Company Quick10K Filing
Quick10K
1 800 Flowers Com
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$19.56 64 $1,250
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-30 Quarter: 2018-12-30
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-07-01 Annual: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-K 2017-07-02 Annual: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-Q 2017-01-01 Quarter: 2017-01-01
10-Q 2016-10-02 Quarter: 2016-10-02
10-K 2016-07-03 Annual: 2016-07-03
10-Q 2016-03-27 Quarter: 2016-03-27
10-Q 2015-12-27 Quarter: 2015-12-27
10-Q 2015-09-27 Quarter: 2015-09-27
10-K 2015-06-28 Annual: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-Q 2014-12-28 Quarter: 2014-12-28
10-Q 2014-09-28 Quarter: 2014-09-28
10-K 2014-06-29 Annual: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-Q 2013-12-29 Quarter: 2013-12-29
8-K 2019-05-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-25 Amend Bylaw, Exhibits
8-K 2019-03-18 Officers
8-K 2019-02-07 Officers
8-K 2019-01-31 Earnings, Exhibits
8-K 2018-12-11 Shareholder Vote
8-K 2018-11-06 Other Events
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-23 Earnings, Exhibits
8-K 2018-06-01 Officers, Other Events
8-K 2018-05-10 Other Events
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-01-31 Earnings, Exhibits
TRU Transunion 12,360
CRC California Resources 976
MN Manning & Napier 34
CCCL China Ceramics 7
QTM Quantum 0
FASV Century Cobalt 0
RETC 12 Retech 0
BAJA Baja Custom Design 0
EDR Education Realty Trust 0
ORBK Orbotech 0
FLWS 2019-03-31
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Note 1 - Accounting Policies
Note 2 - Net Income per Common Share
Note 3 - Stock-Based Compensation
Note 4 - Disposition
Note 5 - Inventory
Note 6 - Goodwill and Intangible Assets
Note 7 - Investments
Note 8 -Debt
Note 9 - Property, Plant and Equipment
Note 10 - Fair Value Measurements
Note 11 - Income Taxes
Note 12 - Business Segments
Note 13 - Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_142791.htm
EX-31.2 ex_142792.htm
EX-32.1 ex_142793.htm

1 800 Flowers Com Earnings 2019-03-31

FLWS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 flws20190331b_10q.htm FORM 10-Q flws20190331b_10q.htm
 

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

 

or

 

__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

 

Commission File No. 0-26841

 

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

 

​DELAWARE

11-3117311

(State of incorporation)

(I.R.S. Employer Identification No.)

 

One Old Country Road, Carle Place, New York, 11514

(516) 237-6000

(Address of principal executive offices) (Zip code)

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

   

☐ Large accelerated filer

 

Accelerated filer

☐ Non-accelerated filer

 

☐ Smaller reporting company

   

☐ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A common stock

FLWS

The Nasdaq Stock Market

 

The number of shares outstanding of each of the Registrant’s classes of common stock as of May 3, 2019:

 

Class A common stock:

35,775,034

Class B common stock:

28,542,823

 

 

 

 

 

TABLE OF CONTENTS

 

     

Page

 

Part I.

Financial Information

       

Item 1.

Condensed Consolidated Financial Statements

    1  
 

Condensed Consolidated Balance Sheets – March 31, 2019 (Unaudited) and July 1, 2018

    1  
 

Condensed Consolidated Statements of Income (Unaudited) – Three and Nine Months Ended March 31, 2019 and April 1, 2018

    2  
 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months Ended March 31, 2019 and April 1, 2018

    3  
 

Condensed Consolidated Statements of Stockholder’s Equity (Unaudited) – Three and Nine Months Ended March 31, 2019 and April 1, 2018

    4  
 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended March 31, 2019 and April 1, 2018

    5  
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

    6  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    14  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

    22  

Item 4.

Controls and Procedures

    22  
           

Part II.

Other Information

       

Item 1.

Legal Proceedings

    22  

Item 1A.

Risk Factors

    22  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    23  

Item 3.

Defaults upon Senior Securities

    23  

Item 4.

Mine Safety Disclosures

    23  

Item 5.

Other Information

    23  

Item 6.

Exhibits

    23  
           

Signatures

    24  

 

 

 

 

 

 

PART I. – FINANCIAL INFORMATION

ITEM 1. – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

   

March 31, 2019

   

July 1, 2018

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 206,377     $ 147,240  

Trade receivables, net

    19,166       12,935  

Inventories

    74,377       88,825  

Prepaid and other

    20,592       24,021  

Total current assets

    320,512       273,021  
                 

Property, plant and equipment, net

    158,190       163,340  

Goodwill

    62,590       62,590  

Other intangibles, net

    59,762       59,823  

Other assets

    13,894       12,115  

Total assets

  $ 614,948     $ 570,889  
                 

Liabilities and Stockholders' Equity

               

Current liabilities:

               

Accounts payable

  $ 25,381     $ 41,437  

Accrued expenses

    103,012       73,299  

Current maturities of long-term debt

    12,219       10,063  

Total current liabilities

    140,612       124,799  
                 

Long-term debt

    83,595       92,267  

Deferred tax liabilities

    27,011       26,200  

Other liabilities

    14,788       12,719  

Total liabilities

    266,006       255,985  
                 

Commitments and contingencies (See Note 13)

               
                 

Stockholders’ equity:

               

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

    -       -  

Class A common stock, $0.01 par value, 200,000,000 shares authorized, 52,931,127 and 52,071,293 shares issued at March 31, 2019 and July 1, 2018, respectively

    528       520  

Class B common stock, $0.01 par value, 200,000,000 shares authorized, 33,822,823 shares issued at March 31, 2019 and July 1, 2018

    338       338  

Additional paid-in-capital

    347,235       341,783  

Retained earnings

    116,830       73,429  

Accumulated other comprehensive loss

    (258 )     (200 )

Treasury stock, at cost, 17,209,093 and 15,978,790 Class A shares at March 31, 2019 and July 1, 2018, respectively, and 5,280,000 Class B shares at March 31, 2019 and July 1, 2018

    (115,731 )     (100,966 )

Total stockholders’ equity

    348,942       314,904  

Total liabilities and stockholders’ equity

  $ 614,948     $ 570,889  

 

  

See accompanying Notes to Condensed Consolidated Financial Statements.

  

 

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except for per share data)

(unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
                                 

Net revenues

  $ 248,413     $ 238,545     $ 989,225     $ 921,987  

Cost of revenues

    150,893       145,090       568,338       525,995  

Gross profit

    97,520       93,455       420,887       395,992  

Operating expenses:

                               

Marketing and sales

    71,163       68,215       243,781       231,708  

Technology and development

    11,511       10,241       32,696       29,086  

General and administrative

    22,447       19,553       64,480       58,128  

Depreciation and amortization

    7,028       7,885       22,840       24,646  

Total operating expenses

    112,149       105,894       363,797       343,568  

Operating income (loss)

    (14,629 )     (12,439 )     57,090       52,424  

Interest (income) expense, net

    (30 )     662       2,390       2,919  

Other (income) expense, net

    (1,285 )     31       (293 )     (315 )

Income (loss) before income taxes

    (13,314 )     (13,132 )     54,993       49,820  

Income tax expense (benefit)

    (5,073 )     (4,669 )     11,922       806  

Net income (loss)

  $ (8,241 )   $ (8,463 )   $ 43,071     $ 49,014  
                                 

Basic net income (loss) per common share

  $ (0.13 )   $ (0.13 )   $ 0.67     $ 0.76  
                                 

Diluted net income (loss) per common share

  $ (0.13 )   $ (0.13 )   $ 0.65     $ 0.73  
                                 

Weighted average shares used in the calculation of net income (loss) per common share:

                               

Basic

    64,194       64,527       64,383       64,694  

Diluted

    64,194       64,527       66,456       66,949  

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 

Net income (loss)

  $ (8,241 )   $ (8,463 )   $ 43,071     $ 49,014  

Other comprehensive income (loss) (currency translation & other miscellaneous items)

    3       (38 )     (58 )     (11 )

Comprehensive income (loss)

  $ (8,238 )   $ (8,501 )   $ 43,013     $ 49,003  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

  

 

 

 

 1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

   

Three Months Ended March 31, 2019 and April 1, 2018

 
   

Common Stock

   

Additional

   

Retained

     Accumulated                    

Total

 
   

Class A

   

Class B

   

Paid-in

   

Earnings

   

Other

   

Treasury Stock

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

(Deficit)

   

Comprehensive Loss

   

Shares

   

Amount

   

Equity

 
                                                                                 

Balance at December 30, 2018

    52,749,203     $ 527       33,822,823     $ 338     $ 344,769     $ 125,071     $ (261 )     22,383,738     $ (114,371 )   $ 356,073  

Net income

    -       -       -       -       -       (8,241 )     -       -       -       (8,241 )

Translation adjustment

    -       -       -       -       -       -       3       -       -       3  

Stock-based compensation

    1,924       -       -       -       1,903       -       -       -       -       1,903  

Exercise of stock options

    180,000       1       -       -       563       -       -       -       -       564  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       105,355       (1,360 )     (1,360 )

Balance at March 31, 2019

    52,931,127     $ 528       33,822,823     $ 338     $ 347,235     $ 116,830     $ (258 )     22,489,093     $ (115,731 )   $ 348,942  
                                                                                 

Balance at December 31, 2017

    51,879,967     $ 519       33,847,063     $ 338     $ 339,805     $ 90,115     $ (160 )     21,157,054     $ (99,875 )   $ 330,742  

Net income

    -       -       -       -       -       (8,463 )     -       -       -       (8,463 )

Translation adjustment

    -       -       -       -       -               (38 )     -       -       (38 )

Stock-based compensation

    2,754       -       -       -       932       -       -       -       -       932  

Exercise of stock options

    30,000       -       -       -       164       -       -       -       -       164  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       93,192       (990 )     (990 )

Balance at April 1, 2018

    51,912,721     $ 519       33,847,063     $ 338     $ 340,901     $ 81,652     $ (198 )     21,250,246     $ (100,865 )   $ 322,347  

 

   

Nine Months Ended March 31, 2019 and April 1, 2018

 
   

Common Stock

   

Additional

   

Retained

     Accumulated                    

Total

 
   

Class A

   

Class B

   

Paid-in

   

Earnings

   

Other

   

Treasury Stock

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

(Deficit)

   

Comprehensive Loss

   

Shares

   

Amount

   

Equity

 
                                                                                 

Balance at July 1, 2018

    52,071,293     $ 520       33,822,823     $ 338     $ 341,783     $ 73,429     $ (200 )     21,258,790     $ (100,966 )   $ 314,904  

Net income

    -       -       -       -       -       43,071       -       -       -       43,071  

Translation adjustment

    -       -       -       -       -               (58 )     -       -       (58 )

Stock-based compensation

    411,600       4       -       -       4,527       -       -       -       -       4,531  

Exercise of stock options

    448,234       4       -       -       925       -       -       -       -       929  

Other

    -       -       -       -       -       330       -       -       -       330  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       1,230,303       (14,765 )     (14,765 )

Balance at March 31, 2019

    52,931,127     $ 528       33,822,823     $ 338     $ 347,235     $ 116,830     $ (258 )     22,489,093     $ (115,731 )   $ 348,942  
                                                                                 

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  

Net income

    -       -       -       -       -       49,014       -       -       -       49,014  

Translation adjustment

    -       -       -       -       -               (11 )     -       -       (11 )

Conversion of Class B stock into Class A stock

    54,540       1       (54,540 )     (1 )     -       -       -       -       -       -  

Stock-based compensation

    596,402       5       -       -       2,996       -       -       -       -       3,001  

Exercise of stock options

    34,000       -       -       -       179       -       -       -       -       179  

Acquisition of Class A treasury stock

    -       -       -       -       -       -       -       1,260,515       (12,075 )     (12,075 )

Balance at April 1, 2018

    51,912,721     $ 519       33,847,063     $ 338     $ 340,901     $ 81,652     $ (198 )     21,250,246     $ (100,865 )   $ 322,347  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

 
                 

Operating activities:

               

Net income

  $ 43,071     $ 49,014  

Reconciliation of net income to net cash provided by operating activities:

               

Depreciation and amortization

    22,840       24,646  

Amortization of deferred financing costs

    671       721  

Deferred income taxes

    811       (13,004 )

Bad debt expense

    1,018       906  

Stock-based compensation

    4,531       3,002  

Other non-cash items

    (301 )     249  

Changes in operating items:

               

Trade receivables

    (7,249 )     (9,347 )

Inventories

    14,448       6,956  

Prepaid and other

    2,675       (45 )

Accounts payable and accrued expenses

    14,741       1,453  

Other assets

    (349 )     (88 )

Other liabilities

    98       110  

Net cash provided by operating activities

    97,005       64,573  
                 

Investing activities:

               

Working capital adjustment related to sale of business

    -       (8,500 )

Capital expenditures, net of non-cash expenditures

    (16,845 )     (15,809 )

Net cash used in investing activities

    (16,845 )     (24,309 )
                 

Financing activities:

               

Acquisition of treasury stock

    (14,765 )     (12,075 )

Proceeds from exercise of employee stock options

    929       179  

Proceeds from bank borrowings

    30,000       30,000  

Repayment of bank borrowings

    (37,187 )     (35,031 )

Net cash used in financing activities

    (21,023 )     (16,927 )
                 

Net change in cash and cash equivalents

    59,137       23,337  

Cash and cash equivalents:

               

Beginning of period

    147,240       149,732  

End of period

  $ 206,377     $ 173,069  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

  

1-800-FLOWERS.COM, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

Note 1 – Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2018.

 

The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters compared to its fiscal first quarter. In fiscal 2018, Easter was on April 1st, which resulted in the shift of Easter-related revenue and EBITDA into the Company’s third quarter of fiscal 2018. The Easter holiday was on April 21st in 2019, which resulted in the shift of most Easter-related e-commerce and retail revenue and associated EBITDA, from the Company’s third quarter, to its fourth quarter.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition

 

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

 

A description of our principal revenue generating activities is as follows:

 

 

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

 

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

 

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer.

 

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed. 

  

Deferred revenues

 

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, but not shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.

 

Our total deferred revenue as of July 1, 2018 was $13.5 million (included in “Accrued expenses” on our consolidated balance sheets), of which, $0.9 million and $13.2 million was recognized as revenue during the three and nine months ended March 31, 2019, respectively. The deferred revenue balance as of March 31, 2019 was $23.9 million.

 

Recently Issued Accounting Pronouncements - Adopted

 

Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” amending revenue recognition guidance (“ASC 606”) and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company determined that the new standard impacted the following areas related to our e-commerce and retail/franchise revenue streams: the costs of producing and distributing the Company’s catalogs will be expensed upon mailing, instead of being capitalized and amortized in direct proportion to the actual sales; gift card breakage will be recognized over the expected customer redemption period, rather than when redemption is considered remote; e-commerce revenue will be recognized upon shipment, when control of the merchandise transfers to the customer, instead of upon receipt by the customer; initial and other franchise fees will be recognized over the franchise term (or remaining franchise term), rather than upon store opening (or renewal/transfer). The Company adopted this ASU effective July 2, 2018 for all revenue contracts with our customers using the modified retrospective approach and increased retained earnings by $0.3 million. The adjustment primarily related to the unredeemed portion of our gift cards (breakage income), which increased retained earnings and reduced accrued expenses by $1.9 million; partially offset by the change in accounting for the Company’s catalogs, which decreased retained earnings and decreased prepaid expense by $0.8 million; as well as a deferral of initial franchise fees, which decreased retained earnings and increased accrued expenses by $0.8 million.

 

The comparative information presented in this Form 10-Q has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing, annual basis. However, the adoption of the new revenue standard is expected to result in quarterly fluctuations, primarily as a result of the change in accounting for catalog costs, as noted above. During the three months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $1.6 million higher, thereby increasing our Net loss for the period by approximately $1.0 million (tax effected). During the nine months ended March 31, 2019, assuming we had not adopted the new revenue standard, “Marketing and sales” expense, within our statement of operations, would have been approximately $0.4 million lower, thereby increasing our Net income for the period by approximately $0.3 million (tax effected). The Company’s contract liabilities related to gift cards ($1.7 million as of March 31, 2019) are not considered material for purposes of this disclosure. Refer to Note 12 – Business Segments for disclosure of disaggregated revenues.

 

 

 

Financial Instruments – Recognition and Measurement. In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," as amended by ASU No. 2018-03, “Financial Instruments-Overall: Technical Corrections and Improvements,” issued in February 2018. The new guidance 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 (subject to an exemption for investments that have no readily determinable fair values), 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. Upon adoption of the new guidance, we have elected to measure the investments we hold in certain non-marketable equity securities in which we do not have a controlling interest or significant influence that have no readily determinable fair values at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. The Company adopted the guidance prospectively effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Statement of Cash Flows. In June 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force.” ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted the guidance restrospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Business Combinations – Definition of a Business. 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. The Company adopted the guidance prospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Nonfinancial Assets – Derecognition. 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. The Company adopted the guidance retrospectively, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Stock Compensation – Modification Accounting. 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. The Company adopted the guidance prospectively, to awards modified on or after the adoption date, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Cloud Computing Arrangements – Implementation Costs. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this ASU. The amendments in this Update also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element and also require the entity to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The Company adopted the guidance prospectively, to all implementation costs incurred after the date of adoption, effective July 2, 2018. The adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

Leases. 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 information 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 ASU, but expect that it will have a material impact on our consolidated financial statements, primarily the consolidated balance sheets and related disclosures.

 

Financial Instruments – Measurement of Credit Losses. 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 “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 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.

 

Goodwill – Impairment Test. 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 prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.

 

U.S. Tax Reform

 

On December 22, 2017, the U.S. government enacted significant changes to the U.S. tax law following the passage and signing of the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates from 35% to 21%. Since the Company’s fiscal year ends in June, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for fiscal year 2018, and 21% for subsequent fiscal years. The Tax Act also eliminated the domestic production activities deduction and introduced limitations on certain business expenses and executive compensation deductions.

 

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provided guidance on accounting for the Tax Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of the income tax effects of the Tax Act in the second quarter of fiscal 2019, with no adjustments recorded to the provisional amounts.

 

 

 

 

 

Note 2 – Net Income Per Common Share

 

The following table sets forth the computation of basic and diluted net income (loss) per common share:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
   

(in thousands, except per share data)

 

Numerator:

                               

Net income (loss)

  $ (8,241 )   $ (8,463

)

  $ 43,071     $ 49,014  
                                 

Denominator:

                               

Weighted average shares outstanding

    64,194       64,527       64,383       64,694  

Effect of dilutive securities:

                               

Employee stock options

    -       -       1,444       1,564  

Employee restricted stock awards

    -       -       629       691  
      -       -       2,073       2,255  
                                 

Adjusted weighted-average shares and assumed conversions

    64,194       64,527       66,456       66,949  
                                 

Net income (loss) per common share

                               

Basic

  $ (0.13

)

  $ (0.13

)

  $ 0.67     $ 0.76  

Diluted

  $ (0.13

)

  $ (0.13

)

  $ 0.65     $ 0.73  

 

 

Note 3 – Stock-Based Compensation

 

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2018, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.

 

The amounts of stock-based compensation expense recognized in the periods presented are as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
   

(in thousands)

   

(in thousands)

 

Stock options

  $ 67     $ 108     $ 250     $ 323  

Restricted stock

    1,836       825       4,281       2,679  

Total

    1,903       933       4,531       3,002  

Deferred income tax benefit

    328       254       982       846  

Stock-based compensation expense, net

  $ 1,575     $ 679     $ 3,549     $ 2,156  

 

 Stock-based compensation is recorded within the following line items of operating expenses:

 

   

Three Months Ended

   

Six Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
   

(in thousands)

   

(in thousands)

 

Marketing and sales

  $ 830     $ 248     $ 1,816     $ 804  

Technology and development

    118       49       274       160  

General and administrative

    955       636       2,441       2,038  

Total

  $ 1,903     $ 933     $ 4,531     $ 3,002  

 

Stock based compensation expense has not been allocated between business segments, but is reflected as part of Corporate overhead. (see Note 12 - Business Segments.)

 

Stock Options

 

The following table summarizes stock option activity during the nine months ended March 31, 2019:

 

   

 

 

Options

   

Weighted Average

Exercise Price

   

Weighted Average Remaining Contractual Term (years)

   

Aggregate Intrinsic Value (000s)

 
                                 

Outstanding at July 1, 2018

    1,968,234     $ 2.35                  

Granted

    -     $ -                  

Exercised

    (448,234

)

  $ 2.12                  

Forfeited

    (2,000 )   $ 2.22                  

Outstanding at March 31, 2019

    1,518,000     $ 2.42       2.3     $ 24,004  
                                 

Exercisable at March 31, 2019

    1,385,000     $ 2.36       2.2     $ 21,976  

 

As of March 31, 2019, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $0.2 million and the weighted average period over which these awards are expected to be recognized was 0.6 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 and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended March 31, 2019:

 

   

 

Shares

   

Weighted Average Grant Date Fair Value

 
                 

Non-vested at July 1, 2018

    968,273     $ 7.70  

Granted

    937,313     $ 12.70  

Vested

    (411,600

)

  $ 7.91  

Forfeited

    (24,037

)

  $ 9.62  

Non-vested at March 31, 2019

    1,469,949     $ 10.80  

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of March 31, 2019, there was $11.6 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 2.2 years.

 

 

Note 4 – Disposition

 

On March 15, 2017, the Company and Ferrero International S.A., a Luxembourg corporation (“Ferrero”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) 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 a total consideration of $115.0 million in cash, subject to adjustment for seasonal working capital. On May 30, 2017, the Company closed on the transaction, and the working capital adjustment was finalized in August 2017, resulting in an $8.5 million payment to Ferrero during the first quarter of fiscal 2018. The associated gain of $14.6 million was included within “Other (income) expense, net” in the fourth quarter of fiscal 2017.

 

The Company and Ferrero also entered into a transition services agreement, as amended, whereby the Company will provide certain post-closing services to Ferrero and Fannie May for a period of approximately 20 months, related to the business of Fannie May, and a commercial agreement with respect to the distribution of certain Ferrero and Fannie May products.  

  

 

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 manufactured products and associated manufacturing labor and is classified as follows:

 

   

March 31, 2019

   

July 1, 2018

 
   

(in thousands)

 
                 

Finished goods

  $ 31,947     $ 33,930  

Work-in-process

    10,418       17,575  

Raw materials

    32,012       37,320  

Total inventory

  $ 74,377     $ 88,825  

 

 

 

Note 6 – Goodwill and Intangible Assets

 

The following table presents goodwill by segment and the related change in the net carrying amount:

 

   

1-800-Flowers.com Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets

   

Total

 
   

(in thousands)

 

Balance at March 31, 2019 and July 1, 2018

  $ 17,441     $ -     $ 45,149     $ 62,590  

  

The Company’s other intangible assets consist of the following:

 

           

March 31, 2019

   

July 1, 2018

 
   

Amortization Period

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

 
   

(in years)

                                                 

Intangible assets with determinable lives

                                                       
                                                         

Investment in licenses

    14-16     $ 7,420     $ 6,121     $ 1,299     $ 7,420     $ 6,042     $ 1,378  

Customer lists

    3-10       12,184       9,703       2,481       12,184       9,354       2,830  

Other

    5-14       2,946       2,255       691       2,946       2,172       774  

Total intangible assets with determinable lives

            22,550       18,079       4,471       22,550       17,568       4,982  
                                                         

Trademarks with indefinite lives

            55,291       -       55,291       54,841       -       54,841  
                                                         

Total identifiable intangible assets

          $ 77,841     $ 18,079     $ 59,762     $ 77,391     $ 17,568     $ 59,823  

 

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2019 - $0.2 million, fiscal 2020 - $0.6 million, fiscal 2021 - $0.6 million, fiscal 2022 - $0.5 million, fiscal 2023 - $0.5 million and thereafter - $2.1 million.

 

 

 

 

Note 7 – Investments

 

Equity investments accounted for under the equity method 

 

The Company has certain investments in non-marketable equity instruments of private companies. The Company accounts for these investments using the equity method if they provide the Company the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate. The Company records equity method investments initially at cost and adjusts the carrying amount to reflect the Company’s share of the earnings or losses of the investee.

 

The Company’s equity method investment is comprised of an interest in Flores Online S.A. ("Flores Online"), a Sao Paulo, Brazil-based internet floral and gift retailer, that the Company originally acquired on May 31, 2012. The Company currently holds 24.9% of the outstanding shares of Flores Online. The book value of this investment was $0.5 million as of March 31, 2019 and $0.6 million as of July 1, 2018, 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 the three and nine months ended March 31, 2019 and April 1, 2018, respectively, was less than $0.1 million. During the quarter ended December 31, 2017, Flores Online entered into a share exchange agreement with Isabela Flores Intermediações Ltda. ("Isabela Flores"), whereby among other changes, the Company exchanged 5% of its interest in Flores Online for a 5% interest in Isabela Flores. This new investment of approximately $0.1 million is currently being accounted for as an equity investment without a readily determinable fair value (see below). In conjunction with this share exchange, 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 result, the Company recorded an impairment charge of $0.2 million, which is included within “Other (income) expense, net” in the Company’s consolidated statement of income during the quarter ended December 31, 2017.

 

Equity investments without a readily determinable fair value

 

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $1.7 million as of March 31, 2019 and July 1, 2018. 

 

Equity investments with a readily determinable fair value

 

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 within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).

 

 

Note 8 –Debt

 

The Company’s current and long-term debt consists of the following:

 

   

March 31, 2019

   

July 1, 2018

 
   

(in thousands)

 
                 

Revolver (1)

  $ -     $ -  

Term Loan (1)

    97,750       104,938  

Deferred financing costs

    (1,936

)

    (2,608

)

Total debt

    95,814       102,330  

Less: current debt

    12,219       10,063  

Long-term debt

  $ 83,595     $ 92,267  

 

(1) On December 23, 2016, the Company entered into an Amended and Restated Credit Agreement (the “2016 Amended Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2016 Amended Credit Agreement amended and restated the Company’s credit agreement dated 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 March 31, 2019. The 2016 Amended Credit Agreement is secured by substantially all of the assets of the Company and the subsidiary guarantors, named therein.

 

Future principal payments under the Term Loan are as follows: $2.9 million – fiscal 2019, $12.9 million – fiscal 2020, $15.8 million - fiscal 2021, and $66.1 million – fiscal 2022.

  

 

 

 

 

Note 9 - Property, Plant and Equipment

 

The Company’s property, plant and equipment consists of the following:

 

   

March 31, 2019

   

July 1, 2018

 
   

(in thousands)

 
                 

Land

  $ 30,789     $ 30,789  

Orchards in production and land improvements

    11,312       10,962  

Building and building improvements

    59,115       58,450  

Leasehold improvements

    13,430       12,997  

Production equipment and furniture and fixtures

    57,915       53,066  

Computer and telecommunication equipment

    50,042       46,925  

Software

    125,927       115,944  

Capital projects in progress - orchards

    8,222       10,789  

Property, plant and equipment, gross

    356,752       339,922  

Accumulated depreciation and amortization

    (198,562 )     (176,582 )

Property, plant and equipment, net

  $ 158,190     $ 163,340  

 

 

Note 10 - Fair Value Measurements

 

Cash and cash equivalents, trade and other receivables, prepaids, 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 observable data for substantially the full term of the assets or liabilities.

 

 

Level 3

  

Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis:

 

   

 

Carrying Value

   

Fair Value Measurements

Assets (Liabilities)

 
           

Level 1

   

Level 2

   

Level 3

 
   

(in thousands)

 

Assets (liabilities) as of March 31, 2019:

                               

Trading securities held in a “rabbi trust” (1)

  $ 11,338     $ 11,338     $ -     $ -  
    $ 11,338     $ 11,338     $ -     $ -  
                                 

Assets (liabilities) as of July 1, 2018:

                               

Trading securities held in a “rabbi trust” (1)

  $ 9,368     $ 9,368     $ -     $ -  
    $ 9,368     $ 9,368     $ -     $ -  

 

 

(1)

The Company has established an NQDC 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

 

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate for the three and nine months ended March 31, 2019 was 38.1% and 21.7% respectively, compared to 35.6% and 1.6% in the same periods of the prior year. The effective rates for fiscal 2019 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various permanent differences and tax credits, including increased excess tax benefits from stock-based compensation. The effective rates for fiscal 2018 differed from the transitional U.S. federal tax rate of 28.0% due to a tax benefit of $12.2 million, or $0.18 per diluted share, recognized during the second quarter of fiscal 2018, reflecting a revaluation of deferred tax liabilities at the lower U.S. federal statutory rate of 21% as a result of the Tax Act (see Note 1 – Accounting Policies above), and various permanent differences, tax credits, and return to provision adjustments related to the filing of the Company’s fiscal 2017 tax return, partially offset by state income taxes.

 

 

 

 

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal 2016, however, fiscal years 2015, 2017, and 2018 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 2015. The Company's foreign income tax filings from fiscal 2014 are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, 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 March 31, 2019, the Company has an unrecognized tax benefit, including an immaterial amount of accrued interest and penalties, of approximately $0.6 million. The Company believes that $0.1 million of unrecognized tax positions will be resolved over the next twelve months.

 

 

Note 12 – Business Segments

 

The Company’s management reviews the results of its operations by the following three business segments:

 

•     1-800-Flowers.com Consumer Floral,

•     BloomNet Wire Service, and

•     Gourmet Food & 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 profitability 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, both of which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

 

   

Three Months Ended

   

Nine Months Ended

 

Net Revenues:

 

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
           

(in thousands)

         

Segment Net Revenues:

                               

1-800-Flowers.com Consumer Floral

  $ 144,821     $ 135,782     $ 338,003     $ 312,456  

BloomNet Wire Service

    28,185       24,498       75,613       64,637  

Gourmet Food & Gift Baskets

    75,445       78,458       575,966       545,408  

Corporate

    263       264       845       851  

Intercompany eliminations

    (301

)

    (457

)

    (1,202

)

    (1,365

)

Total net revenues

  $ 248,413     $ 238,545     $ 989,225     $ 921,987  

 

 

   

Three Months Ended

   

Nine Months Ended

 

Operating Income (Loss):

 

March 31, 2019

   

April 1, 2018

   

March 31, 2019

   

April 1, 2018

 
           

(in thousands)

         

Segment Contribution Margin:

                               

1-800-Flowers.com Consumer Floral

  $ 15,364     $ 16,226     $ 32,667     $ 33,988  

BloomNet Wire Service

    9,480       8,439       25,375       22,832  

Gourmet Food & Gift Baskets

    (7,202 )     (8,811 )     89,191       79,698  

Segment Contribution Margin Subtotal

    17,642       15,854       147,233       136,518  

Corporate (a)

    (25,243

)

    (20,408

)

    (67,303

)

    (59,448

)

Depreciation and amortization

    (7,028

)

    (7,885

)

    (22,840

)

    (24,646

)

Operating income (loss)

  $ (14,629 )   $ (12,439 )   $ 57,090     $ 52,424  

 

(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.

 

 

 

 

The following tables represent a disaggregation of revenue from contracts with customers, by channel:

 

   

Three Months Ended

   

Three Months Ended

 
   

March 31, 2019

   

April 1, 2018

 
   

Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food and Gift Baskets

   

Consolidated

   

Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food and Gift Baskets

   

Consolidated

 

Net revenues

                                                               

E-commerce

  $ 142,552     $ -     $ 61,810     $ 204,362     $ 133,442     $ -     $ 63,422     $ 196,864  

Retail

    1,189       -       5,727       6,916       1,272       -       6,326       7,598  

Wholesale

    -       9,321       7,908       17,229       -       8,838       8,710       17,548  

BloomNet services

    -       18,864       -       18,864       -       15,660       -       15,660  

Other

    1,080       -       -       1,080       1,068       -       -       1,068  

Corporate

    -       -       -       263       -       -       -       264  

Eliminations

    -       -       -       (301 )     -       -       -       (457 )

Net revenues

  $ 144,821     $ 28,185     $ 75,445     $ 248,413     $ 135,782     $ 24,498     $ 78,458     $ 238,545  

 

   

Nine Months Ended

   

Nine Months Ended

 
   

March 31, 2019

   

April 1, 2018

 
   

Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food and Gift Baskets

   

Consolidated

   

Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food and Gift Baskets

   

Consolidated

 

Net revenues

                                                               

E-commerce

  $ 332,302     $ -     $ 448,581     $ 780,883     $ 306,479     $ -     $ 423,289     $ 729,768  

Retail

    3,113       -       38,477       41,590       3,199       -       39,270       42,469  

Wholesale

    -       23,247       88,908       112,155       -       22,204       82,849       105,053  

Bloomnet services

    -       52,366       -       52,366       -       42,433       -       42,433  

Other

    2,588       -       -       2,588       2,778       -       -       2,778  

Corporate

    -       -       -       845       -       -       -       851  

Eliminations

    -       -       -       (1,202 )     -       -       -       (1,365 )

Net revenues

  $ 338,003     $ 75,613     $ 575,966     $ 989,225     $ 312,456     $ 64,637     $ 545,408     $ 921,987  

 

 

Note 13 – Commitments and Contingencies

 

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

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company’s Annual Report on Form 10-K, for the year ended July 1, 2018. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information and Factors That May Affect Future Results” and under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended July 1, 2018 under the heading “Risk Factors.”

 

Overview

 

1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts designed to help customers express, connect and celebrate. For more than 40 years, 1-800-Flowers.com® has been delivering smiles to customers with gifts for every occasion, including fresh flowers and the best selection of plants, gift baskets, gourmet foods, confections, jewelry, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee® backs every gift. The Company’s Celebrations Ecosystem includes the following brands: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, FruitBouquets.com®, Harry & David®, Moose Munch®, The Popcorn Factory®, Wolferman’s®, Personalization Universe®, Simply Chocolate®, GoodseySM, DesignPac®, and Stock Yards®. Through the Celebrations Passport® loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, 1-800-FLOWERS.COM, Inc. strives to deepen its relationships with its customers. The Company also operates BloomNet®, an international floral wire service providing a broad-range of products and services designed to help professional florists grow their businesses profitably, as well as NapcoSM, a resource for floral gifts and seasonal décor. 1-800-FLOWERS.COM, Inc. received the Gold award in the “Mobile Payments and Commerce” category at the Mobile Marketing Association 2018 Global Smarties Awards. In addition, Harry & David was named to the Internet Retailer 2019 “The Hot 100” list. Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.

 

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our Annual Report on Form 10-K for the year ended July 1, 2018.

 

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 definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as “adjusted" or “on a comparable basis” below.

  

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 the impact of stock-based compensation, Non-Qualified Plan Investment appreciation/depreciation, and for certain items affecting period to period comparability. See Segment Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.

 

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 companies. 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 interest coverage and debt incurrence. 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 amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and EBITDA does not reflect any cash requirements for such capital expenditures. EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

 

Segment contribution margin

We define segment contribution margin as earnings before interest, taxes, depreciation and amortization, before the allocation of corporate overhead expenses. See Segment Information for details on how segment contribution margin was calculated for each period presented.

 

When viewed together with our GAAP results, we believe segment contribution margin provides management and users of the financial statements meaningful information about the performance of our business segments.

 

Segment 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 segment 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 compensates 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. See Segment Information below for details on how adjusted net income and adjusted net income per common share were calculated for each period presented.

 

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 calculated 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.

 

 

 

 

Segment Information

 

The following table presents the net revenues, gross profit and segment contribution margin from each of the Company’s business segments, as well as consolidated EBITDA, adjusted EBITDA and adjusted net income.

 

   

Three Months Ended

 
   

March 31, 2019

   

April 1, 2018

   

% Change

 
                         

Net revenues:

                       

1-800-Flowers.com Consumer Floral

  $ 144,821     $ 135,782       6.7 %

BloomNet Wire Service

    28,185       24,498       15.1 %

Gourmet Food & Gift Baskets

    75,445       78,458       (3.8% )

Corporate

    263       264       (0.4% )

Intercompany eliminations

    (301 )     (457 )     34.1 %

Total net revenues

  $ 248,413     $ 238,545       4.1 %
                         

Gross profit:

                       

1-800-Flowers.com Consumer Floral

  $ 56,334     $ 53,744       4.8 %
      38.9 %     39.6 %        
                         

BloomNet Wire Service

    14,071       12,931       8.8 %
      49.9 %     52.8 %        
                         

Gourmet Food & Gift Baskets

    26,848       26,532       1.2 %
      35.6 %     33.8 %        
                         

Corporate

    267       248       7.7 %
      101.5 %     93.9 %        
                         

Total gross profit

  $ 97,520     $ 93,455       4.3 %
      39.3 %     39.2 %        
                         

EBITDA (non-GAAP)

                       

Segment Contribution Margin (non-GAAP) (a):

                       

1-800-Flowers.com Consumer Floral

  $ 15,364     $ 16,226       (5.3% )

BloomNet Wire Service

    9,480       8,439       12.3 %

Gourmet Food & Gift Baskets

    (7,202 )     (8,811 )     18.3 %

Segment Contribution Margin Subtotal

    17,642       15,854       11.3 %

Corporate (b)

    (25,243 )     (20,408 )     (23.7% )

EBITDA (non-GAAP)

    (7,601 )     (4,554 )     (66.9% )
                         

Add: Stock-based compensation

    1,903       933       104.0 %

Add: Compensation charge related to NQDC Plan investment appreciation

    1,294       30       4,213.3 %

Adjusted EBITDA (non-GAAP)

  $ (4,404 )   $ (3,591 )     (22.8% )

 

 

 

 

   

Nine Months Ended

 
   

March 31, 2019