
In July 2015, the FASB issued ASU No. 2015-11,
“Inventory (Topic 330).” The pronouncement was issued
to simplify the measurement of inventory and changes the
measurement from lower of cost or market to lower of cost
and net realizable value. ASU 2015-11 is effective for the
Company’s fiscal year ending July 1, 2018. The adoption
of ASU 2015-11 is not expected to have a significant
impact on the Company’s consolidated financial position
or results of operations.
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments – Overall: Recognition and
Measurement of Financial Assets and Financial Liabili-
ties.” The pronouncement requires equity investments
(except those accounted for under the equity method of
accounting, or those that result in consolidation of the
investee) to be measured at fair value with changes in fair
value recognized in net income, requires public business
entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes,
requires separate presentation of financial assets and
financial liabilities by measurement category and form of
financial asset, and eliminates the requirement for public
business entities to disclose the method(s) and significant
17
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
assumptions used to estimate the fair value that is
required to be disclosed for financial instruments mea-
sured at amortized cost. This guidance will become effective
for the Company’s fiscal year ending June 30, 2019. The
adoption is not expected to have a significant impact on the
Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842).” Under this guidance, an entity is
required to recognize right-of-use assets and lease
liabilities on its balance sheet and disclose key informa-
tion about leasing arrangements. This guidance offers
specific accounting guidance for a lessee, a lessor and
sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user
of the financial statements to assess the amount, timing
and uncertainty of cash flows arising from leases. This
guidance is effective for the Company’s fiscal year ending
June 28, 2020. We are currently evaluating the impact
and expect the ASU will have a material impact on our
consolidated financial statements, primarily to the
consolidated balance sheets and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
“Improvements to Employee Share-Based Payment
Accounting.” ASU No. 2016-09 affects all entities that
issue share-based payment awards to their employees.
ASU No. 2016-09 simplifies several aspects of the
accounting for share-based payment transactions,
including the income tax consequences, classification of
awards as either equity or liabilities, and classification on
the statement of cash flows. The Company elected to
early adopt the amendments in ASU 2016-09, in fiscal
2017. As a result, stock-based compensation excess tax
benefits are reflected in the Consolidated Statements of
Income as a component of the provision for income taxes,
whereas they were previously recognized in equity. This
change resulted in the recognition of excess tax benefits
against income tax expenses, rather than additional paid-
in capital, of $1.0 million for the year ended July 2, 2017.
There was no impact on earnings per share since
approximately 700,000 tax benefit shares for the year
ended July 2, 2017, previously associated with the APIC
pool calculation, are no longer considered in the diluted
share computation. Additionally, our Consolidated
Statements of Cash Flows now present excess tax
benefits as an operating activity. This change has been
applied prospectively in accordance with the ASU and
prior periods have not been adjusted. Further, the
Company has elected to account for forfeitures as they
occur, rather than estimate expected forfeitures. The
cumulative effect of this change, which was recorded as
compensation expense in fiscal 2017, was not material
to the financial statements. In addition, this ASU allows
entities to withhold an amount up to an employees’
maximum individual statutory tax rate in the relevant
jurisdiction, up from the minimum statutory requirement,
without resulting in liability classification of the award.
We adopted this change on a modified retrospective
basis, with no impact to our consolidated financial
statements. Finally, this ASU clarified that the cash paid
by an employer when directly withholding shares for tax
withholding purposes should be classified as a financing
activity. This change does not have an impact on the
Company’s consolidated financials as it conforms with its
current practice.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.”
ASU 2016-13 introduces a new forward-looking “ex-
pected loss” approach, to estimate credit losses on most
financial assets and certain other instruments, including
trade receivables. The estimate of expected credit losses
will require entities to incorporate considerations of
historical information, current information and reasonable
and supportable forecasts. This ASU also expands the
disclosure requirements to enable users of financial
statements to understand the entity’s assumptions,
models and methods for estimating expected credit
losses. ASU 2016-13 is effective for the Company’s
fiscal year ending July 4, 2021, and the guidance is to
be applied using the modified-retrospective approach.
The Company is currently evaluating the potential
impact of adopting this guidance on our consolidated
financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01),” which revises
the definition of a business and provides new guidance in
evaluating when a set of transferred assets and activities
is a business. ASU 2017-01 is effective for the Company’s
fiscal year ending June 30, 2019, with early adoption
permitted, and should be applied prospectively. We do
not expect the standard to have a material impact on our
consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment,” which eliminates step
two from the goodwill impairment test. Under ASU 2017-
04, an entity should recognize an impairment charge for
the amount by which the carrying amount of a reporting
unit exceeds its fair value up to the amount of goodwill
allocated to that reporting unit. This guidance is effective
for the Company’s fiscal year ending July 4, 2021, with
early adoption permitted, and should be applied prospec-
tively. We do not expect the standard to have a material
impact on our consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05,
“Other Income - Gains and Losses from the Derecognition
of Nonfinancial Assets.” This update clarifies the scope of
accounting for the derecognition or partial sale of
nonfinancial assets to exclude all businesses and
nonprofit activities. ASU 2017-05 also provides a defini-
tion for in-substance nonfinancial assets and additional
guidance on partial sales of nonfinancial assets. This
guidance will be effective for the Company’s fiscal year
ending June 30, 2019 and may be applied retrospec-
tively. The Company is currently evaluating the potential
impact of adopting this guidance on our consolidated
financial statements.
In May 2017, the FASB issued ASU No 2017-09,
18
Management’s Discussion and Analysis (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
“Compensation - Stock Compensation (Topic 718): Scope
of Modification Accounting.” This ASU provides guidance
on the types of changes to the terms or conditions of
share-based payment awards to which an entity would be
required to apply modification accounting. An entity would
not apply modification accounting if the fair value, vesting
conditions, and classification of the awards are the same
immediately before and after the modification. ASU 2017-
09 is effective for the Company’s fiscal year ending June
30, 2019, with early adoption permitted, and should be
applied prospectively to an award modified on or after the
adoption date. The Company is currently evaluating the
potential impact of adopting this guidance on our
consolidated financial statements.
Quantitative and Qualitative Disclosures
About Market Risk
The Company is exposed to market risk from the
effect of interest rate changes and changes in the market
values of its investments.
Interest Rate Risk
The Company’s exposure to market risk for changes
in interest rates relates primarily to the Company’s
investment of available cash balances and its long-term
debt. The Company generally invests its cash and cash
equivalents in investment grade corporate and U.S.
government securities. Due to the currently low rates of
return the Company is receiving on its cash equivalents,
the potential for a significant decrease in short-term
interest rates is low and, therefore, a further decrease
would not have a material impact on the Company’s
interest income. Borrowings under the Company’s credit
facility bear interest at a variable rate, plus an applicable
margin, and therefore expose the Company to market risk
for changes in interest rates. The effect of a 50 basis point
increase in current interest rates on the Company’s
interest expense would be approximately $0.8 million
during year ended July 2, 2017.
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, EBITDA and EPS; its ability to
manage the significant seasonality of its business; its
ability to integrate the operations of acquired companies;
its ability to cost effectively acquire and retain customers;
the outcome of contingencies, including legal proceed-
ings 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 Com-
pany. For a more detailed description of these and other
risk factors, and a list of definitions of non-GAAP terms,
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.
19
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
2017 and 2016. 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.
The Company’s quarterly results may experience seasonal fluctuations – see the Seasonality section in Item 1 of the Company’s Annual
Report on Form 10-K for details. Refer above to the Results of Operations section for a discussion of significant events and transactions.
20
Consolidated Balance Sheets
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except share data)
See accompanying Notes to Consolidated Financial Statements.
21
Consolidated Statements of Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands, except per share data)
See accompanying Notes to Consolidated Financial Statements.
22
Consolidated Statements of Comprehensive Income
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Years Ended
See accompanying Notes to Consolidated Financial Statements.
23
Consolidated Statements of Stockholders’ Equity
1-800-FLOWERS.COM, Inc. and Subsidiaries
Years ended July 2, 2017, July 3, 2016 and June 28, 2015
(in thousands, except share data)
Accumulated Total
Common Stock Additional Retained Other 1-800-FLOWERS.COM, Inc.
Class A Class B Paid-In Earnings Comprehensive Treasury Stock Stockholders’ Noncontrolling Total
Shares Amount Shares Amount Capital (Deficit) Loss Shares Amount Equity Interest Equity
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
$ 2,890 $ 186,118
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
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)
––
––
––
––
––
Net income
Translation adjustment
Noncontrolling interest write-off
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Excess tax benefit from
––
––
––
––
––
––
––
––
––
––
––
––
4,047,040
879,863
1,044,255
40 (4,047,040)
––
9
––
10
(40)
––
––
stock-based compensation
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
––
––
––
––
6,334
3,507
2,400
––
36,875
––
––
––
––
––
––
––
––
165
60
––
––
––
––
––
––
––
1,056,038 (8,360)
2,115
(8,360)
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
5,962
5,542
––
6,343
3,517
––
––
1,714,550 (15,223)
2,400
(15,223)
Balance at July 3, 2016
48,846,449
488 35,263,004
353
331,349 (11,403)
(146)
18,869,025 (78,055)
242,586
Net income
Translation adjustment
Conversion of Class B stock
into Class A stock
Stock-based compensation
Exercise of stock options
Acquisition of Class A treasury stock
––
––
––
––
––
––
––
––
1,361,401
965,429
54,500
––
14 (1,361,401)
––
––
––
10
1
––
(14)
––
––
––
––
––
––
6,092
285
––
––
––
––
––
––
44,041
––
(41)
––
––
––
––
44,041
(41)
––
––
––
––
––
––
––
––
––
––
1,120,706 (10,735)
––
6,102
286
(10,735)
20,287
(903)
19,384
(325)
(180)
(505)
36,875
(1,007)
35,868
4
2
165
60
87
(887)
252
(827)
––
––
––
––
––
––
5,962
5,542
2,115
(8,360)
––
––
––
––
––
––
––
––
––
––
––
––
––
6,343
3,517
2,400
(15,223)
242,586
44,041
(41)
––
6,102
286
(10,735)
Balance at July 2, 2017
51,227,779
$ 513 33,901,603
$ 339
$ 337,726 $ 32,638
$ (187)
19,989,731 $(88,790)
$ 282,239
$ –– $ 282,239
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
1-800-FLOWERS.COM, Inc. and Subsidiaries
(in thousands)
Supplemental Cash Flow Information:
-
Interest paid amounted to $4.4 million, $5.0 million and $4.3 million, for the years ended July 2, 2017,
July 3, 2016 and June 28, 2015, respectively.
- The Company paid income taxes of approximately $6.8 million, $13.4 million and $5.1 million, net of tax
refunds received, for the years ended July 2, 2017, July 3, 2016 and June 28, 2015, respectively.
See accompanying Notes to Consolidated Financial Statements.
25
Notes to Consolidated Financial Statements
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 1. Description of Business
1-800-FLOWERS.COM, Inc. and its subsidiaries
(collectively, the “Company”) is a leading provider of
gourmet food and floral gifts for all occasions. For the
past 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, Inc. “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);
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 arrange-
ments 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 subsidiar-
ies (collectively, the “Company”). All significant intercom-
pany accounts and transactions have been eliminated
in consolidation. During fiscal 2017, 2016 and 2015
approximately 1%, 1% and 2% respectively, of consoli-
dated net revenue came from international sources.
Fiscal Year
The Company’s fiscal year is a 52- or 53-week period
ending on the Sunday nearest to June 30. Fiscal years
2017 and 2015, which ended on July 2, 2017 and June
28, 2015, respectively consisted of 52 weeks. Fiscal year
2016, which ended on July 3, 2016, consisted of 53 weeks.
Use of Estimates
The preparation of financial statements in conformity
with U.S. generally accepted accounting principles
requires management to make estimates and assump-
tions that affect the amounts reported in the financial
statements and accompanying notes. Actual results
could differ from those estimates.
Cash and 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.
26
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 depreci-
ated using the following estimated lives:
10 - 40
Building 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 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. The Company
tests goodwill for impairment at the reporting unit level.
The Company identifies its reporting units by assessing
whether the components of its operating segments
constitute businesses for which discrete financial
information is available and management of each
reporting unit regularly reviews the operating results
of those components.
In applying the goodwill impairment test, the
Company has the option to perform a qualitative test (also
known as “Step 0”) or a two-step quantitative test (consist-
ing of “Step 1” and “Step 2”). Under the Step 0 test, the
Company first assesses qualitative factors to determine
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
whether it is more likely than not that the fair value of the
reporting units is less than its carrying value. Qualitative
factors may include, but are not limited to economic
conditions, industry and market considerations, cost
factors, overall financial performance of the reporting
unit and other entity and reporting unit specific events.
If after assessing these qualitative factors, the Company
determines it is “more-likely-than-not” that the fair value
of the reporting unit is less than the carrying value, then
performing the two-step quantitative test is necessary.
The first step (“Step 1”) of the two-step quantitative
test 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 (“Step
2”) is not performed. If the carrying value of the reporting
unit is higher than the fair value, Step 2 must be per-
formed to compute the amount of the goodwill impair-
ment, if any. In Step 2, 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 Com-
pany 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.
During fiscal 2017 and fiscal 2016 the Company
performed a Step 0 analysis and determined that it
was not “more likely than not” that the fair values of
the reporting units were less than their carrying
amounts. During fiscal 2015, the Company performed
the two-step quantitative impairment test and determined
that the estimated fair value of the Company’s reporting
units significantly exceeded their respective carrying
values (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.
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.
Definite-lived intangibles 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 circumstances occur, a recoverability
test is performed comparing 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. In
applying the impairment test, the Company has the option
to perform a qualitative test (also known as “Step 0”) or a
quantitative test. Under the Step 0 test, the Company
assesses qualitative factors to determine whether it is
more likely than not that an indefinite-lived intangible
asset is impaired. Qualitative factors may include, but are
not limited to economic conditions, industry and market
considerations, cost factors, financial performance, legal
and other entity and asset specific events. If after assess-
ing these qualitative factors, the Company determines it is
“more-likely-than-not” that the indefinite-lived intangible
asset is impaired, then performing the quantitative test is
necessary. The quantitative impairment test for indefinite-
lived intangible assets encompasses calculating a fair
value of an indefinite-lived intangible asset and compar-
ing 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 ap-
proach, 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 intan-
gible 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.
During fiscal 2017 and fiscal 2016 the Company
performed a Step 0 analysis and determined that it is not
“more likely than not” that the fair values of the indefinite-
lived intangibles were less than their carrying amounts.
During fiscal 2015, the Company performed the quantita-
tive impairment test and determined that the estimated
fair value of the Company’s intangibles exceeded their
respective carrying value. Future changes in the esti-
mates and assumptions above could materially affect the
results of our reviews for impairment of intangibles.
27
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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
catalogs over a period not to exceed 12 months. Included
within prepaid and other current assets was $2.7 million
and $3.0million at July 2, 2017 and July 3, 2016 respec-
tively, relating to prepaid catalog expenses.
Investments
The Company has certain investments in non-market-
able equity instruments of private companies. The Com-
pany 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 consist of
a 30.0% 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 $1.0 million as of July 2, 2017 and $1.1 million as of
July 3, 2016, and is included in the “Other assets” line
item within the Company’s consolidated balance sheets.
The Company’s equity in the net loss of Flores Online for
both the years ended July 2, 2017 and July 3, 2016 was
$0.1 million. During the quarter ended September 27,
2015, the Company determined that the fair value of its
investment in Flores Online was below its carrying value
and that this decline was other-than-temporary. As a
28
result, the Company recorded an impairment charge of
$1.7 million, which is included within the “Other (income)
expense, net” line item in the Company’s consolidated
statement of income in fiscal 2016.
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 the
“Other assets” line item within the Company’s consolidated
balance sheets. The aggregate carrying amount of the
Company’s cost method investments was $1.7 million as
of July 2, 2017 (including a $1.5 million investment in
Euroflorist – see Note 4. for details) and $1.7 million as
of July 3, 2016. During the year ended July 3, 2016, the
Company determined that the fair value of one of its cost
method investments was below its carrying value and that
the decline was other-than-temporary. As a result the
Company recorded an impairment charge of $0.5 million,
which is included within the “Other (income) expense, net”
line items in the Company’s consolidated statements of
income in fiscal 2016.
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 condensed consolidated
balance sheets (see Note 10. for details).
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
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 receiv-
ables are related to balances owed by major credit card
companies. Allowances relating to consumer, corporate
and franchise accounts receivable ($1.8 million at July 2,
2017 and $2.1 million at July 3, 2016) 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
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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.
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 expenses, 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 operat-
ing 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 $137.5 million, $133.1 million
and $130.6 million for the years ended July 2, 2017,
July 3, 2016 and June 28, 2015, respectively.
Technology and Development
Technology and development expense consists
primarily of payroll and operating expenses of the
Company’s information technology group, costs
associated with its 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 acquisi-
tion 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 associ-
ated 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 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 appli-
cable performance goals will be achieved.
Derivatives and hedging
The Company does not enter into derivative transac-
tions 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 July 2, 2017 and
July 3, 2016.
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 Per Share
Basic net income per common share is computed
using the weighted-average number of common shares
outstanding during the period. Diluted net income per
share is computed using the weighted-average number of
common and dilutive common equivalent shares (consist-
ing primarily of employee stock options and unvested
restricted stock awards) outstanding during the period.
Recent Accounting Pronouncements
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. As we continue to evaluate the impact of this
ASU, we have determined that the new standard will
29
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
impact the following areas: the costs of producing and
distributing the Company’s catalogs will be expensed
upon shipment, instead of being capitalized and amor-
tized in direct proportion to the actual sales; gift card
breakage will be estimated based on the historical
pattern of gift card redemption, rather than when
redemption is considered remote; the Company will
defer revenue at the time the Celebrations Reward loyalty
points are earned using a relative fair value approach,
rather than accruing a liability equal to the incremental
cost of fulfilling its obligations. We have further identified
the timing of revenue recognition for e-commerce orders
(shipping point versus destination) as a potential issue in
our analysis, which is not expected to change the total
amount of revenue recognized, but could accelerate the
timing of when revenue is recognized. We plan to adopt
this guidance beginning with the first quarter in the fiscal
year ending June 30, 2019 on a retrospective basis with
a cumulative adjustment to retained earnings. We are
continuing to evaluate the impact that this ASU, and
related amendments and interpretive guidance, will have
on our consolidated financial statements, including the
related disclosures.
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
the carrying amount of the debt liability, and not recorded
as a separate asset. The Company adopted this standard
effective July 4, 2016 and applied it retrospectively to all
periods presented. The impact of the adoption of the
new guidance was to reclassify $3.6 million of deferred
financing costs previously included within “Other Assets”
to “Long-term debt” in the consolidated balance sheets
as of July 3, 2016.
In July 2015, the FASB issued ASU No. 2015-11,
“Inventory (Topic 330).” The pronouncement was issued
to simplify the measurement of inventory and changes the
measurement from lower of cost or market to lower of cost
and net realizable value. ASU 2015-11 is effective for the
Company’s fiscal year ending July 1, 2018. The adoption
of ASU 2015-11 is not expected to have a significant
impact on the Company’s consolidated financial position
or results of operations.
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments – Overall: Recognition and
Measurement of Financial Assets and Financial Liabili-
ties.” The pronouncement requires equity investments
(except those accounted for under the equity method of
accounting, or those that result in consolidation of the
investee) to be measured at fair value with changes in fair
value recognized in net income, requires public business
entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes,
requires separate presentation of financial assets and
financial liabilities by measurement category and form of
financial asset, and eliminates the requirement for public
business entities to disclose the method(s) and significant
assumptions used to estimate the fair value that is required
to be disclosed for financial instruments measured at
amortized cost. This guidance will become effective for
the Company’s fiscal year ending June 30, 2019. The
adoption is not expected to have a significant impact on
the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842).” Under this guidance, an entity is
required to recognize right-of-use assets and lease
liabilities on its balance sheet and disclose key informa-
tion about leasing arrangements. This guidance offers
specific accounting guidance for a lessee, a lessor and
sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user
of the financial statements to assess the amount, timing
and uncertainty of cash flows arising from leases. This
guidance is effective for the Company’s fiscal year ending
June 28, 2020. We are currently evaluating the impact
and expect the ASU will have a material impact on our
consolidated financial statements, primarily to the
consolidated balance sheets and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
“Improvements to Employee Share-Based Payment
Accounting.” ASU No. 2016-09 affects all entities that
issue share-based payment awards to their employees.
ASU No. 2016-09 simplifies several aspects of the
accounting for share-based payment transactions,
including the income tax consequences, classification of
awards as either equity or liabilities, and classification on
the statement of cash flows. The Company elected to
early adopt the amendments in ASU 2016-09, in fiscal
2017. As a result, stock-based compensation excess tax
benefits are reflected in the Consolidated Statements of
Income as a component of the provision for income taxes,
whereas they were previously recognized in equity. This
change resulted in the recognition of excess tax benefits
against income tax expenses, rather than additional paid-
in capital, of $1.0 million for the year ended July 2, 2017.
There was no impact on earnings per share since
approximately 700,000 tax benefit shares for the year
ended July 2, 2017, previously associated with the APIC
pool calculation, are no longer considered in the diluted
share computation. Additionally, our Consolidated
Statements of Cash Flows now present excess tax
benefits as an operating activity. This change has been
applied prospectively in accordance with the ASU and
prior periods have not been adjusted. Further, the
Company has elected to account for forfeitures as they
occur, rather than estimate expected forfeitures. The
cumulative effect of this change, which was recorded as
compensation expense in fiscal 2017, was not material to
the financial statements. In addition, this ASU allows
entities to withhold an amount up to an employees’
maximum individual statutory tax rate in the relevant
jurisdiction, up from the minimum statutory requirement,
without resulting in liability classification of the award.
We adopted this change on a modified retrospective
basis, with no impact to our consolidated financial
30
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
statements. Finally, this ASU clarified that the cash paid
by an employer when directly withholding shares for tax
withholding purposes should be classified as a financing
activity. This change does not have an impact on the
Company’s consolidated financials as it conforms with
its current practice.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments-Credit Losses (Topic 326): Mea-
surement of Credit Losses on Financial Instruments.” ASU
2016-13 introduces a new forward-looking “expected loss”
approach, to estimate credit losses on most financial
assets and certain other instruments, including trade
receivables. The estimate of expected credit losses will
require entities to incorporate considerations of historical
information, current information and reasonable and
supportable forecasts. This ASU also expands the disclo-
sure requirements to enable users of financial statements
to understand the entity’s assumptions, models and
methods for estimating expected credit losses. ASU 016-
13 is effective for the Company’s fiscal year ending July 4,
2021, and the guidance is to be applied using the modi-
fied-retrospective approach. The Company is currently
evaluating the potential impact of adopting this guidance
on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01),” which revises
the definition of a business and provides new guidance
in evaluating when a set of transferred assets and
activities is a business. ASU 2017-01 is effective for the
Company’s fiscal year ending June 30, 2019, with early
adoption permitted, and should be applied prospectively.
We do not expect the standard to have a material impact
on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment,” which eliminates step
two from the goodwill impairment test. Under ASU 2017-
04, an entity should recognize an impairment charge for
the amount by which the carrying amount of a reporting
unit exceeds its fair value up to the amount of goodwill
allocated to that reporting unit. This guidance is effective
for the Company’s fiscal year ending July 4, 2021, with
early adoption permitted, and should be applied prospec-
tively. We do not expect the standard to have a material
impact on our consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05,
“Other Income—Gains and Losses from the
Derecognition of Nonfinancial Assets.” This update
clarifies the scope of accounting for the derecognition
or partial sale of nonfinancial assets to exclude all
businesses and nonprofit activities. ASU 2017-05 also
provides a definition for in-substance nonfinancial assets
and additional guidance on partial sales of nonfinancial
assets. This guidance will be effective for the Company’s
fiscal year ending June 30, 2019 and may be applied
retrospectively. The Company is currently evaluating
the potential impact of adopting this guidance on our
consolidated financial statements.
In May 2017, the FASB issued ASU No 2017-09,
“Compensation - Stock Compensation (Topic 718): Scope
of Modification Accounting.” This ASU provides guidance
on the types of changes to the terms or conditions of
share-based payment awards to which an entity would be
required to apply modification accounting. An entity would
not apply modification accounting if the fair value, vesting
conditions, and classification of the awards are the same
immediately before and after the modification. ASU 2017-
09 is effective for the Company’s fiscal year ending June
30, 2019, with early adoption permitted, and should be
applied prospectively to an award modified on or after
the adoption date. The Company is currently evaluating
the potential impact of adopting this guidance on our
consolidated financial statements.
Reclassifications
Certain balances in the prior fiscal years have been
reclassified to conform to the presentation in the current
fiscal year. See “Recent Accounting Pronouncements”
above regarding the impact of our adoption of ASU No.
2015-13.
31
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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
continuing operations:
Years Ended
July 2, July 3, June 28,
2017 2016 2015
(in thousands, except per share data)
Numerator:
Net income $44,041 $35,868 $19,384
Less: Net loss
attributable to
noncontrolling interest
Net income attributable to
–– (1,007)
(903)
1-800-FLOWERS.COM, Inc. $44,041 $36,875 $20,287
Denominator:
Weighted average
shares outstanding
65,191
64,896
64,976
Effect of dilutive securities:
Employee stock
options (1)
Employee restricted
stock awards
Total effect of
dilutive securities
Adjusted weighted-average
shares and assumed
1,519
1,294
1,561
1,025
893
1,065
2,544
2,187
2,626
conversions
67,735
67,083
67,602
Net income per common share
from continuing operations
attributable to 1-800-FLOWERS.COM, Inc.
Basic $ 0.68 $ 0.57 $ 0.31
Diluted $ 0.65 $ 0.55 $ 0.30
Note (1): The effect of options to purchase 0.0 million, 0.1 million and 0.1
million shares for the years ended July 2, 2017, July 3, 2016 and June 28,
2015, respectively, were excluded from the calculation of net income per
share on a diluted basis as their effect is anti-dilutive.
Note 4. Acquisitions and Dispositions
Disposition of Fannie May Confections Brands, Inc.
On March 15, 2017, the Company and Ferrero Interna-
tional S.A., a Luxembourg corporation (“Ferrero”), entered
into a Stock Purchase Agreement (the “Purchase Agree-
ment”) pursuant to which Ferrero agreed to purchase from
the Company all of the outstanding equity of Fannie May
Confections Brands, Inc., including its subsidiaries,
Fannie May Confections, Inc. and Harry London Candies,
Inc. (“Fannie May”) for total consideration of $115.0 million
in cash, subject to seasonal working capital adjustment.
At that time, the Company determined that the Fannie May
business met the held for sale criteria, as prescribed by
FASB ASC 360-10-45-9, but did not meet the criteria to
qualify as a discontinued operation.
On May 30, 2017, the Company completed the
disposition of Fannie May, and in August 2017, the
working capital adjustment was finalized, resulting in an
$11.4 million reduction to the purchase price. The
resulting gain on sale, in the amount of $14.6 million, is
included within “Other (income) expense, net” in the
Company’s consolidated statements of income for the
fiscal year 2017. In connection with the working capital
adjustment of $11.4 million, the Company has an $8.5
million payable to Ferrero, included in the“Accrued
expenses” line item in the Company’s consolidated
balance sheet as of July 2, 2017.
Per FASB ASC 350-20-40, when a portion of reporting
unit that constitutes a business is to be disposed of,
goodwill associated with that business shall be included
in the carrying amount of the business in determining the
gain or loss on disposal. The amount of goodwill to be
included in that carrying amount shall be based on the
relative fair values of the business to be disposed of and
the portion of the reporting unit that will be retained.
Fannie May represented a business, as defined by FASB,
and was included in the Company’s Gourmet Food & Gift
Baskets reporting unit. As a result, we allocated $15.1
million of goodwill to the Fannie May business based on
the relative fair value of Fannie May to the Gourmet Food
& Gift Baskets reporting unit. The Company estimated the
fair value of the Gourmet Food & Gift Baskets reporting
unit in a manner consistent with its significant accounting
policy for goodwill, described in Note 1 above.
The Company and Ferrero also entered into a
transition services agreement whereby the Company
will provide certain post-closing services to Ferrero and
Fannie May for a period of approximately 18 months,
related to the business of Fannie May, and a commercial
agreement with respect to the distribution of certain
Ferrero and Fannie May products.
Operating results of Fannie May are reflected in the
Company’s consolidated financial statements through
May 30, 2017, the date of its disposition, within its
Gourmet Food & Gift Baskets segment. During fiscal
2017, Fannie May contributed net revenues of $85.6
million. Operating and pre-tax income during such
period were not material.
32
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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
distribution facility in Hebron, Ohio and 48 Harry & David
retail stores located throughout the country.
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 its 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, $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:
Harry & David
Final
Purchase Price
Allocation
(in thousands)
Current Assets
Intangible Assets
Goodwill
Property, plant and equipment
Other assets
Total assets acquired
Current liabilities, including short-term debt
Deferred tax liabilities
Other liabilities assumed
Total liabilities assumed
Net assets acquired
$126,268
41,827
16,042
105,079
(131)
289,085
104,513
42,048
24
146,585
$142,500
The estimated fair value of the acquired work in
process and finished goods inventory was determined
33
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 agricul-
tural equipment, automobiles, computer equipment,
and general equipment, mobile equipment, packaging
machinery and semi-tractors. Under the market approach
market, 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 transaction. All applicable direct
and indirect costs are also considered and reflected
in the final fair value determination.
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Disposition of Colonial Gifts Limited (“iFlorist”)
During October 2015, the Company completed the
sale of substantially all of the assets of iFlorist to
Euroflorist AB (“Euroflorist”), a pan-European floral and
gifting company headquartered in Malmo, Sweden.
As consideration for the assets sold, the Company
received an investment in Euroflorist with a fair value
on the date of sale of approximately $1.5 million.
(The Company will account for this investment using the
cost method as it does not possess the ability to exercise
significant influence over Euroflorist.). The Company
recorded a loss on the sale in the amount of $2.1 million
which is included within “Other (income) expense, net”
in the condensed consolidated statements of operations.
Note 5. Inventory
The Company’s inventory, stated at cost, which is
not in excess of market, includes purchased and
manufactured finished goods for sale, packaging
supplies, crops, raw material ingredients for manufac-
tured products and associated manufacturing labor
and is classified as follows:
July 2, July 3,
2017 2016
(in thousands)
Finished goods $ 34,476 $ 44,264
24,573
Work-in-process
Raw materials
34,491
Total Inventory $75,862 $103,328
11,933
29,453
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. Appropri-
ate 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
customers at the time of the acquisition, considering an
appropriate attrition rate based on the historical experi-
ence 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.
34
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 &
Floral Service Gift Baskets Total
Balance at June 28, 2015
Other
Balance at July 3, 2016
Sale of Fannie May
Balance at July 2, 2017
$ 17,582
(141)
$ 17,441
––
$ 17,441
$
$
$
––
––
––
––
––
$
59,515
711
$
60,226
(15,077)
45,149
$
$ 77,097
570
$ 77,667
(15,077)
$ 62,590
There were no goodwill impairment charges in any segment during the years ended July 2, 2017, July 3, 2016 and
June 28, 2015.
The Company’s other intangible assets consist of the following:
July 2, July 3,
2017 2016
Amortization Gross Gross
Period Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Net Amount Amortization Net
(in thousands)
Intangible assets with determinable lives
Investment in
licenses 14-16 years
Customer lists 3-10 years
Other 5-14 years
$ 7,420 $ 5,937
8,227
2,045
12,184
2.946
$ 1,483
3,957
901
$ 7,420 $ 5,832 $ 1,588
5,184
967
21,144
3,665
15,960
2,698
Total intangible assets with
determinable lives
Trademarks with
indefinite lives
Total identifiable
intangible assets
22,550
16,209
6,341
32,229
24,490
7,739
54,749
––
54,749
71,261
––
71,261
$77,299
$16,209
$61,090
$103,490 $24,490
$79,000
Intangible assets with determinable lives are reviewed for impairment whenever events or changes in circum-
stances indicate that the carrying amount of an asset or asset group may not be recoverable. No material impairments
were recognized for the years ended July 2, 2017, July 3, 2016 and June 28, 2015.
The amortization of intangible assets for the years ended July 2, 2017, July 3, 2016 and June 28, 2015 was $1.4
million, $1.9 million and $2.1 million, respectively. Future estimated amortization expense is as follows: 2018 – $1.3
million, 2019 - $0.7 million, 2020 - $0.6 million, 2021 - $0.6 million, 2022 - $0.5 million, and thereafter - $2.6 million.
35
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 7. Property, Plant and Equipment
Note 9. Long-Term Debt
47,293
72,912
Less: current maturities of
July 2, July 3,
2017 2016
(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
Property, plant and
equipment, gross
Accumulated depreciation and
amortization
Property, plant and
equipment, net
$ 30,789
$ 30,789
9,703
56,791
11,950
9,483
54,950
21,584
45,026
119,177
52,737
136,333
9,971
8,513
330,700
387,301
(169,319) (215,939)
$161,381
$171,362
Depreciation expense for the years ended July 2,
2017, July 3, 2016 and June 28, 2015 was $32.0 million,
$30.5 million and $27.0 million, respectively.
Note 8. Accrued Expenses
Accrued expenses consisted of the following:
July 2, July 3,
2017 2016
(in thousands)
Payroll and employee benefits
Deferred revenue
Accrued marketing expenses
Gift card liability
Fannie May working capital
adjustment
Accrued florist payout
Other
Accrued Expenses
$22,767 $25,892
10,366
8,071
8,309
13,865
11,974
8,835
8,500
6,576
17,689
––
6,746
6,682
$90,206 $66,066
The Company’s current and long-term debt consists of
the following:
July 2, July 3,
2017 2016
(in thousands)
Revolver (1)
Term Loan (1)
Deferred Financing Costs
Total debt
$
$
––
––
112,125 117,563
(3,560) (3,573)
113,990
108,565
long-term debt
Long-term debt
7,188
$101,377
19,594
$ 94,396
(1) On December 23, 2016, the Company entered into an
Amended and Restated Credit Agreement (the “2016 Amended
Credit Agreement”) with JPMorgan Chase Bank as administrative
agent, and a group of lenders. The 2016 Amended Credit
Agreement amended and restated the Company’s credit agree-
ment dated as of September 30, 2014 to, among other things,
extend the maturity date of the $115.0 million outstanding term
loan (“Term Loan”) and the revolving credit facility (the “Revolver”)
by approximately two years to December 23, 2021. The Term Loan
is payable in 19 quarterly installments of principal and interest
beginning on April 2, 2017, with escalating principal payments, at
the rate of 5% in year one, 7.5% in year two, 10% in year three,
12.5% in year four, and 15% in year five, with the remaining
balance of $61.8 million due upon maturity. The Revolver, in the
aggregate amount of $200 million, subject to seasonal reduction to
an aggregate amount of $100 million for the period from January 1
through August 1, may be used for working capital and general
corporate purposes, subject to certain restrictions.
For each borrowing under the 2016 Amended Credit Agreement,
the Company may elect that such borrowing bear interest at an
annual rate equal to either: (1) a base rate plus an applicable
margin varying from 0.75% to 1.5%, based on the Company’s
consolidated leverage ratio, where the base rate is the highest of
(a) the prime rate, (b) the highest of the federal funds rate and the
overnight bank funding rate as published by the New York Fed,
plus 0.5% and (c) an adjusted LIBO rate, plus 1% or (2) an
adjusted LIBO rate plus an applicable margin varying from 1.75%
to 2.5%, based on the Company’s consolidated leverage ratio.
The 2016 Amended Credit Agreement requires that while any
borrowings are outstanding the Company comply with certain
financial covenants and affirmative covenants as well as certain
negative covenants, that subject to certain exceptions, limit the
Company’s ability to, among other things, incur additional
indebtedness, make certain investments and make certain
restricted payments. The Company was in compliance with these
covenants as of July 2, 2017. The 2016 Amended Credit Agree-
ment is secured by substantially all of the assets of the Company
and the Subsidiary Guarantors.
Future principal payments under the term loan are as follows: $7.2
million – fiscal 2018, $10.1 million – fiscal 2019, $12.9 million –
fiscal 2020, $15.8 million - fiscal 2021, and $66.1 million thereafter.
36
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 10. Fair Value Measurements
Cash and cash equivalents, trade and other receiv-
ables, 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
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 observ
able 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 July 2, 2017:
Trading securities
held in a
“rabbi trust” (1)
$6,916 $6,916 $ –– $ ––
$6,916 $6,916 $ –– $ ––
Assets (liabilities) as of July 3, 2016:
Trading securities
held in a
“rabbi trust” (1)
$4,852 $4,852 $ –– $ ––
$4,852
$4,852 $ –– $ ––
(1) The Company has established a Non-qualified Deferred
Compensation Plan 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 a rabbi trust are
measured using quoted market prices at the reporting date and
are included in the “Other assets” line item, with the corresponding
liability included in the “Other liabilities” line item in the consolidated
balance sheets.
Note 11. Income Taxes
Significant components of the income tax provision
are as follows:
Years Ended
July 2, July 3, June 28,
2017 2016 2015
(in thousands)
Current provision (benefit):
Federal
State
Foreign
Current income
tax expense
$11,859
1,758
––
$15,876 $ 6,630
1,840
(11)
2,703
––
13,617
18,579
8,459
Deferred provision (benefit):
Federal
State
Foreign
Deferred income tax
expense (benefit)
(1,563)
(90)
4
(2,949)
(7)
(44)
1,970
631
(130)
(1,649)
(3,000)
2,471
Income tax expense
$11,968
$15,579 $10,930
37
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
A reconciliation of the U.S. federal statutory tax rate to
the Company’s effective tax rate is as follows:
Years Ended
July 2, July 3, June 28,
2017 2016 2015
Tax at U.S. statutory rates
35.0%
State income taxes, net
of federal tax benefit
35.0%
35.0%
2.3
Valuation allowance change (*) 14.9
Foreign rate differences
Deductible stock-based
3.4
1.3
0.1 (2.6)
3.8
2.6
1.1
compensation (1.6) (0.2) (1.3)
Domestic production
deduction (2.1) (2.6) (2.2)
Tax credits (1.7) (4.2) (3.9)
Tax effect of disposition (*) (25.3) –– ––
(0.2) 0.2 1.0
Other, net
30.3%
21.4%
Effective tax rate
36.1%
(*) rate impact due to the disposition of Fannie May – see
discussion below.
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
July 2, July 3,
2017 2016
(in thousands)
Deferred income tax assets:
Loss and credit
carryforwards
Accrued expenses
and reserves
Stock-based
compensation
Deferred compensation
Gross deferred
$ 12,717 $ 6,901
4,626
2,565
1,950
7,267
2,991
1,540
income tax assets
18,699
Less: Valuation allowance (11,772) (4,936)
13,763
Deferred tax assets, net
10,086
21,858
Deferred income tax liabilities:
Other intangibles (20,537) (24,357)
Tax in excess of
book depreciation (23,417) (24,923)
Deferred tax liabilities (43,954) (49,280)
Net deferred
income tax liabilities
$ (33,868) $(35,517)
38
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 established valua-
tion allowances, primarily for net operating loss and capital
loss carryforwards in federal, certain states, and for its
Brazilian and Canadian subsidiaries. During fiscal 2017,
the Company’s valuation allowance increased primarily
as a result of the disposition of Fannie May (see Note 4.
above for details), which generated a federal capital loss
carryforward of $23.6 million, partially offset by a write-off of
tax attributes of foreign dissolved entities consisting mainly
of net operating losses which previously had a full valuation
allowance. The Company does not expect to utilize the
capital loss carryforward prior to expiration and has
therefore provided for a full valuation allowance. At July 2,
2017, the Company’s total federal and state capital loss
carryforwards were $23.7 million, which if not utilized, will
expire in fiscal 2022. The Company’s foreign net operating
loss carryforwards were $2.4 million, which if not utilized,
will begin to expire in fiscal 2034.
The Company files income tax returns in the U .S.
federal jurisdiction, various state jurisdictions, and
various foreign countries. The Company concluded its
U.S. federal examination for fiscal 2014, however, fiscal
years 2015 and 2016 remain subject to U.S. federal
examination. Due to ongoing state examinations and
nonconformity with the U.S. federal statute of limitations
for assessment, certain states remain open from fiscal
2012. 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, mainly 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 July 2, 2017, the
Company has an unrecognized tax benefit, including an
immaterial amount of accrued interest and penalties, of
approximately $0.4 million. During fiscal 2017, the
unrecognized tax benefit decreased by $0.8 million as a
result of federal and state tax settlements. The Company
believes that no significant unrecognized tax positions
will be resolved over the next twelve months.
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
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
July 2, July 3, June 28,
2017(*) 2016 2015
(in thousands)
Marketing and sales
Technology and
development
General and administrative
Total
$1,624
$2,306
$1,866
315
3,755
493
3,544
$5,694 $6,343
392
3,704
$5,962
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).
(*) Excludes approximately $0.4mm of stock-based compensation
expense recorded within the gain on the sale of Fannie May,
resulting from the acceleration of vesting of shares for Fannie May
personnel, upon completion of the disposition.
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
July 2, July 3, June 28,
2017 (1) 2016 (1) 2015
Weighted average fair
value of options granted
Expected volatility
Expected life (in years)
Risk-free interest rate
Expected dividend yield
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$4.86
52%
7.3
1.9%
0.0%
(1) No options were granted during the fiscal years ended July 2,
2017 and July 3, 2016.
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%.
fiscal 2017 and fiscal 2016, 1,361,401 and 4,047,040
shares of Class B common stock, respectively, 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 transactions,
subject to general market conditions. The repurchase
program is financed utilizing available cash. In October
2016, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $25 million.
The Company repurchased a total of $10.7 million
(1,120,706 shares), $15.2 million (1,714,550 shares) and
$8.4 million (1,056,038 shares) during the fiscal years
ended July 2, 2017, July 3, 2016 and June 28, 2015,
respectively, under this program. As of July 2, 2017, $17.2
million remains authorized under the plan. On August 30,
2017, the Company’s Board of Directors authorized an
increase to its stock repurchase plan of up to $30.0 million.
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 (as amended and restated as of October 22,
2009, as amended as of October 28, 2011 and September
14, 2016) (the “Plan”). The Plan is a broad-based, long-
term incentive program that is intended to provide incen-
tives to attract, retain and motivate employees, consultants
and directors in order to achieve the Company’s long-term
growth and profitability objectives. 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 July 2, 2017, the Company has reserved approxi-
mately 6.2 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 within operating income (*) in the periods
presented are as follows:
Years Ended
July 2, July 3, June 28,
2017 2016 2015
(in thousands, except per share data)
Stock options
Restricted stock awards
Total
Deferred income tax benefit
Stock-based compensation
$ 446
5,248
5,694
2,213
$ 432
5,911
6,343
1,987
$ 459
5,503
5,962
2,087
expense, net
$3,481 $4,356
$3,875
39
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
The following table summarizes stock option activity during the year ended July 2, 2017:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Options Price Contractual Term Value (000s)
Outstanding beginning of period 2,182,234 $ 2.49
Granted –– $ ––
Exercised (54,500) $ 5.22
Forfeited/Expired –– ––
Outstanding end of period 2,127,734 $ 2.42
Options vested or expected to
3.8 years $15,608
vest at end of period 2,127,734 $ 2.42 3.8 years $15,608
1,478,734 $ 2.38 3.7 years $10,910
Exercisable at July 2, 2017
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 2017 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by the option holders had all option holders exercised
their options on July 2, 2017. This amount changes based on the fair market value of the Company’s stock. The total
intrinsic value of options exercised for the years ended July 2, 2017, July 3, 2016 and June 28, 2015 was $0.5, $4.2
million and $3.6 million, respectively.
The following table summarizes information about stock options outstanding at July 2, 2017:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Options Contractual Life Exercise Options Exercise
Exercise Price Outstanding (years) Price Exercisable Price
1.79
$
2.22 - 2.44
$
$
2.63
$ 3.26 - 10.20
1,000,000
32,000
1,010,000
85,734
2,127,734
3.3
2.5
4.3
4.4
3.8
$ 1.79
$ 2.43
$ 2.63
$ 7.31
$ 2.42
750,000
32,000
635,000
61,734
1,478,734
$ 1.79
$ 2.43
$ 2.63
$ 6.92
$ 2.38
As of July 2, 2017, the total future compensation cost related to non-vested options not yet recognized in the
statement of operations was $0.8 million and the weighted average period over which these awards are expected to
be recognized was 1.9 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
July 2, 2017:
Weighted
Average
Grant Date
Shares Fair Value
Non-vested – beginning of period 2,017,069 $ 6.78
Granted 819,406 $ 9.88
Vested (965,429) $ 6.90
Forfeited (518,173) $ 9.72
Non-vested - end of period 1,352,873 $ 7.44
The fair value of non-vested shares is determined
based on the closing stock price on the grant date. As of
July 2, 2017, there was $5.4 million of total unrecognized
compensation cost related to non-vested restricted stock-
based compensation to be recognized over a weighted-
average period of 1.9 years.
40
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
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
contributions to the 401(k) plan in amounts not exceeding
federal guidelines. On an annual basis the Company,
as determined by its board of directors, may make certain
discretionary contributions. Employees are vested in the
Company’s contributions based upon years of service.
The Company suspended all contributions during fiscal
years 2017, 2016 and 2015.
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. Up until December 31, 2016, the Company
matched 50% of the deferrals made by each participant
during the applicable period, up to a maximum of $2,500.
Effective January 1, 2017, the Company suspended
contributions. 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 July 2, 2017 and
July 3, 2016, these plan liabilities, which are included
in “Other liabilities” within the Company’s consolidated
balance sheets, totaled $6.9 million and $4.9 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” within the Company’s consolidated balance
sheets. Company contributions during the years ended
July 2, 2017, July 3, 2016 and June 28, 2015 were less
than $0.1 million. Gains (losses) on these investments,
were $1.0 million, ($0.1) million and $0.2 million for the
years ended July 2, 2017, July 3, 2016 and June 28,
2015, are included in “Other (income) expense, net,”
within the Company’s consolidated statements of income.
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 (a) below), nor does it include
depreciation and amortization, other (income) expense,
net and income taxes, or stock-based compensation
which is 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
July 2, July 3, June 28,
2017 2016 2015
(in thousands)
Net revenues:
1-800-Flowers.com
Consumer Floral
BloomNet Wire
Service
Gourmet Food &
Gift Baskets
Corporate
Intercompany
$ 437,132 $ 418,492 $ 422,199
87,700
85,483
85,968
670,677
670,453
613,953
1,102
1,066
1,020
eliminations (2,986) (2,470) (1,634)
Total net revenues
$1,193,625
$1,173,024 $1,121,506
Operating Income from Continuing Operations
Years Ended
July 2, July 3, June 28,
2017 2016 2015
(in thousands)
Segment Contribution Margin:
1-800-Flowers.com
Consumer Floral $51,860 $ 50,773 $ 43,529
BloomNet Wire
Service
Gourmet Food &
Gift Baskets
Segment Contribution
Margin Subtotal
32,383 30,629 29,398
77,312 79,398 74,889
161,555 160,800 147,816
Corporate (a) (81,820) (85,134) (81,075)
Depreciation and
amortization (33,376) (32,384) (29,124)
Operating income $ 46,359 $ 43,282 $ 37,617
(a) Corporate expenses consist of the Company’s enterprise
shared service cost centers, and include, among other items,
Information Technology, Human Resources, Accounting and
Finance, Legal, Executive and Customer Service Center functions,
as well as Stock-Based Compensation. In order to leverage the
Company’s infrastructure, these functions are operated under a
centralized management platform, providing support services
throughout the organization. The costs of these functions, other
than those of the Customer Service Center, which are allocated
directly to the above categories based upon usage, are included
within corporate expenses as they are not directly allocable to a
specific segment.
41
Notes to Consolidated Financial Statements (continued)
1-800-FLOWERS.COM, Inc. and Subsidiaries
Note 16. 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 July 2, 2017 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)
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
$13,772
11,683
8,704
7,776
7,126
39,410
$88,471
At July 2, 2017, the total future minimum sublease
rentals under non-cancelable operating sub-leases for
land and buildings were $4.2 million. Rent expense was
approximately $32.6 million, $34.3 million and $28.3
million for the years ended July 2, 2017, July 3, 2016
and June 28, 2015, respectively.
Other Commitments
The Company’s purchase commitments consist
primarily of inventory, equipment and technology (hard-
ware and software) purchase orders made in the ordinary
course of business, most of which have terms less than
one year. As of July 2, 2017, the Company had fixed and
determinable off-balance sheet purchase commitments
with remaining terms in excess of one year of approxi-
mately $2.7 million, primarily related to the Company’s
technology infrastructure.
The Company had approximately $1.8 million in
unused stand-by letters of credit as of July 2, 2017.
Litigation
There are various claims, lawsuits, and pending
actions against the Company and its subsidiaries
incident to the operations of its businesses. It is the
opinion of management, after consultation with counsel,
that the ultimate resolution of such claims, lawsuits and
pending actions will not have a material adverse effect
on the Company’s consolidated financial position,
results of operations or liquidity.
42
Note 17. 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 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
2014 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 following table reflects the costs related to the
fire and the insurance recovery and associated gain as
of July 3, 2016:
Fire-related
Insurance Recovery
(in thousands)
Loss on inventory
Other fire related costs
Total fire related costs
$ 29,587
5,802
35,389
Less: fire related insurance recoveries (55,000)
$ (19,611)
Fire related gain
During the three months ended September 27, 2015,
the Company and its insurance carrier reached final
agreement, and during the three months ended Decem-
ber 27, 2015, the Company received all remaining
proceeds from its Fannie May fire claim. The agreement,
in the amount of $55.0 million, provided for: (i) recovery
of raw materials and work-in-process at replacement cost,
and finished goods at selling price, less costs to complete
the sale and normal discounts and other charges, as well
as (ii) other incremental fire-related costs. The cost of
inventory lost in the fire was approximately $29.6 million,
while other fire-related costs amounted to approximately
$5.8 million, including incremental contracted lease and
cold storage fees which were incurred by the Company
until the move back into its leased facility once the
landlord completed repairs, during the Company’s
third quarter of fiscal 2016. The resulting gain of $19.6
million is included in “Other (income) expense, net”
in the consolidated statements of income for the
year ended July 3, 2016.
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 effective-
ness to future periods are subject to the risk that controls
may become inadequate because of changes in condi-
tions, 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 July 2, 2017..
The Company’s independent registered public
accounting firm, BDO USA, LLP, audited the effectiveness
of the Company’s internal control over financial reporting
as of July 2, 2017. BDO USA, LLP’s report on the effec-
tiveness of the Company’s internal control over financial
reporting as of July 2, 2017 is set forth below.
43
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 July 2, 2017, 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
respects. 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
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, 1-800-Flowers.com, Inc. and
Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of
July 2, 2017, based on the COSO criteria.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets
of 1-800-Flowers.com, Inc. and Subsidiaries as of July 2,
2017 and July 3, 2016, and the related consolidated
statements of income, comprehensive income, stockhold-
ers’ equity, and cash flows for each of the three years
in the period ended July 2, 2017, and our report dated
September 15, 2017 expressed an unqualified
opinion thereon.
BDO USA, LLP
Melville, New York
September 15, 2017
44
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
Subsidiaries as of July 2, 2017 and July 3, 2016 and the
related consolidated statements of income, comprehen-
sive income, stockholders’ equity, and cash flows for
each of the three years in the period ended July 2, 2017.
These consolidated financial statements are the respon-
sibility 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 and schedule. 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 July 2, 2017 and July 3, 2016, and the
results of their operations and their cash flows for each
of the three years in the period ended July 2, 2017, 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 July 2, 2017, 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 15,
2017 expressed an unqualified opinion thereon.
BDO USA, LLP
Melville, New York
September 15, 2017
45
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
July 2, 2017 and July 3, 2016.
High Low
Year ended July 2, 2017
July 4, 2016 – October 2, 2016
October 3, 2016 – January 1, 2017
January 2, 2017 – April 2, 2017
April 3, 2017 – July 2, 2017
$ 9.99
$11.40
$11.05
$11.30
Year ended July 3, 2016
June 29, 2015 – September 27, 2015
$10.90
September 28, 2015 – December 27, 2015 $10.88
$ 8.42
December 28, 2015 – March 27, 2016
$ 8.38
March 28, 2016 – July 3, 2016
$ 8.78
$ 8.06
$ 8.67
$ 9.38
$ 7.92
$ 6.80
$ 6.11
$ 6.74
fiscal 2017 and fiscal 2016, 1,361,401 and 4,047,040
shares of Class B common stock, respectively, were
converted into shares of Class A common stock.
Holders
As of September 5, 2017, there were approximately
255 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 5, 2017, there were approximately 8 stockhold-
ers 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-
tions, subject to general market conditions. The repur-
chase program is financed utilizing available cash. In
October 2016, the Company’s Board of Directors autho-
rized an increase to its stock repurchase plan of up to $25
million. The Company repurchased a total of $10.7 million
(1,120,706 shares), $15.2 million (1,714,550 shares) and
$8.4 million (1,056,038 shares) during the fiscal years
ended July 2, 2017, July 3, 2016 and June 28, 2015,
respectively, under this program. As of July 2, 2017, $17.2
million remained authorized under the plan.
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
Total Number of Dollar Value of
stock upon its transfer, with limited exceptions. During
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) (2)
the Company’s purchase of common stock during the
fiscal year ended July 2, 2017, which includes the period
July 4, 2016 through July 2, 2017:
The following table sets forth, for the months indicated,
(in thousands, except average price paid per share)
07/04/16 - 07/31/16
08/01/16 - 08/28/16
08/29/16 - 10/02/16
10/03/16 - 10/30/16
10/31/16 - 11/27/16
11/28/16 - 01/01/17
01/02/17 - 01/29/17
01/30/17 - 02/26/17
02/27/17 - 04/02/17
04/03/17 - 04/30/17
05/01/17 - 05/28/17
05/29/17 - 07/02/17
95.0
100.0
123.6
119.3
286.9
4.1
59.5
90.3
––
––
92.4
149.6
$ 9.31
$ 9.31
$ 9.21
$ 9.33
$ 9.41
$10.48
$10.11
$ 9.43
––
––
$10.50
$ 9.89
95.0
100.0
123.6
119.3
286.9
4.1
59.5
90.3
––
––
92.4
149.6
$11,161
$10,227
$ 9,085
$23,883
$21,184
$21,141
$20,538
$19,686
$19,656
$19,656
$18,713
$17,229
Total
(1) Average price per share excludes commissions and other transaction fees.
(2) On August 30, 2017, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million.
1,120.7
1,120.7
$ 9.56
46
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 6/30/12 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 repre-
sent the Company’s current expectations or beliefs concern-
ing future events and can generally be identified by the use
of statements that include words such as “estimate,” “expects,”
“project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “likely,”
“will,” or similar words or phrases. These forward-looking
statements are subject to risks, uncertainties and other fac-
tors, 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, EBITDA and EPS; its abil-
ity to manage the significant seasonality of its business; its
ability to integrate the operations of acquired companies; 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, please refer
to the Company’s SEC filings including the Company’s An-
nual 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
Updated 7/15
Updated 7/15
Version 1
Version 2
Version 3
1800Baskets.com • logo color
PMS 255
PMS 227
Version 5
Version 6
Version 7
One Old Country Road
Suite 500
Carle Place, NY 11514
www.1800flowers.com
(516) 237-6000