|
| Item 9B. OTHER INFORMATION |
None. PART III
| | Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information set forth in the Proxy Statement for the 2010 annual meeting of stockholders is incorporated herein by reference.
The Company maintains a Code of Ethics, which is applicable to all directors, officers and employees on the Investor Relations-Corporate Governance tab of the Company’s website at www.1800flowers.com. Any amendment or waiver to the Code of Ethics that applies to our directors or executive officers will be posted on our website or in a report filed with the SEC on Form 8-K.The information to be set forth in the Proxy Statement for the 2011 annual meeting of stockholders is incorporated herein by reference.
The Company maintains a Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees on the Investor Relations-Corporate Governance tab of the Company’s website at www.1800flowers.com. Any amendment or waiver to the Code of Business Conduct and Ethics that applies to our directors or executive officers will be posted on our website or in a report filed with the SEC on Form 8-K to the extent required by applicable law or the regulations of any exchange applicable to the Company. A copy of the Code of Business Conduct and Ethics is available without charge upon written request to: Investor Relations, 1-800-FLOWERS.COM, Inc., One Old Country Road, Suite 500, Carle Place, New York 11514.
| | Item 11. EXECUTIVE COMPENSATION |
|
The information set forth in the Proxy Statement for the 2010The information to be set forth in the Proxy Statement for the 2011 Annual Meeting of Stockholders is incorporated herein by reference.
| | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information set forth in the Proxy Statement for the 2010The information to be set forth in the Proxy Statement for the 2011 Annual Meeting of Stockholders is incorporated herein by reference.
| | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information set forth in the Proxy Statement for the 2010The information to be set forth in the Proxy Statement for the 2011 Annual Meeting of Stockholders is incorporated herein by reference.
| | Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information to be set forth in the Proxy Statement for the 2011 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The information set forth in the Proxy Statement for the 2010 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Index to Consolidated Financial Statements: | | | | | Page | Report of Independent Registered Public Accounting Firm | F-1 | Consolidated Balance Sheets as of July 3, 2011 and June 27, 2010 | F-2 | Consolidated Statements of Operations for the years ended July 3, 2011, June 27, 2010 and June 28, 2009 | F-3 | Consolidated Statements of Stockholders’ Equity for the years ended July 3, 2011, June 27, 2010 and June 28, 2009 | F-4 | Consolidated Statements of Cash Flows for the years ended July 3, 2011, June 27, 2010 and June 28, 2009 | F-5 | Notes to Consolidated Financial Statements | F-6 | | | (a) (2) Index to Financial Statement Schedules: | | | | Schedule II- Valuation and Qualifying Accounts | S-1 | | | All other information and financial statement schedules are omitted because they are not applicable, or required, or | | because the required information is included in the consolidated financial statements or notes thereto. | | | | (a) (3) Index to Exhibits | |
(a) (1) Index Exhibits marked with an asterisk (*) are incorporated by reference to Consolidated Financial Statements:exhibits or appendices previously filed with the Securities and Exchange Commission, as indicated by the reference in brackets. All other exhibits are filed herewith. Exhibits 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.13, 10.14, 10.15 10.16 and 10.17 are management contracts or compensatory plans or arrangements.
| Exhibit | | Description | | | | | *3.1 | | Third Amended and Restated Certificate of Incorporation. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 3.1) | | *3.2 | | Amendment No. 1 to Third Amended and Restated Certificate of Incorporation. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 22, 1999, Exhibit 3.2) | | *3.3 | | Amended and Restated By-laws. (Registration Statement on Form S-1 (No 333-78985) filed on May 21, 1999, Exhibit 3.3) | | *4.1 | | Specimen Class A common stock certificate. (Registration Statement on Form S-1/A (No. 333-78985 filed on July 9, 1999, Exhibit 4.1) | | *4.2 | | See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of Incorporation and By-laws of the Registrant defining the rights of holders of Common Stock of the Registrant. | | *10.3 | | 1997 Stock Option Plan, as amended. (Registration Statement on Form S-1 (No. 333-78985) filed on May 21, 1999, Exhibit 10.10) | | *10.4 | | 1999 Stock Incentive Plan. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 27, 1999, Exhibit 10.18) | | *10.5 | | Employment Agreement, effective as of July 1, 1999, between James F. McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 10.19) | | *10.6 | | Amendment dated December 3, 2008 to Employment Agreement between James F. McCann and 1-800-FLOWERS.COM, Inc. (Quarterly Report on Form 10-Q filed on February 6, 2009, Exhibit 10.1) | | *10.7 | | Employment Agreement, effective as of July 1, 1999, between Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 10.20) | | *10.8 | | Amendment dated December 3, 2008 to Employment Agreement between Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (Quarterly Report on Form 10-Q filed on February 6, 2009, Exhibit 10.2) | | *10.9 | | 2003 Long Term Incentive and Share Award Plan, as amended and restated on October 22, 2009. (Definitive Proxy Statement filed on October 23, 2009 (No. 000-26841), Annex A) | | *10.10 | | Section 16 Executive Officer’s Bonus Plan (as amended and restated as of October 22, 2009) (Definitive Proxy filed on October 23, 2009 (No. 000-26841), Annex B) | | *10.11 | | Employment Agreement, dated as of May 2, 2006, by and among 1-800-FLOWERS.COM, Inc., Fannie May Confections Brands, Inc. and David Taiclet. (Annual Report on Form 10-K for the fiscal year ended July 3, 2005 filed on September 15, 2006, Exhibit 10.8) | | *10.12 | | Lease, dated May 20, 2005, between Treeline Mineola, LLC and 1-800-FLOWERS.COM, Inc. (Annual Report on Form 10-K for the fiscal year ended July 3, 2005 filed on September 15, 2005, Exhibit 10.26) | | *10.13 | | Offer letter to Julie McCann Mulligan (Annual Report on Form 10-K for the fiscal year ended June 28, 2009 filed on September 11, 2009, Exhibit 10.12) | | *10.14 | | Offer letter to Stephen Bozzo (Quarterly Report on Form 10-Q filed on November 8, 2007, Exhibit 10.4). | | *10.15 | | Form of Restricted Share Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.15) | | *10.16 | | Form of Incentive Stock Option Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.16) | | *10.17 | | Form of Non-statutory Stock Option Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.17) | | *10.18 | | Second Amended and Restated Credit Agreement dated as of April 16, 2010 among 1-800-Flowers.com, Inc, The Subsidiary Borrowers Party hereto, The Guarantors Party hereto, The Lenders Party hereto and J.P. Morgan Chase Bank, N.A., as Administrative Agent. (Current Report on Form 8-K filed on April 23, 2010, Exhibit 99.2) | | 21.1 | | Subsidiaries of the Registrant. | | 23.1 | | Consent of Independent Registered Public Accounting Firm. | | 31.1 | | Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 31.2 | | Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 32.1 | | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: September 16, 2011 | 1-800-FLOWERS.COM, Inc. By: /s/ James F. McCann James F. McCann Chief Executive Officer Chairman of the Board of Directors (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below:
Dated: September 16, 2011 | By: /s/ James F. McCann James F. McCann Chief Executive Officer Chairman of the Board of Directors (Principal Executive Officer) | | Dated: September 16, 2011 | By: /s/ William E. Shea William E. Shea Senior Vice President Finance and Administration (Principal Financial and Accounting Officer) | | |
Dated: September 16, 2011 | By: h/s/ Christopher G. McCann Christopher G. McCann Director, President | | Dated: September 16, 2011 | By: /s/ Lawrence Calcano Lawrence Calcano Director | | Dated: September 16, 2011 | By: /s/ James A. Cannavino James A. Cannavino Director | | Dated: September 16, 2011 | By: /s/ John J. Conefry, Jr. John J. Conefry, Jr. Director | | Dated: September 16, 2011 | By: /s/ Leonard J. Elmore Leonard J. Elmore Director | | Dated: September 16, 2011 | By: /s/ Jeffrey C. Walker Jeffrey C. Walker Director | | Dated: September 16, 2011 | By: /s/ Larry Zarin Larry Zarin Director | | | Page | |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Stockholders of 1-800-FLOWERS.COM, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) as of July 3, 2011 and June 27, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended July 3, 2011. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 1-800-FLOWERS.COM, Inc. and Subsidiaries at July 3, 2011 and June 27, 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 3, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 4 to the consolidated financial statements, the Company adopted the guidance issued in Finanacial Accounting Standards Board ("FASB") Statement No. 141(R), "Business Combinations" (codified in FASB Accounting Standards Codification Topic 805, "Business Combinations") on June 29, 2009. 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 3, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 16, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Jericho, New York September 16, 2011
|
1-800-FLOWERS.COM, Inc. and Subsidiaries Consolidated Balance Sheets as (in thousands, except share data)
| | | July 3, 2011 | | | June 27, 2010 | | | | | | | | | | | Assets | | | | | | | | Current assets: | | | | | | | Cash and equivalents | | $ | 21,442 | | | $ | 27,843 | | Receivables, net | | | 15,278 | | | | 13,943 | | Inventories | | | 51,314 | | | | 45,121 | | Deferred tax assets | | | 5,416 | | | | 5,109 | | Prepaid and other | | | 7,375 | | | | 5,662 | | Total current assets | | | 100,825 | | | | 97,678 | | | Property, plant and equipment, net | | | 50,354 | | | | 51,324 | | | Goodwill | | | 41,547 | | | | 41,211 | | | Other intangibles, net | | | 41,808 | | | | 41,042 | | | Deferred tax assets | | | 17,181 | | | | 19,265 | | | Other assets | | | 5,236 | | | | 5,566 | | | Total assets | | $ | 256,951 | | | $ | 256,086 | | | | | | | | | | | | Liabilities and Stockholders' Equity | | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable and accrued expenses | | $ | 66,559 | | | $ | 59,914 | | Current maturities of long-term debt and obligations under capital leases | | | 16,488 | | | | 14,801 | | Total current liabilities | | | 83,047 | | | | 74,715 | | | Long-term debt and obligations under capital leases | | | 29,250 | | | | 45,707 | | | Other liabilities | | | 2,993 | | | | 3,038 | | | Total liabilities | | | 115,290 | | | | 123,460 | | | | | | | | | | | | | Stockholders' equity: | | | | | | | | | | Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | | | – | | | | – | | Class A common stock, $.01 par value, 200,000,000 shares authorized, 32,987,313 and 32,492,266 shares issued in 2011 and 2010, respectively | | | 330 | | | | 325 | | Class B common stock, $.01 par value, 200,000,000 shares authorized, 42,138,465 shares issued in 2011 and 2010 | | | 421 | | | | 421 | | | Accumulated other comprehensive loss | | | (158 | ) | | | (334 | ) | Additional paid-in capital | | | 289,101 | | | | 285,515 | | Retained deficit | | | (114,755 | ) | | | (120,477 | ) | Treasury stock, at cost, 5,633,253 and 5,465,046 Class A shares in 2011 and 2010, respectively, and 5,280,000 Class B shares | | | (33,278 | ) | | | (32,824 | ) | Total stockholders' equity | | | 141,661 | | | | 132,626 | | | Total liabilities and stockholders' equity | | $ | 256,951 | | | $ | 256,086 | | | | | | | | | | | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share data)
| | | Years ended | | | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | | | | Net revenues | | $ | 689,787 | | | $ | 667,710 | | | $ | 713,950 | | | Cost of revenues | | | 409,703 | | | | 401,908 | | | | 432,744 | | | Gross profit | | | 280,084 | | | | 265,802 | | | | 281,206 | | | Operating expenses: | | | | | | | | | | | | | Marketing and sales | | | 174,758 | | | | 172,640 | | | | 175,839 | | Technology and development | | | 20,424 | | | | 17,952 | | | | 21,000 | | General and administrative | | | 50,774 | | | | 50,450 | | | | 50,451 | | Depreciation and amortization | | | 20,715 | | | | 21,378 | | | | 21,010 | | Goodwill and intangible impairment | | | - | | | | - | | | | 85,438 | | Total operating expenses | | | 266,671 | | | | 262,420 | | | | 353,738 | | | Operating income (loss) | | | 13,413 | | | | 3,382 | | | | (72,532 | ) | | Other income (expense): | | | | | | | | | | | | | Interest income | | | 123 | | | | 159 | | | | 314 | | Interest expense | | | (4,200 | ) | | | (5,571 | ) | | | (6,364 | ) | | Deferred financing cost write-off | | | - | | | | (340 | ) | | | (3,245 | ) | | | | | | | | | | | | | | | Total other income (expense), net | | | (4,077 | ) | | | (5,752 | ) | | | (9,295 | ) | | Income (loss) from continuing operations before income taxes | | | 9,336 | | | | (2,370 | ) | | | (81,827 | ) | | Income tax expense (benefit) from continuing operations | | | 3,614 | | | | (282 | ) | | | (15,326 | ) | | Income (loss) from continuing operations | | | 5,722 | | | | (2,088 | ) | | | (66,501 | ) | | Loss from discontinued operations before income taxes | | | - | | | | (1,723 | ) | | | (39,754 | ) | | (including losses on disposal of $5.2 million and $14.7 million during the years ended June 27, 2010 and June 28, 2009, respectively, and impairment charges of $20.0 million during the year ended June 27, 2009) | | | | | | | | | | | | | | Income tax expense (benefit) from discontinued operations | | | - | | | | 410 | | | | (7,838 | ) | | Loss from discontinued operations | | | - | | | | (2,133 | ) | | | (31,916 | ) | | Net income (loss) | | $ | 5,722 | | | $ | (4,221 | ) | | $ | (98,417 | ) | | | | | | | | | | | | | | | | Basic and diluted net income (loss) per common share: | | | | | | | | | | | | | | From continuing operations | | $ | 0.09 | | | $ | (0.03 | ) | | $ | (1.05 | ) | | From discontinued operations | | | - | | | | (0.03 | ) | | | (0.50 | ) | | Net income (loss) per common share | | $ | 0.09 | | | $ | (0.07 | ) | | $ | (1.55 | ) | | | | | | | | | | | | | | | Weighted average shares used in the calculation of net income (loss) per common share: | | | | | | | | | | | | | | Basic | | | 64,001 | | | | 63,635 | | | | 63,565 | | | Diluted | | | 65,153 | | | | 63,635 | | | | 63,565 | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Years ended July 3, 2011, June 27, 2010 and June 28, 2009 | F-2 | Consolidated Statements of Operations for the years ended June 27, 2010, June 28, 2009(in thousands, except share data) | | | | | | | | | | | | Accumulated | | | | | | | | | | | Common Stock | | | Additional | | | | | | Other | | | | | | | | | | | Class A | | | Class B | | | Paid-in | | | Retained | | | Comprehensive | | | Treasury Stock | | | Stockholders’ | | | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Loss | | | Shares | | | Amount | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at June 29, 2008 | | | 31,368,241 | | | $ | 314 | | | | 42,138,465 | | | $ | 421 | | | $ | 279,718 | | | $ | (17,839 | ) | | | - | | | | 10,004,326 | | | $ | (31,149 | ) | | $ | 231,465 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (98,417 | ) | | | - | | | | - | | | | - | | | | (98,417 | ) | Exercise of employee stock options and vesting of restricted stock and stock based compensation | | | 362,163 | | | | 3 | | | | - | | | | - | | | | 1,835 | | | | - | | | | - | | | | - | | | | - | | | | 1,838 | | Deferred tax shortfall from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | (306 | ) | | | - | | | | - | | | | - | | | | - | | | | (306 | ) | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 397,899 | | | | (797 | ) | | | (797 | ) | | Balance at June 28, 2009 | | | 31,730,404 | | | | 317 | | | | 42,138,465 | | | | 421 | | | | 281,247 | | | | (116,256 | ) | | | - | | | | 10,402,225 | | | | (31,946 | ) | | | 133,783 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,221 | ) | | | - | | | | - | | | | - | | | | (4,221 | ) | | Change in value of cash flow hedge | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (334 | ) | | | - | | | | - | | | | (334 | ) | | Comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,555 | ) | Vesting of restricted stock and stock-based compensation | | | 761,862 | | | | 8 | | | | - | | | | - | | | | 4,635 | | | | - | | | | - | | | | - | | | | - | | | | 4,643 | | | Deferred tax shortfall from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | (367 | ) | | | - | | | | - | | | | - | | | | - | | | | (367 | ) | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 342,821 | | | | (878 | ) | | | (878 | ) | | Balance at June 27, 2010 | | | 32,492,266 | | | $ | 325 | | | | 42,138,465 | | | $ | 421 | | | $ | 285,515 | | | $ | (120,477 | ) | | $ | (334 | ) | | | 10,745,046 | | | $ | (32,824 | ) | | $ | 132,626 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,722 | | | | - | | | | - | | | | - | | | | 5,722 | | | Change in value of cash flow hedge | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 176 | | | | - | | | | - | | | | 176 | | | Comprehensive Income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,898 | | Exercise of employee stock options and vesting of restricted stock and stock-based compensation | | | 495,047 | | | | 5 | | | | - | | | | - | | | | 4,005 | | | | - | | | | - | | | | - | | | | - | | | | 4,010 | | | Deferred tax shortfall from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | (419 | ) | | | - | | | | - | | | | - | | | | - | | | | (419 | ) | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 168,207 | | | | (454 | ) | | | (454 | ) | | Balance at July 3, 2011 | | | 32,987,313 | | | $ | 330 | | | | 42,138,465 | | | $ | 421 | | | $ | 289,101 | | | $ | (114,755 | ) | | $ | (158 | ) | | | 10,913,253 | | | $ | (33,278 | ) | | $ | 141,661 | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and June 29, 2008 | F-3 | Consolidated Statements of Stockholders’ Equity for the years ended June 27, 2010, June 28, 2009 and June 29, 2008 | F-4 | | Subsidiaries Consolidated Statements of Cash Flows for the years ended June 27, 2010, June 28, 2009 and June 29, 2008 | F-5 | Notes to Consolidated Financial Statements | F-6 | | | (a) (2) Index to Financial Statement Schedules: | | | | Schedule II- Valuation and Qualifying Accounts | S-1 | | | All other information and financial statement schedules are omitted because they are not applicable, or not required, or | | because the required information is included (in the consolidated financial statements or notes thereto.thousands)
| | (a) (3) Index to Exhibits | | | | | | | Years ended | | | | | | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | | | | Operating activities: | | | | | | | | | | | Net income (loss) | | $ | 5,722 | | | $ | (4,221 | ) | | $ | (98,417 | ) | | Reconciliation of net income (loss) to net cash provided by operating activities, net of acquisitions: | | | | | | | | | | | | | | Operating activities of discontinued operations | | | - | | | | 8,204 | | | | 7,210 | | | Loss on sale/impairment from discontinued operations | | | - | | | | 5,275 | | | | 34,758 | | | Goodwill and intangible asset impairment from continuing operations | | | - | | | | - | | | | 85,438 | | | Depreciation and amortization | | | 20,715 | | | | 21,378 | | | | 21,010 | | | Amortization of deferred financing costs | | | 474 | | | | 763 | | | | 3,751 | | | Deferred income taxes | | | 2,262 | | | | (127 | ) | | | (22,249 | ) | | Bad debt expense | | | 1,546 | | | | 1,908 | | | | 2,264 | | | Stock-based compensation | | | 3,961 | | | | 4,643 | | | | 1,724 | | | Tax benefits from stock-based compensation | | | 419 | | | | 275 | | | | 306 | | | Other non-cash items | | | 27 | | | | 77 | | | | (178 | ) | Changes in operating items, excluding the effects of acquisitions: | | | | | | | | | | | | | | Receivables | | | (2,881 | ) | | | (4,516 | ) | | | 516 | | | Inventories | | | (5,491 | ) | | | 733 | | | | (2,589 | ) | | Prepaid and other | | | (1,703 | ) | | | (1,082 | ) | | | (219 | ) | | Accounts payable and accrued expenses | | | 6,647 | | | | 6,453 | | | | (5,754 | ) | | Other assets | | | (748 | ) | | | (124 | ) | | | 412 | | | Other liabilities | | | (225 | ) | | | 389 | | | | 511 | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | 30,725 | | | | 40,028 | | | | 28,494 | | | | | | | | | | | | | | | | | Investing activities: | | | | | | | | | | | | | | Acquisitions, net of cash acquired | | | (4,310 | ) | | | - | | | | (12,001 | ) | | Proceeds from sale of business | | | - | | | | 10,468 | | | | 25 | | | Capital expenditures | | | (17,017 | ) | | | (15,041 | ) | | | (12,265 | ) | | Purchase of investment | | | (268 | ) | | | (2,192 | ) | | | - | | | Other, net | | | 100 | | | | 325 | | | | 215 | | | Investing activities of discontinued operations | | | - | | | | (78 | ) | | | (1,202 | ) | | | | | | | | | | | | | | | Net cash used in investing activities | | | (21,495 | ) | | | (6,518 | ) | | | (25,228 | ) | | | | | | | | | | | | | | | | Financing activities: | | | | | | | | | | | | | | Acquisition of treasury stock | | | (454 | ) | | | (878 | ) | | | (797 | ) | | Proceeds from exercise of employee stock options | | | 49 | | | | - | | | | 114 | | | Tax benefits from stock based compensation | | | (419) | | | | (367 | ) | | | (306 | ) | | Proceeds from bank borrowings | | | 40,000 | | | | 49,000 | | | | 120,000 | | | Repayment of bank borrowings | | | (52,750 | ) | | | (79,352 | ) | | | (100,648 | ) | | Debt issuance cost | | | (17 | ) | | | (1,637 | ) | | | (3,603 | ) | | Repayment of capital lease obligations | | | (2,040 | ) | | | (1,995 | ) | | | (502 | ) | | Financing activities of discontinued operations | | | - | | | | - | | | | (86 | ) | | | | | | | | | | | | | | | Net cash (used in) provided by financing activities | | | (15,631 | ) | | | (35,229 | ) | | | 14,172 | | | | | | | | | | | | | | | | | Net change in cash and equivalents | | | (6,401 | ) | | | (1,719 | ) | | | 17,438 | | | Cash and equivalents: | | | | | | | | | | | | | Beginning of year | | | 27,843 | | | | 29,562 | | | | 12,124 | | | | | | | | | | | | | | | | End of year | | $ | 21,442 | | | $ | 27,843 | | | $ | 29,562 | |
Supplemental Cash Flow Information: - | Interest paid amounted to $4.2 million, $5.4 million, and $5.8 million for the years ended July 3, 2011, June 27, 2010 and June 28, 2009, respectively. |
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the Securities and Exchange Commission, as indicated by the reference in brackets. All other exhibits are filed herewith. Exhibits 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.13, 10.14, 10.15, 10.16 and 10.17 are management contracts or compensatory plans or arrangements.
Exhibit | | Description | | | | *3.1 | | Third Amended and Restated Certificate of Incorporation. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 3.1) | *3.2 | | Amendment No. 1 to Third Amended and Restated Certificate of Incorporation. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 22, 1999, Exhibit 3.2) | *3.3 | | Amended and Restated By-laws. (Registration Statement on Form S-1 (No 333-78985) filed on May 21, 1999, Exhibit 3.3) | *4.1 | | Specimen Class A common stock certificate. (Registration Statement on Form S-1/A (No. 333-78985 filed on July 9, 1999, Exhibit 4.1) | *4.2 | | See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of Incorporation and By-laws of the Registrant defining the rights of holders of Common Stock of the Registrant. | *10.3 | | 1997 Stock Option Plan, as amended. (Registration Statement on Form S-1 (No. 333-78985) filed on May 21, 1999, Exhibit 10.10) | *10.4 | | 1999 Stock Incentive Plan. (Registration Statement on Form S-1/A (No. 333-78985) filed on July 27, 1999, Exhibit 10.18) | *10.5 | | Employment Agreement, effective as of July 1, 1999, between James F. McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 10.19) | *10.6 | | Amendment dated December 3, 2008 to Employment Agreement between James F. McCann and 1-800-FLOWERS.COM, Inc. (Quarterly Report on Form 10-Q filed on February 6, 2009, Exhibit 10.1) | *10.7 | | Employment Agreement, effective as of July 1, 1999, between Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (Form S-1/A (No. 333-78985) filed on July 9, 1999, Exhibit 10.20) | *10.8 | | Amendment dated December 3, 2008 to Employment Agreement between Christopher G. McCann and 1-800-FLOWERS.COM, Inc. (Quarterly Report on Form 10-Q filed on February 6, 2009, Exhibit 10.2) | *10.9 | | 2003 Long Term Incentive and Share Award Plan, as amended and restated on October 22, 2009. (Definitive Proxy Statement filed on October 23, 2009 (No. 000-26841), Annex A) | *10.10 | | Section 16 Executive Officer’s Bonus Plan (as amended and restated as of October 22, 2009) (Definitive Proxy filed on October 23, 2009 (No. 000-26841), Annex B) | *10.11 | | Employment Agreement, dated as of May 2, 2006, by and among 1-800-FLOWERS.COM, Inc., Fannie May Confections Brands, Inc. and David Taiclet. (Annual Report on Form 10-K for the fiscal year ended July 3, 2005 filed on September 15, 2006, Exhibit 10.8) | *10.12 | | Lease, dated May 20, 2005, between Treeline Mineola, LLC and 1-800-FLOWERS.COM, Inc. (Annual Report on Form 10-K for the fiscal year ended July 3, 2005 filed on September 15, 2005, Exhibit 10.26) | *10.13 | | Offer letter to Julie McCann Mulligan (Annual Report on Form 10-K for the fiscal year ended June 28, 2009 filed on September 11, 2009, Exhibit 10.12) | *10.14 | | Offer letter to Stephen Bozzo (Quarterly Report on Form 10-Q filed on November 8, 2007, Exhibit 10.4). | *10.15 | | Form of Restricted Share Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.15) | *10.16 | | Form of Incentive Stock Option Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.16) | *10.17 | | Form of Non-statutory Stock Option Agreement under 2003 Long Term Incentive and Share Award Plan. (Annual Report on Form 10-K for the fiscal year ended June 29, 2008 filed on September 12, 2008, Exhibit 10.17) | *10.18 | | Second Amended and Restated Credit Agreement dated as of April 16, 2010 among 1-800-Flowers.com, Inc, The Subsidiary Borrowers Party hereto, The Guarantors Party hereto, The Lenders Party hereto and J.P. Morgan Chase Bank, N.A., as Administrative Agent. (Current Report on Form 8-K filed on April 23, 2010, Exhibit 99.2) | 21.1 | | Subsidiaries of the Registrant. | 23.1 | | Consent of Independent Registered Public Accounting Firm. | 31.1 | | Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 31.2 | | Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 32.1 | | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 10, 2010 | 1-800-FLOWERS.COM, Inc.
By: /s/ James F. McCann -
James F. McCann
Chief Executive Officer
Chairman of the Board of Directors
(Principal Executive Officer)
| Capital expenditures excludes capital lease financing of $-, $- and $6.0 million for the years ended July 3, 2011, June 27, 2010 and June 28, 2009, respectively. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below:
Dated: September 10, 2010
| By: /s/ James F. McCann
James F. McCann
Chief Executive Officer
Chairman of the Board of Directors
(Principal Executive Officer)
| | Dated: September 10, 2010
| By: /s/ William E. Shea
William E. Shea
Senior Vice President Finance and Administration (Principal Financial and Accounting Officer)
| |
Dated: September 10, 2010
| By: /s/ Christopher G. McCann
Christopher G. McCann
Director, President
| | Dated: September 10, 2010
| By: /s/ Lawrence Calcano
Lawrence Calcano
Director
| | Dated: September 10, 2010
| By: /s/ James A. Cannavino
James A. Cannavino
Director
| | Dated: September 10, 2010
| By: /s/ John J. Conefry, Jr.
John J. Conefry, Jr.
Director
| | Dated: September 10, 2010
| By: /s/ Leonard J. Elmore
Leonard J. Elmore
Director
| | Dated: September 10, 2010
| By: /s/ Jan L. Murley
Jan L. Murley
Director
| | Dated: September 10, 2010
| By: /s/ Jeffrey C. Walker
Jeffrey C. Walker
Director
| | Dated: September 10, 2010
| By: /s/ Larry Zarin
Larry Zarin
Director
| |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
1-800-FLOWERS.COM, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) as| - | The Company paid income taxes of approximately $1.4 million, $1.4 million and $3.0 million, net of tax refunds received, for the years ended July 3, 2011, June 27, 2010 and June 28, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 27, 2010. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 1-800-FLOWERS.COM, Inc. and Subsidiaries at June 27, 2010 and June 28, 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 27, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), 1-800-FLOWERS.COM, Inc. and Subsidiaries’ internal control over financial reporting as of June 27, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 10, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Jericho, New York
September 10, 2010
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
| | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | Assets | | | | | | | | Current assets: | | | | | | | Cash and equivalents | | $ | 27,843 | | | $ | 29,562 | | Receivables, net | | | 13,943 | | | | 11,335 | | Inventories | | | 45,121 | | | | 45,854 | | Deferred tax assets | | | 5,109 | | | | 12,666 | | Prepaid and other | | | 5,662 | | | | 4,580 | | | Current assets of discontinued operations | | | - | | | | 18,100 | | Total current assets | | | 97,678 | | | | 122,097 | | | Property, plant and equipment, net | | | 51,324 | | | | 54,770 | | | Goodwill | | | 41,211 | | | | 41,205 | | | Other intangibles, net | | | 41,042 | | | | 42,822 | | | Deferred income taxes | | | 19,265 | | | | 11,725 | | | Other assets | | | 5,566 | | | | 3,890 | | | Non-current assets of discontinued operations | | | - | | | | 9,647 | | | Total assets | | $ | 256,086 | | | $ | 286,156 | | | | | | | | | | | | Liabilities and Stockholders' Equity | | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable and accrued expenses | | $ | 59,914 | | | $ | 53,460 | | Current maturities of long-term debt and obligations under capital leases | | | 14,801 | | | | 22,337 | | Current liabilities of discontinued operations | | | - | | | | 2,633 | | Total current liabilities | | | 74,715 | | | | 78,430 | | | Long-term debt and obligations under capital leases | | | 45,707 | | | | 70,518 | | | Other liabilities | | | 3,038 | | | | 2,091 | | | Non-current liabilities of discontinued operations | | | - | | | | 1,334 | | | Total liabilities | | | 123,460 | | | | 152,373 | | | | | | | | | | | | | Stockholders' equity: | | | | | | | | | Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | | | – | | | | – | | Class A common stock, $.01 par value, 200,000,000 shares authorized, 32,492,266 and 31,730,404 shares issued in 2010 and 2009, respectively | | | 325 | | | | 317 | | Class B common stock, $.01 par value, 200,000,000 shares authorized, 42,138,465 shares issued in 2010 and 2009 | | | 421 | | | | 421 | | | Accumulated other comprehensive loss | | | (334 | ) | | | - | | Additional paid-in capital | | | 285,515 | | | | 281,247 | | Retained deficit | | | (120,477 | ) | | | (116,256 | ) | Treasury stock, at cost, 5,465,046 and 5,122,225 Class A shares in 2010 and 2009, respectively, and 5,280,000 Class B shares | | | (32,824 | ) | | | (31,946 | ) | Total stockholders' equity | | | 132,626 | | | | 133,783 | | | Total liabilities and stockholders' equity | | $ | 256,086 | | | $ | 286,156 | | | | | | | | | | 7 | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
| | | Years ended | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | | | | | | | | | | | | Net revenues | | $ | 667,710 | | | $ | 713,950 | | | $ | 739,211 | | | Cost of revenues | | | 401,908 | | | | 432,744 | | | | 426,916 | | | Gross profit | | | 265,802 | | | | 281,206 | | | | 312,295 | | | Operating expenses: | | | | | | | | | | | | | Marketing and sales | | | 172,640 | | | | 175,839 | | | | 183,430 | | Technology and development | | | 17,952 | | | | 21,000 | | | | 19,611 | | General and administrative | | | 50,450 | | | | 50,451 | | | | 52,107 | | Depreciation and amortization | | | 21,378 | | | | 21,010 | | | | 17,822 | | Goodwill and intangible impairment | | | - | | | | 85,438 | | | | - | | Total operating expenses | | | 262,420 | | | | 353,738 | | | | 272,970 | | | Operating income (loss) | | | 3,382 | | | | (72,532 | ) | | | 39,325 | | | Other income (expense): | | | | | | | | | | | | | Interest income | | | 125 | | | | 314 | | | | 826 | | Interest expense | | | (5,571 | ) | | | (6,269 | ) | | | (5,039 | ) | | Deferred financing cost write-off | | | (340 | ) | | | (3,245 | ) | | | - | | Other, net | | | 34 | | | | (95 | ) | | | 43 | | Total other income (expense), net | | | (5,752 | ) | | | (9,295 | ) | | | (4,170 | ) | | Income (loss) from continuing operations before income taxes | | | (2,370 | ) | | | (81,827 | ) | | | 35,155 | | | Income tax expense (benefit) from continuing operations | | | (282 | ) | | | (15,326 | ) | | | 13,126 | | | Income (loss) from continuing operations | | | (2,088 | ) | | | (66,501 | ) | | | 22,029 | | | Operating loss from discontinued operations before income taxes | | | (1,723 | ) | | | (39,754 | ) | | | (1,785 | ) | | (including losses on disposal of $5.2 million and $14.7 million during the years ended June 27, 2010 and June 28, 2009, respectively, and impairment charges of $20.0 million during the year ended June 27, 2009) | | | | | | | | | | | | | | Income tax expense (benefit) from discontinued operations | | | 410 | | | | (7,838 | ) | | | ( 810 | ) | | Loss from discontinued operations | | | (2,133 | ) | | | (31,916 | ) | | | (975 | ) | | Net income (loss) | | $ | (4,221 | ) | | $ | (98,417 | ) | | $ | 21,054 | | | | | | | | | | | | | | | | | Net income (loss) per common share (basic): | | | | | | | | | | | | | | From continuing operations | | $ | (0.03 | ) | | $ | (1.05 | ) | | $ | 0.35 | | | From discontinued operations | | | (0.03 | ) | | | (0.50 | ) | | | (0.02 | ) | | Net income (loss) per common share (basic) | | $ | (0.07 | ) | | $ | (1.55 | ) | | $ | 0.33 | | | | | | | | | | | | | | | | | Net income (loss) per common share (diluted): | | | | | | | | | | | | | | From continuing operations | | $ | (0.03 | ) | | $ | (1.05 | ) | | $ | 0.34 | | | From discontinued operations | | | (0.03 | ) | | | (0.50 | ) | | | (0.01 | ) | | Net income (loss) per common share (diluted) | | $ | (0.07 | ) | | $ | (1.55 | ) | | $ | 0.32 | | | | | | | | | | | | | | | | Weighted average shares used in the calculation of net income (loss) per common share: | | | | | | | | | | | | | | Basic | | | 63,635 | | | | 63,565 | | | | 63,074 | | | Diluted | | | 63,635 | | | | 63,565 | | | | 65,458 | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended June 27, 2010, June 28, 2009 and June 29, 2008
(in thousands, except share data)
| | | | | | | | | | | | Accumulated | | | | | | | | | | | Common Stock | | | Additional | | | | | | Other | | | | | | | | | | | Class A | | | Class B | | | Paid-in | | | Retained | | | Comprehensive | | | Treasury Stock | | | Stockholders’ | | | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Loss | | | Shares | | | Amount | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at July 1, 2007 | | | 30,298,019 | | | $ | 303 | | | | 42,138,465 | | | $ | 421 | | | $ | 269,270 | | | $ | (38,893 | ) | | | - | | | | 9,870,717 | | | $ | (30,070 | ) | | $ | 201,031 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 21,054 | | | | - | | | | - | | | | - | | | | 21,054 | | | Exercise of employee stock options and vesting of restricted stock | | | 1,070,222 | | | | 11 | | | | - | | | | - | | | | 4,718 | | | | - | | | | - | | | | - | | | | - | | | | 4,729 | | | Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 3,534 | | | | - | | | | - | | | | - | | | | - | | | | 3,534 | | | Excess tax benefit from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 2,196 | | | | - | | | | - | | | | - | | | | - | | | | 2,196 | | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 133,609 | | | | (1,079 | ) | | | (1,079 | ) | | Balance at June 29, 2008 | | | 31,368,241 | | | | 314 | | | | 42,138,465 | | | | 421 | | | | 279,718 | | | | (17,839 | ) | | | - | | | | 10,004,326 | | | | (31,149 | ) | | | 231,465 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (98,417 | ) | | | - | | | | - | | | | - | | | | (98,417 | ) | | Exercise of employee stock options and vesting of restricted stock | | | 362,163 | | | | 3 | | | | - | | | | - | | | | 111 | | | | - | | | | - | | | | - | | | | - | | | | 114 | | | Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 1,724 | | | | - | | | | - | | | | - | | | | - | | | | 1,724 | | | Deferred tax shortfall from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | (306 | ) | | | - | | | | - | | | | - | | | | - | | | | (306 | ) | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 397,899 | | | | (797 | ) | | | (797 | ) | | Balance at June 29, 2009 | | | 31,730,404 | | | | 317 | | | | 42,138,465 | | | | 421 | | | | 281,247 | | | | (116,256 | ) | | | - | | | | 10,402,225 | | | | (31,946 | ) | | | 133,783 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,221 | ) | | | - | | | | - | | | | - | | | | (4,221 | ) | | Change in value of cash flow hedge | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (334 | ) | | | - | | | | - | | | | (334 | ) | | Comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,555 | ) | | Vesting of restricted stock and stock-based compensation | | | 761,862 | | | | 8 | | | | - | | | | - | | | | 4,635 | | | | - | | | | - | | | | - | | | | - | | | | 4,643 | | | Deferred tax shortfall from stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | (367 | ) | | | - | | | | - | | | | - | | | | - | | | | (367 | ) | | Stock repurchase program | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 342,821 | | | | (878 | ) | | | (878 | ) | | Balance at June 27, 2010 | | | 32,492,266 | | | $ | 325 | | | | 42,138,465 | | | $ | 421 | | | $ | 285,515 | | | $ | (120,477 | ) | | $ | (334 | ) | | | 10,745,046 | | | $ | (32,824 | ) | | $ | 132,626 | |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | Years ended | | | | | | | | June 27, 2010 | | | June 28,2009 | | | June 29, 2008 | | | | | | | | | | | | | | Operating activities: | | | | | | | | | | | Net income (loss) | | $ | (4,221 | ) | | $ | (98,417 | ) | | $ | 21,054 | | | Reconciliation of net income (loss) to net cash provided by operating activities, net of acquisitions: | | | | | | | | | | | | | | Operating activities of discontinued operations | | | 8,204 | | | | 7,210 | | | | 3,009 | | | Loss on sale/impairment from discontinued operations | | | 5,275 | | | | 34,758 | | | | - | | | Goodwill and intangible asset impairment from continuing operations | | | - | | | | 85,438 | | | | - | | | Depreciation and amortization | | | 21,378 | | | | 21,010 | | | | 17,624 | | | Amortization of deferred financing costs | | | 763 | | | | 3,751 | | | | 198 | | | Deferred income taxes | | | (127 | ) | | | (22,249 | ) | | | 8,582 | | | Bad debt expense | | | 1,908 | | | | 2,264 | | | | 2,094 | | | Stock-based compensation | | | 4,643 | | | | 1,724 | | | | 3,534 | | | Deficiency/(excess) tax benefit from stock-based compensation | | | 275 | | | | 306 | | | | (2,196 | ) | | Other non-cash items | | | 77 | | | | (178 | ) | | | 809 | | | Changes in operating items, excluding the effects of acquisitions: | | | | | | | | | | | | | | Receivables | | | (4,516 | ) | | | 516 | | | | 848 | | | Inventories | | | 733 | | | | (2,589 | ) | | | (5,023 | ) | | Prepaid and other | | | (1,082 | ) | | | (219 | ) | | | 505 | | | Accounts payable and accrued expenses | | | 6,453 | | | | (5,754 | ) | | | 8,639 | | | Other assets | | | (124 | ) | | | 412 | | | | (2,166 | ) | | Other liabilities | | | 389 | | | | 511 | | | | 391 | | Net cash provided by operating activities | | | 40,028 | | | | 28,494 | | | | 57,902 | | | | | | | | | | | | | | | | | Investing activities: | | | | | | | | | | | | | | Acquisitions, net of cash acquired | | | - | | | | (12,001 | ) | | | (37,849 | ) | | Proceeds from sale of business | | | 10,468 | | | | 25 | | | | 463 | | | Capital expenditures | | | (15,041 | ) | | | (12,265 | ) | | | (18,237 | ) | | Purchase of investment | | | (2,192 | ) | | | - | | | | - | | | Other, net | | | 325 | | | | 215 | | | | (387 | ) | | Investing activities of discontinued operations | | | (78 | ) | | | (1,202 | ) | | | (1,705 | ) | Net cash used in investing activities | | | (6,518 | ) | | | (25,228 | ) | | | (57,715 | ) | | | | | | | | | | | | | | | | Financing activities: | | | | | | | | | | | | | | Acquisition of treasury stock | | | (878 | ) | | | (797 | ) | | | (1,079 | ) | | Proceeds from employee stock options | | | - | | | | 114 | | | | 4,729 | | | Excess tax benefits from stock based compensation | | | (367) | | | | (306) | | | | 2,196 | | | Proceeds from bank borrowings | | | 49,000 | | | | 120,000 | | | | 110,000 | | | Repayment of notes payable and bank borrowings | | | (79,352 | ) | | | (100,648 | ) | | | (118,487 | ) | | Debt issuance cost | | | (1,637 | ) | | | (3,603 | ) | | | - | | | Repayment of capital lease obligations | | | (1,995 | ) | | | (502 | ) | | | (28 | ) | | Financing activities of discontinued operations | | | - | | | | (86 | ) | | | (1,481 | ) | Net cash (used in) provided by financing activities | | | (35,229 | ) | | | 14,172 | | | | (4,150 | ) | | Net change in cash and equivalents | | | (1,719 | ) | | | 17,438 | | | | (3,963 | ) | | Cash and equivalents: | | | | | | | | | | | | | Beginning of year | | | 29,562 | | | | 12,124 | | | | 16,087 | | End of year | | $ | 27,843 | | | $ | 29,562 | | | $ | 12,124 | |
Supplemental Cash Flow Information:
| - Interest paid amounted to $5.4 million, $5.8 million, and $5.1 million for the years ended June 27, 2010, June 28, 2009 and June 29, 2008, respectively. |
| - Capital expenditures excludes capital lease financing of $-, $6.0 million and $- for the years ended June 27, 2010, June 28, 2009 and June 29,2008, respectively. |
See accompanying notes. | - The Company paid income taxes of approximately $1.4 million, $3.0 million and $2.1 million, net of tax refunds received, for the years ended June 27, 2010, June 28, 2009, and June 29, 2008, respectively. |
See accompanying notes.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1. Description of Business
For more than 30 years, 1-800-FLOWERS.COM, Inc. has been providing 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 perfect for every occasion.animals. As always, 100 percent satisfaction is guaranteed. 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 to grow their businesses profitably. The 1-800-FLOWERS.COM, Inc. “Gift Shop” also includes gourmet gifts such as pop cornpopcorn and specialty treats from The Popcorn Factory ® (1-800-541-2676 or www.thepopcornfactory.com );; cookies and baked gifts from Cheryl’s ® (1-800-443-8124 or www.cheryls.com );; premium chocolates and confections from Fannie May ® confections brands ( www.fanniemay.com Confections Brands; gift baskets and towers from 1-800-BASKETS.COM www.harrylondon.com® );; and wine gifts from The Winetasting Network SMSM. ( www.winetasting.com The Company’s Celebrations ) and Geerlings&Wade SM (www.geerwade.com ); gift baskets from 1-800-BASKETS.COM ® ( www.1800baskets.com ) as well as Celebrations ® (www.celebrations.com ), brand is a new premier online destination for fabulous party ideas and planning tips.
During the fourth quarter of fiscal 2009, the Company made the strategic decision to divest its Home & Children’s Gifts business segment to focus on its core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets categories. On January 25, 2010, the Company completed the sale of these businesses; refer to Note 16. Discontinued Operations, for further discussion. Consequently, the Company has classified the results of operations of its Home & Children’s Gifts segment, which includes Home Decor and Children’s Gifts from Plow & Hearth®, Wind & Weather®, HearthSong® and Magic Cabin®, as discontinued operations for all periods presented.
1-800-FLOWERS.COM, Inc. stock is traded on the NASDAQ Global Select Market under ticker symbol FLWS.
Note 2. Significant Accounting Policies
Fiscal Year
The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to June 30. Fiscal yearsyear 2011, which ended on July 3, 2011, consisted of 53 weeks, while fiscal 2010 2009 and 2008,2009, which ended on June 27, 2010 and June 28, 2009, and June 29, 2008, respectively, consisted of 52 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of 1-800-FLOWERS.COM, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company has classified the results of operations of its Home & Children’s Gifts segment as discontinued operations for all periods presented.
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.
Cash and Equivalents
Cash and equivalents consist of demand deposits with banks, highly liquid money market funds, United States government securities, overnight repurchase agreements and commercial paper with maturities of three months or less when purchased.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Inventories
Inventories are valued at the lower of cost or market using the first-in, first-out method of accounting.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Amortization of leasehold improvements and capital leases are calculated using the straight-line method over the shorter of the lease terms, including renewal options expected to be exercised, or estimated useful lives of the improvements. Estimated useful lives are periodically reviewed, and where appropriate, changes are made prospectively. The Company’s property plant and equipment is depreciated using the following estimated lives:
Buildings | 40 years | Leasehold Improvements | 3-10 years | Furniture, Fixtures and Equipment | 3-10 years | Software | 3-5 years |
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangibles are not amortized, but are evaluated annually for impairment. The Company performs its annual impairment test in its fiscal fourth quarter, or earlier if indicators of potential impairment exist, to evaluate goodwill. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. In assessing the recoverability of goodwill, the Company reviews both quantitative as well as qualitative factors to support its assumptions with regard to fair value.
The cost of intangible assets with determinable lives is amortized to reflect the pattern of economic benefits consumed, on a straight-line basis, over the estimated periods benefited, ranging from 3 to 16 years.
During fiscal 2009, the Company conducted its evaluation of impairment for goodwill and intangible assets and concluded that the carrying value of these assets exceeded their estimated fair value. Refer to Note 6, “Goodwill and Intangible Assets” for further description.
Deferred Catalog Costs
The Company capitalizes the costs of producing and distributing its catalogs. These costs are amortized in direct proportion to actual sales from the corresponding catalog over a period not to exceed 26-weeks. Included within prepaid and other current assets was $0.4 million at July 3, 2011 and June 27, 2010, and June 28, 2009, relating to prepaid catalog expenses.
Investments
The Company considers all of its debt and equity securities, for which there is a determinable fair market value and no restrictions on the Company’s ability to sell within the next 12 months, as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. For the years ended July 3, 2011, June 27, 2010 and June 28, 2009, and June 29, 2008, there were no significant unrealized gains or losses. Realized gains and losses are included in other income. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair Values of Financial Instruments
The recorded amounts of the Company's cash and equivalents, short-term investments, receivables, accounts payable, and accrued liabilities approximate their fair values principally because of the short-term nature of these items. The fair value of investments, including available-for-sale securities, is based on quoted market prices where available. The fair value of the Company’s long-term obligations, the majority of which are carried at a variable rate of interest, are estimated based on the current rates offered to the Company for obligations of similar terms and maturities. Under this method, the Company's fair value of long-term obligations was not significantly different than the carrying values at July 3, 2011 and June 27, 20102010.
1-800-FLOWERS.COM, Inc. and June 28, 2009.Subsidiaries Notes to Consolidated Financial Statements (continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and equivalents, investments and accounts receivable. The Company maintains cash and equivalents and investments with high credit, quality financial institutions. Concentration of credit risk with respect to accounts receivable is limited due to the Company's large number of customers and their dispersion throughout the United States, and the fact that a substantial portion of receivables are related to balances owed by major credit card companies. Allowances relating to consumer, corporate and franchise accounts receivable ($1.51.0 million and $1.6$1.5 million at July 3, 2011 and June 27, 2010, and June 28, 2009, respectively) have been recorded based upon previous experience and management’s evaluation.
Revenue Recognition
Net revenues are generated by E-commerce operations from the Company’s online and telephonic sales channels as well as other operations (retail/wholesale) and primarily consist of the selling price of merchandise, service or outbound shipping charges, less discounts, returns and credits. Net revenues are recognized upon product shipment and do not include sales tax. Shipping terms are FOB shipping point. Net revenues generated by the Company’s BloomNet Wire Service operations include membership fees as well as other products and service offerings to florists. Membership fees are recognized monthly in the period earned, and products sales are recognized upon product shipment with shipping terms of FOB shipping point.
Cost of Revenues
Cost of revenues consists primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to manufacturing and production operations.
Marketing and Sales
Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search expenses, retail store and fulfillment operations (other than costs included in cost of revenues), and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities.
The Company expenses all advertising costs, with the exception of catalog costs (see Deferred Catalog Costs above) at the time the advertisement is first shown. Advertising expense was $67.9 million, $70.4 million $70.8 million and $78.9$70.8 million for the years ended July 3, 2011, June 27, 2010 and June 28, 2009, and June 29, 2008, respectively.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Technology and Development
Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its web sites, including hosting, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems. Costs associated with the acquisition or development of software for internal use are capitalized if the software is expected to have a useful life beyond one year and amortized over the software’s useful life, typically three to five years. Costs associated with repair, maintenance or the development of web site content are expensed as incurred as the useful lives of such software modifications are less than one year.
Stock-Based Compensation
The Company records compensation expense associated with stock options and other forms of equity compensation based upon the fair value of stock-based awards as measured at the grant date. The expense is recorded by amortizing the fair values on a straight-line basis over the vesting period, adjusted for estimated forfeitures.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Derivatives and hedging
The Company does not enter into derivative transactions for trading purposes, but rather to manage its exposure to interest rate fluctuations. The Company manages 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.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available or when positions are effectively settled. There is a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. Specifically, it clarifies that an entity’s tax benefits must be “more likely than not” of being sustained, assuming that these positions will be examined by taxing authorities with full knowledge of all relevant information prior to recording the related tax benefit in the financial statements. If a tax position drops below the “more likely than not” standard, the benefit can no longer be recognized. 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.
The Company has established deferred income tax assets and liabilities for temporary differences between the financial reporting bases and the income tax bases of its assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled. The Company has recognized as a deferred tax asset the tax benefits associated with losses related to operations, which are expected to result in a future tax benefit. Realization of this deferred tax asset assumes that we will be able to generate sufficient future taxable income so that these assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income and available 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 circu mstances,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.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive common equivalent shares (consisting primarily of employee stock options and unvested restricted stock awards) outstanding during the period. Diluted net loss per share excludes the effect of dilutive potential common shares (consisting primarily of employee stock options and unvested restricted stock awards) as their inclusion would be antidilutive.
Recent Accounting Pronouncements
In July 2009,April 2011, the Company adopted the provisionsASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” ASU 2010-29 requires an entity to disclose revenue and earnings of the accounting standardcombined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective prospectively for business combinations that occur on fair value measurements that apply to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis.after the beginning of the first annual reporting period beginning after December 15, 2010. The adoption of these provisionsASU 2010-29 did not have an impact on the Company’s consolidated financial statements or disclosures.statements.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
In June 2009,May 2011, the FASB issued authoritative guidanceASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to establishAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This standard results in a common requirement between the FASB and the International Accounting Standards Codification asBoard (IASB) for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011. The Company does not expect the sourceadoption of authoritative accounting principles and the framework for selecting the principles used in the preparation ofASU 2011-04 to have a material impact on its consolidated financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This guidance only impacted references for accounting guidance.statements. In April 2009,June, 2011, the FASB issued authoritative guidance for business combinations that amends the provisions relatedASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires entities to the initial recognitionpresent net income and measurement, subsequent measurementother comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance will require such contingencies to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, entities would typically account for the acquired contingencies in accordance with authoritative guidance for contingencies. The guidance became effective for the Company’s business combinations for which the acquisition date is on or after June 29, 2009. The Company did not complete any material business combinations during the fiscal year ended June 27, 2010, and the eff ect of this guidance, if any, on the Company’s financial position, results of operations and cash flows in future periods will depend on the nature and significance of business combinations subject to this guidance. In April 2008, the FASB issued authoritative guidance for general intangibles other than goodwill, amending the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidancecomprehensive income. ASU 2011-05 is effective for the Company for intangible assets acquired on orfiscal years and interim periods beginning after June 29, 2009.December 15, 2011. The adoption didof ASU 2011-05 will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.statements.
Reclassifications
Certain balances in the prior fiscal years have been reclassified to conform to the presentation in the current fiscal year. As a result of the Company’s decision to dispose of its Home & Children’s Gifts businesses, this segment has been accounted for as a discontinued operation and the prior periods have been reclassified to conform to the current period presentation (Refer to Note 16. Discontinued Operations).
During the second quarter of fiscal 2010, the Company launched its 1-800-Baskets brand. Products within this business are now being managed within the Gourmet Food & Gift Baskets segment, resulting in a change to our reportable segment structure. Gift basket products, formerly included in the Consumer Floral reportable segment are now included in the Gourmet Food & Gift Baskets segment. These changes have been reflected in the Company’s segment reporting for all periods presented.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 3 – Net Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| | | | | | Years Ended | | | | | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | | | | Years Ended | | | | | | | | | | | | | | | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | (in thousands, except per share data) | | | (in thousands, except per share data) | | | Numerator: | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (4,221 | ) | | $ | (98,417 | ) | | $ | 21,054 | | | $ | 5,722 | | | $ | (4,221 | ) | | $ | (98,417 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average shares outstanding | | | 63,635 | | | | 63,565 | | | | 63,074 | | | | 64,001 | | | | 63,635 | | | | 63,565 | | | Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | | | Employee stock options (1) | | | - | | | | - | | | | 1,808 | | | | 16 | | | | - | | | | - | | | Employee restricted stock awards | | | - | | | | - | | | | 576 | | | | 1,136 | | | | - | | | | - | | | | | | - | | | | - | | | | 2,384 | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted weighted-average shares and assumed conversions | | | 63,635 | | | | 63,565 | | | | 65,458 | | | | 65,153 | | | | 63,635 | | | | 63,565 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income per common share: | | | | | | | | | | | | | | | Net income (loss) per common share: | | | | | | | | | | | | | | | Basic | | $ | (0.07 | ) | | $ | (1.55 | ) | | $ | 0.33 | | | $ | 0.09 | | | $ | (0.07 | ) | | $ | (1.55 | ) | | Diluted | | $ | (0.07 | ) | | $ | (1.55 | ) | | $ | 0.32 | | | $ | 0.09 | | | $ | (0.07 | ) | | $ | (1.55 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Note (1): The effect of options to purchase 7.0 million, 8.1 million 8.9 million and 3.28.9 million shares for the years ended July 3, 2011, June 27, 2010, and June 28, 2009, and June 29, 2008, respectively, were excluded from the calculation of net income (loss) per share on a diluted basis as their effect is anti-dilutive.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Note 4. Acquisitions
TheEffective June 29, 2009, the Company accounts for its business combinations using the purchase method. Under the purchase method ofbegan accounting for business combinations under ASC Topic 805 which requires, among other things, the aggregate purchase price foracquiring entity in a business combination to recognize the acquired business is allocated tofair 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 adjustments recognized in the consolidated results of operations. The accounting prescribed by ASC Topic 805 is applicable for all business combinations entered into by the Company after June 29, 2009. Operating results of the acquired entity is reflected in the Company’s consolidated financial statements from date of acquisition. Acquisition of Mrs. Beasley’s
On March 9, 2011, the Company acquired selected assets of Mrs. Beasley’s Bakery, LLC (Mrs. Beasley’s), a baker and marketer of cakes, muffins and gourmet gift baskets for cash consideration of approximately $1.5 million. The acquisition included inventory and certain manufacturing equipment, which was consolidated within the Company’s baked goods manufacturing facilities. Approximately $0.6 million of the purchase price was assigned to tradenames that are not subject to amoritization, while $0.3 million was assigned to goodwill which is expected to be deductible for tax purposes.
Acquisition of Fine Stationery
On May 10, 2011, the Company acquired selected assets of Fine Stationery Solutions, Inc. (Fine Stationery), a retailer of personalized stationery, invitations and announcements. The purchase price, which included the acquisition of inventory, production equipment and certain other assets, was approximately $3.3 million, including cash consideration of $2.8 million, plus additional consideration based upon achieving specified operating results during fiscal 2012 through 2014, of which the Company recorded $0.5 million, and which is included in other liabilities in the Company’s consolidated balance sheet. The acquisition was financed utilizing available cash balances. Of the $1.7 million of acquired intangible assets, $1.6 million was assigned to trademarks that are not subject to amortization, while the remaining acquired intangibles of $0.1 million were allocated to customer related intangibles which are being amortized over the estimated useful life of 3 years. Approximately $1.1 million of goodwill is deductible for tax purposes. The Company is in the process of finalizing its allocation of the purchase prices to individual assets acquired and liabilities assumed as a result of the acquisitions of Mrs. Beasley’s and Fine Stationery. This will result in potential adjustments to the carrying value of their respective recorded assets and liabilities, the establishment of certain additional intangible assets, revisions of useful lives of intangible assets, some of which will have indefinite lives not subject to amortization, and the determination of any residual amount that will be allocated to goodwill. The preliminary allocation of the purchase price included in the current period balance sheet is based on theirthe best estimates of management and is subject to revision based on final determination of asset fair values and useful lives. The following table summarizes the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition date.of Mrs. Beasley’s and Fine Stationery:
| | | Mrs. Beasley’s Purchase Price Allocation | | | Fine Stationery Purchase Price Allocation | | | | | (in thousands) | | | Current assets | | $ | 353 | | | $ | 360 | | | Intangible assets | | | 585 | | | | 1,674 | | | Goodwill | | | 308 | | | | 1,051 | | | Property, plant & equipment | | | 204 | | | | 269 | | | Total assets acquired | | | 1,450 | | | | 3,354 | | | | | | | | | | | | | Current liabilities | | | - | | | | 20 | | | | | | | | | | | | | Total liabilities assumed | | | - | | | | 20 | | | Net assets acquired | | $ | 1,450 | | | $ | 3,334 | |
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Acquisition of Napco Marketing Corp.
On July 21, 2008, the Company acquired selected assets of Napco Marketing Corp. (Napco), a wholesale merchandiser and marketer of products designed primarily for the floral industry. The purchase price of approximately $9.4 million included the acquisition of a fulfillment center located in Jacksonville, FL, inventory and certain other assets, as well as the assumption of certain related liabilities, including their seasonal line of credit of approximately $4.0 million. The acquisition was financed utilizing a combination of available cash on hand and through borrowings under the Company’s revolving credit facility. The purchase price includes an up-front cash payment of $9.3 million, net of cash acquired, and the expected portion of “earn-out” incentives, which amount to a maximum of $1.6 million through the years en dingending July 2, 2012, upon achievement of specified performance targets. As of June 27, 2010,July 3, 2011 the Company does not expect that any of the specified performance targets will be achieved.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table summarizes the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition of Napco:
| | | Napco Purchase Price Allocation | | | | | (in (in thousands) | | | Current assets | | $ | $5,119 | | | Property, plant and equipment | | | 3,929 | | | Intangible assets | | | 397 | | | Other | | | 74 | | | Total assets acquired | | | 9,519 | | | Current liabilities | | | 162 | | | Total liabilities assumed | | | 162 | | | Net assets acquired | | $ | $9,357 | |
Acquisition of Geerlings & Wade
On March 25, 2009, the Company acquired selected assets of Geerlings & Wade, Inc., a retailer of wine and related products. The purchase price of approximately $2.6 million included the acquisition of inventory, and certain other assets (approximately(approximately $1.4 million of goodwill is deductible for tax purposes), as well as the assumption of certain related liabilities. The acquisition was financed utilizing available cash on hand. 1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
The following table summarizes the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition of Geerlings & Wade:
| | | Geerlings & Wade Purchase Price Allocation | | | | | (in thousands) | | | Current assets | | $ | $990 | | | Intangible assets | | | 253 | | | Goodwill | | | 1,440 | | | Total assets acquired | | | 2,683 | | | Current liabilities | | | 77 | | | Total liabilities assumed | | | 77 | | | Net assets acquired | | $ | $2,606 | |
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Acquisition of DesignPac Gifts LLC
On April 30, 2008, the Company acquired all of the membership interest in DesignPac Gifts LLC (DesignPac), a designer, assembler and distributor of gourmet gift baskets, gourmet food towers and gift sets, including a broad range of branded and private label components, based in Melrose Park, IL. The acquisition, for approximately $33.4 million in cash, net of cash acquired, was financed utilizing a combination of available cash generated from operations and through borrowings against the Company’s revolving credit facility. The purchase price is subject to “earn-out” incentives which amount to a maximum of $2.0 upon achievement of specified performance targets. As of June 27, 2010, the Company does not believe that any of the specified performance targets hav e been achieved.
The following table summarizes the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition of DesignPac:
| | DesignPac
Purchase
Price
Allocation
| | | (in thousands) | Current assets | | $1,287
| Property, plant and equipment | | 1,172
| Intangible assets | | 18,753
| Goodwill | | 12,332
| Other | | 82
| Total assets acquired | | 33,626
| Current liabilities | | 184
| Total liabilities assumed | | 184
| Net assets acquired | | $33,442
|
Of the $18.8 million of acquired intangible assets related to the DesignPac acquisition, $6.7 million was assigned to trademarks that are not subject to amortization, while the remaining acquired intangibles of $12.1 million were allocated primarily to customer related intangibles which are being amortized over the assets’ estimated useful life of 10 years. Approximately $12.3 million of goodwill is deductible for tax purposes. As described further in Note 6, during the year ended June 28, 2009, the Company recorded an impairment charge of $85.4 million for the write-down of goodwill and intangibles associated with its Gourmet Food and Gift Basket category to which DesignPac is categorized.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Pro forma Results of Operation
The following unaudited pro forma consolidated financial information has been prepared as if the acquisitions of DesignPac,Mrs. Beasley’s, Fine Stationery, Napco and Geerlings & Wade had taken place at the beginning of fiscal year 2008.2009. The following unaudited pro forma information is not necessarily indicative of the results of operations in future periods or results that would have been achieved had the acquisitions taken place at the beginning of the periods presented.
| | | | | | Years Ended | | | | | | | | | Years Ended | | | | | | | | June 27, 2010 (as reported) | | | June 28, 2009 (pro forma) | | | June 29, 2008 (pro forma) | | | July 3, 2011 (pro forma) | | | June 27, 2010 (pro forma) | | | June 28, 2009 (pro forma) | | | | | (in thousands, except per share data) | | | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | Net revenues from continuing operations | | $ | 667,710 | | | $ | 718,419 | | | $ | 814,373 | | | $ | 702,168 | | | $ | 683,182 | | | $ | 736,381 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) from continuing operations | | $ | 3,382 | | | $ | (71,838 | ) | | $ | 48,670 | | | $ | 16,104 | | | $ | 5,389 | | | $ | (70,309 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) from continuing operations | | $ | (2,088 | ) | | $ | (65,913 | ) | | $ | 26,481 | | | $ | 6,625 | | | $ | (3,504 | ) | | $ | (68,095 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (4,221 | ) | | $ | (97,829 | ) | | $ | 25,506 | | | | | | | | | | | | | | | | | | | Net income (loss) per common share from continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | (0.03 | ) | | $ | (1.04 | ) | | $ | 0.42 | | | $ | 0.10 | | | $ | (0.06 | ) | | $ | (1.07 | ) | | Diluted | | $ | (0.03 | ) | | $ | (1.04 | ) | | $ | 0.40 | | | $ | 0.10 | | | $ | (0.06 | ) | | $ | (1.07 | ) | | Net income (loss) per common share | | | | | | | | | | | | | | | Basic | | $ | (0.07 | ) | | $ | (1.54 | ) | | $ | 0.40 | | | | Diluted | | $ | (0.07 | ) | | $ | (1.54 | ) | | $ | 0.39 | | |
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Note 5. Inventory
The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finish goods for resale, packaging supplies, raw material ingredients for manufactured products and associated manufacturing labor, and is classified as follows:
| | | June 27, 2010 | | | June 28, 2009 | | | July 3, 2011 | | | June 27, 2010 | | | | | (in thousands) | | | (in thousands) | | | | | | | | | | | | | | | | | Finished goods | | $ | 23,611 | | | $ | 23,759 | | | $ | 26,629 | | | $ | 23,611 | | | Work-in-process | | | 13,390 | | | | 16,619 | | | | 15,442 | | | | 13,390 | | | Raw materials | | | 8,120 | | | | 5,476 | | | | 9,243 | | | | 8,120 | | | | | $ | 45,121 | | | $ | 45,854 | | | $ | 51,314 | | | $ | 45,121 | |
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 6. Goodwill and Intangible Assets
The change in the net carrying amount of goodwill is as follows:
| | | 1-800-Flowers.com Consumer Floral | | | BloomNet Wire Service | | | Gourmet Food and Gift Baskets | | | Total | | | 1-800-Flowers.com Consumer Floral | | | BloomNet Wire Service | | | Gourmet Food and Gift Baskets | | | Total | | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | | | | Balance at June 29, 2008 | | $ | 6,165 | | | $ | - | | | $ | 99,734 | | | $ | 105,899 | | | $ | 6,165 | | | $ | - | | | $ | 99,734 | | | $ | 105,899 | | | Acquisition of Geerlings & Wade | | | | | | | | | | | 1,438 | | | | 1,438 | | | | Acquisition | | | | | | | | | | | | 1,438 | | | | 1,438 | | | Goodwill impairment | | | | | | | | | | | (65,644 | ) | | | (65,644 | ) | | | | | | | | | | | (65,644 | ) | | | (65,644 | ) | | Other | | | (437 | ) | | | | | | | (51 | ) | | | (488 | ) | | | Acquisition related adjustments | | | | (437 | ) | | | | | | | (51 | ) | | | (488 | ) | | | | | | | | | | | | | | | | | | | | | Balance at June 28, 2009 | | | 5,728 | | | | | | | | 35,477 | | | | 41,205 | | | $ | 5,728 | | | $ | - | | | $ | 35,477 | | | $ | 41,205 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | 6 | | | | 6 | | | | Acquisition related adjustments | | | | | | | | | | | | 6 | | | | 6 | | | | | | | | | | | | | | | | | | | | | | Balance at June 27, 2010 | | $ | 5,728 | | | $ | - | | | $ | 35,483 | | | $ | 41,211 | | | $ | 5,728 | | | $ | - | | | $ | 35,483 | | | $ | 41,211 | | | Acquisitions | | | | 1,051 | | | | | | | | 308 | | | | 1,359 | | | Acquisition related adjustment | | | | | | | | | | | | (1,023 | ) | | | (1,023 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at July 3, 2011 | | | $ | 6,779 | | | $ | - | | | $ | 34,768 | | | $ | 41,547 | | | | | | | | | | | | | | | | | | | | |
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination, with the carrying value of the Company’s goodwill allocated to its reporting units.
Goodwill and other indefinite lived intangibles are subject to an assessment for impairment, which must be performed annually, or more frequently if events or circumstances indicate that goodwill or other indefinite lived intangibles might be impaired. Goodwill impairment testing involves a two-step process. Step 1 compares the fair value of the Company’s reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no further analysis is necessary. If the carrying amount of the reporting unit exceeds its fair value, Step 2 must b ebe completed to quantify the amount of impairment. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit, from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss, equal to the difference, is recognized. 1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
While the Company determined that there was no impairment during either fiscal 2011 or fiscal 2010, during fiscal 2009 the Gourmet Food & Gift Basket segment experienced declines in revenue and operating performance when compared to prior years and their strategic outlook. The Company believes that this weak performance was attributable to reduced consumer spending due to the overall weakness in the economy. Based upon the expectation of a continuation of the current economic downturn, supported by lower order quantities received for the upcoming holiday season by certain wholesale customers, coupled with a decline of the Company’s market capitalization and contraction of public company multiples, the Company recorded goodwill and intangible impairment charges of $85.4 million during the year ended June 28, 2009. Of the total impairment charge, approximately $65.6 million was related to goodwill and $19.8 million was related to intangibles.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair value was determined by using a combination of a market-based and an income-based approach, weighting both approaches equally. Under the market-based approach, the Company utilized information regarding the Company as well as publicly available industry information to determine earnings and revenue multiples that are used to value the Company’s reporting units. Under the income-based approach, the Company determined fair value based upon estimated future cash flows of the reporting unit, discounted by an estimated weighted-average cost of capital, which reflected the overall level of inherent risk of the reporting unit and the rate of return that an outside investor would expect to earn. The Company reconciled the value of its reporting units to its current market capitalization (based upon the Company’s stock price) t oto determine that its assumptions were consistent with that of an outside investor.
The Company’s other intangible assets consist of the following:
| | | | June 27, 2010 | | | June 28, 2009 | | | | July 3, 2011 | | | June 27, 2010 | | | | Amortization Period | | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | Amortization Period | | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | | | | (in thousands) | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets with determinable lives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment in licenses | 14 - 16 years | | $ | 5,314 | | | $ | 5,314 | | | $ | - | | | $ | 5,314 | | | $ | 4,823 | | | $ | 491 | | 14 - 16 years | | $ | 5,314 | | | $ | 5,314 | | | $ | - | | | $ | 5,314 | | | $ | 5,314 | | | $ | - | | | Customer lists | 3 - 10 years | | | 15,695 | | | | 6,758 | | | | 8,937 | | | | 15,695 | | | | 4,673 | | | | 11,022 | | 3 - 10 years | | | 15,804 | | | | 8,619 | | | | 7,185 | | | | 15,695 | | | | 6,758 | | | | 8,937 | | | Other | 5 - 8 years | | | 2,388 | | | | 1,351 | | | | 1,037 | | | | 2,388 | | | | 960 | | | | 1,428 | | 5 - 8 years | | | 2,538 | | | | 1,770 | | | | 768 | | | | 2,388 | | | | 1,351 | | | | 1,037 | | | | | | | 23,397 | | | | 13,423 | | | | 9,974 | | | | 23,397 | | | | 10,456 | | | | 12,941 | | | | | 23,656 | | | | 15,703 | | | | 7,953 | | | | 23,397 | | | | 13,423 | | | | 9,974 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trademarks with indefinite lives | | | | 31,068 | | | | - | | | | 31,068 | | | | 29,881 | | | | - | | | | 29,881 | | | | | 33,855 | | | | - | | | | 33,855 | | | | 31,068 | | | | - | | | | 31,068 | | Total intangible assets | | | $ | 54,465 | | | $ | 13,423 | | | $ | 41,042 | | | $ | 53,278 | | | $ | 10,456 | | | $ | 42,822 | | | | $ | 57,511 | | | $ | 15,703 | | | $ | 41,808 | | | $ | 54,465 | | | $ | 13,423 | | | $ | 41,042 | |
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. As part of the aforementioned impairment analysis performed for the Gourmet Food and Gift Basket segments, during the year ended June 28, 2009, the Company recorded an impairment charge of $19.8 million related to the trade names and customer lists, which were determined to be impaired due to changes in the business environment and adverse economic conditions currently being experienced due to decreased consumer spending.
The amortization of intangible assets for the years ended July 3, 2011, June 27, 2010 and June 28, 2009 and June 29, 2008 was $2.3 million, $3.0 million, $3.7 million, and $2.8$3.7 million, respectively. Future estimated amortization expense is as follows: 20112012 - $2.3$1.7 million, 20122013 - $1.6 million, 20132014 - $1.5$1.3 million, and 20142015 - $1.2 million, and thereafter - $3.4$2.2 million.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Note 7. Property, Plant and Equipment
| | | June 27, 2010 | | | June 28, 2009 | | | July 3, 2011 | | | June 27, 2010 | | | | | (in thousands) | | | (in thousands) | | | | | | | | | | | | | | | | | Land | | $ | 2,907 | | | $ | 2,907 | | | $ | 2,907 | | | $ | 2,907 | | | Building and building improvements | | | 9,659 | | | | 9,659 | | | | 9,807 | | | | 9,659 | | | Leasehold improvements | | | 16,722 | | | | 15,039 | | | | 17,193 | | | | 16,722 | | | Furniture and fixtures | | | 3,966 | | | | 3,965 | | | | 4,471 | | | | 3,966 | | | Production equipment | | | 22,462 | | | | 20,795 | | | | 26,192 | | | | 22,462 | | | Computer equipment | | | 57,036 | | | | 55,541 | | | | 57,090 | | | | 57,036 | | | Telecommunication equipment | | | 8,523 | | | | 8,536 | | | | 8,355 | | | | 8,523 | | | Software | | | 82,895 | | | | 73,445 | | | | 99,819 | | | | 82,895 | | | | | | 204,170 | | | | 189,887 | | | | 225,834 | | | | 204,170 | | | Accumulated depreciation and amortization | | | 152,846 | | | | 135,117 | | | | 175,480 | | | | 152,846 | | | | | $ | 51,324 | | | $ | 54,770 | | | $ | 50,354 | | | $ | 51,324 | |
Note 8. Long-Term Debt
| | | June 27, 2010 | | | June 28, 2009 | | | July 3, 2011 | | | June 27, 2010 | | | | | (in thousands) | | | (in thousands) | | | | | | | | | | | | | | | | | Term loan and revolving credit line (1) | | $ | 57,000 | | | $ | 87,351 | | | $ | 44,250 | | | $ | 57,000 | | | Obligations under capital leases (2) | | | 3,508 | | | | 5,504 | | | | 1,488 | | | | 3,508 | | | | | | 60,508 | | | | 92,855 | | | | 45,738 | | | | 60,508 | | | Less current maturities of long-term debt obligations under capital leases | | | 14,801 | | | | 22,337 | | | | 16,488 | | | | 14,801 | | | | | $ | 45,707 | | | $ | 70,518 | | | $ | 29,250 | | | $ | 45,707 | |
| (1) | In order to fund the increase in working capital requirements associated with DesignPac, which was acquired onOn April 30, 2008, on August 28, 2008,14, 2009, the Company entered into a $293.0 million Amended and Restatedamended its 2008 Credit AgreementFacility with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “2008“Amended 2008 Credit Facility”). The Amended 2008 Credit Facility provided for borrowings of up to $293.0 million, including: (i) a $165.0 million revolving credit commitment, (ii) $60.0 million of new term loan debt of $92.4 million and (iii) $68.0 million of existing term loan debt associated with the Company’s previousa seasonally adjusted revolving credit facility. |
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On April 14, 2009, the Company entered into an amendment to the 2008 Credit Facility (the “Amended 2008 Credit Facility”). The Amended 2008 Credit Facility included a prepayment of $20.0 million, reducing the Company’s outstanding term loans under the facility to $92.4 million upon closing. In addition, the amendment reduced the Company’s revolving credit line from $165.0 million to a seasonally adjusted line ranging from $75.0 to $125.0 million. The Amended 2008 Credit Facility, effective March 29,line ranging from $75.0 to $125.0 million. The Amended 2008 Credit Facility, effective March 28, 2009, also revised certain financial and non-financial covenants.
|
On April 16, 2010, the Company entered into a Second Amended and Restated Credit Agreement with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “2010 Credit Facility”). The 2010 Credit Facility included a prepayment of approximately $12.1 million, comprised primarily of the proceeds from the sale of the Home & Children’s Gifts segment in January 2010, and thereby reducing the Company’s outstanding term loan under the facility to $60 million upon closing. The term loan, which matures on March 30, 2014, is payable in sixteen quarterly installments of principal and interest beginning in June 2010, amortizedwith escalating principal payments at the rate of 20% in year one, 25% in years two and three and 30% in year four.
In addition, the 2010 Credit Facility extended the Company’s revolving credit line through April 16, 2014, and reduced available borrowings from a seasonally adjusted limit which ranged from $75.0 million to $125.0 million to a seasonally adjusted limit ranging from $40.0 to $75.0 million. The 2010 Credit Facility also revisesrevised certain financial and non-financial covenants, including maintenance of certain financial ratios. The obligations of the Company and its subsidiaries under the 2010 Credit Facility are secured by liens on all personal property of the Company and its domestic subsidiaries.
Outstanding amounts under the 2010 Credit Facility will bear interest at the Company’s option atof either: (i) LIBOR plus a defined margin, or (ii) the agent bank’s prime rate plus a margin. The applicable margins for the Company’s term loans and revolving credit facility will range from 3.00% to 3.75% for LIBOR loans and 2.00% to 2.75% for ABR loans with pricing based upon the Company’s leverage ratio.
As a result of the modifications of its credit facilities, during the years ended June 27, 2010 and June 28, 2009, the Company wrote-off deferred financing costs in the amount of $0.3 million and $3.2 million, respectively.
The Company does not enter into derivative transactions for trading purposes, but rather to hedge its exposure to interest rate fluctuations. The Company manages its floating rate debt using interest rate swaps in order to reduce its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest.
In July 2009, the Company entered into a $45.0 million notional amount swap agreement that exchanges a variable interest rate (LIBOR) for a 1.92% fixed rate of interest over the term of the agreement. This swap matures on July 25, 2012. The Company has designated this swap as a cash flow hedge of the interest rate risk attributable to forecasted variable interest (LIBOR) payments. The effective portion of the after tax fair value gains or losses on this swap is included as a component of accumulated other comprehensive loss. The ineffective portion, if any, is recorded within interest expense in the consolidated statement of operations.
1-800-FLOWERS.COM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
(2) | During March 2009, the Company obtained a $5.0 million equipment lease line of credit with a bank and a $5.0 million equipment lease line of credit with a vendor. Interest under these lines, which both mature in April 2012, range from 2.99% to 7.48%. Borrowings under the bank line are collateralized by the underlying equipment purchased, while the equipment lease line with the vendor is unsecured. The borrowings are payable in 36 monthly installments of principal and interest commencing in April 2009. |
As of June 27, 2010July 3, 2011 long-term debt maturities, excluding amounts relating to capital leases (refer to Note 17. Commitments and Contingencies), are as follows: Year | Debt Maturities | | Debt Maturities | | | | (in thousands) | | (in thousands) | | | 2011 | 12,750 | | | 2012 | 15,000 | | | 15,000 | | | 2013 | 15,750 | | | 15,750 | | | 2014 | 13,500 | | | 13,500 | | | | $57,000 | | $ | 44,250 | |
Note 9. Fair Value Measurements
On June 29, 2009, the Company adopted the newly issued accounting standard for fair value measurements of all non-financial assets and liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company’s non-financial assets, such as goodwill, 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 also tested for impairment annually, as required under the accounting standards.
Cash and cash equivalents, receivables, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. TheAlthough no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature and as no trading market exists.nature.
1-800-FLOWERS.COM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited)
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. |
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s interest rate swap, which is included in other liabilities in the consolidated balance sheet. The fair value is based on forward looking interest rate curves: | | | | Fair Value Measurements Assets (Liabilities) | | | | Total as of June 27, 2010 | | Level 1 | | Level 2 | | Level 3 | | | | | | | | (in thousands) | | | | | Interest rate swap (1) | $(557) | | | - | | $(557) | | | - | |
| | | | Fair Value Measurements Assets (Liabilities) | | | | Balance | | Level 1 | | Level 2 | | Level 3 | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | Interest rate swap (1) – July 3, 2011 | $(263) | | | - | | $(263) | | | - | | | | | | | | | | | | | | | Interest rate swap (1) – June 27, 2010 | $(557) | | | - | | $(557) | | | - | |
| | (1) Included in other long-term liabilities on the consolidated balance sheet. |
The following presents the balances and net changes in the accumulated other comprehensive loss related to this interest rate swap, net of income taxes.
| | | | | | | | Interest Rate Swap | | | | | (in thousands) | | | | | | | | Balance at the beginning of the period | | $ | - | | | Amount reclassified to interest expense, net of tax benefit of $235 | | | 350 | | | Net change in fair value of interest rate swap, net of tax benefit of $456 | | | (684 | ) | | Balance at end of period | | $ | (334 | ) |
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 10. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is currently underhas concluded its federal examination by the Internal Revenue Service for its fiscal 2008 tax year, however, fiscalyears 2007 through 2009. Fiscal 2010 and fiscal 2010 remain2011remain subject to examination, with the exception of certain states where the statute remains open from fiscal 2006, duefederal examination. Due to non-conformity with the federal statute of limitations for assessment.assessment, certain states remain open from fiscal 2006. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any material accrued interest or penalties associated with any unrecognized tax benefits, nor was any material interest expense recognized during the year.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Significant components of the income tax provision from continuing operations are as follows:
| | | Years ended | | | Years ended | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Current (benefit) provision: | | | | | | | | | | | Current provision (benefit): | | | | | | | | | | | Federal | | $ | (213 | ) | | $ | 1,254 | | | $ | 3,008 | | | $ | 543 | | | $ | (213 | ) | | $ | 1,254 | | State | | | 482 | | | | 54 | | | | 1,751 | | | | 809 | | | | 482 | | | | 54 | | | | | | 269 | | | | 1,308 | | | | 4,759 | | | | 1,352 | | | | 269 | | | | 1,308 | | | Deferred (benefit) provision: | | | | | | | | | | | | | | Deferred provision (benefit): | | | | | | | | | | | | | | Federal | | | (522 | ) | | | (15,089 | ) | | | 8,558 | | | | 2,152 | | | | (522 | ) | | | (15,089 | ) | State | | | (29 | ) | | | (1,545 | ) | | | (191 | ) | | | 110 | | | | (29 | ) | | | (1,545 | ) | | | | | (551 | ) | | | (16,634 | ) | | | 8,367 | | | | 2,262 | | | | (551 | ) | | | (16,634 | ) | | | | | | | | | | | | | | | | | Income tax (benefit) expense | | $ | (282 | ) | | $ | (15,326 | ) | | $ | 13,126 | | | Income tax expense (benefit) | | | $ | 3,614 | | | $ | (282 | ) | | $ | (15,326 | ) |
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:
| | | Years ended | | | Years ended | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | | | | | | | | | | | | | Tax at U.S. statutory rates | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | State income taxes, net of federal tax benefit | | | (14.0 | ) | | | 2.4 | | | | 3.5 | | | | 6.6 | | | | (14.0 | ) | | | 2.4 | | | Non-deductible stock-based compensation | | | (11.4 | ) | | | (0.2 | ) | | | 0.1 | | | | 1.9 | | | | (11.4 | ) | | | (0.2 | ) | | Non-deductible goodwill amortization | | | (4.0 | ) | | | (17.7 | ) | | | 0.3 | | | | - | | | | (4.0 | ) | | | (17.7 | ) | | Rate change | | | - | | | | (1.4 | ) | | | - | | | | 0.1 | | | | - | | | | (1.4 | ) | | Tax credits | | | 4.3 | | | | (0.1 | ) | | | (0.7 | ) | | | (2.9 | ) | | | 4.3 | | | | (0.1 | ) | | Tax settlements | | | - | | | | - | | | | (0.4 | ) | | | (1.6 | ) | | | - | | | | - | | | Other, net | | | 2.0 | | | | 0.7 | | | | (0.5 | ) | | | (0.4 | ) | | | 2.0 | | | | 0.7 | | | | | | | | | | | | | | | | | | 38.7 | % | | | 11.9 | % | | | 18.7 | % | | | | | 11.9 | % | | | 18.7 | % | | | 37.3 | % | |
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred income tax assets (liabilities) are as follows:
| | | Years ended | | | Years ended | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred income tax assets: | | | | | | | | | | | | | | | | | | | Net operating loss and credit carryforwards | | $ | 11,284 | | | $ | 4,031 | | | $ | 3,483 | | | $ | 9,872 | | | $ | 11,284 | | | $ | 4,031 | | Accrued expenses and reserves | | | 5,035 | | | | 12,142 | | | | 5,876 | | | | 5,159 | | | | 5,035 | | | | 12,142 | | | Stock-based compensation | | | 3,116 | | | | 2,871 | | | | 3,407 | | | | 3,452 | | | | 3,116 | | | | 2,871 | | Other intangibles | | | 7,293 | | | | 8,370 | | | | - | | | | 6,257 | | | | 7,293 | | | | 8,370 | | | Deferred income tax liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Other intangibles | | | - | | | | - | | | | (8,834 | ) | | Tax in excess of book depreciation | | | (2,354 | ) | | | (3,023 | ) | | | (1,482 | ) | | | (2,143 | ) | | | (2,354 | ) | | | (3,023 | ) | | | | | | | | | | | | | | | | | Net deferred income tax assets | | $ | 24,374 | | | $ | 24,391 | | | $ | 2,450 | | | $ | 22,597 | | | $ | 24,374 | | | $ | 24,391 | |
At June 27, 2010,July 3, 2011, the Company’s federal net operating loss carryforwards were approximately $24.3$19.7 million, which if not utilized, will begin to expire in fiscal year 2025.
Note 11. Capital Stock
Holders of Class A common stock generally have the same rights as the holders of Class B common stock, except that holders of Class A common stock have one vote per share and holders of Class B common stock have 10 votes per share on all matters submitted to the vote of stockholders. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters presented to the stockholders for their vote or approval, except as may be required by Delaware law. Class B common stock may be converted into Class A common stock at any time on a one-for-one share basis. Each share of Class B common stock will automatically convert into one share of Class A common stock upon its transfer, with limited exceptions.
On January 21, 2008, the Company’s Board of Directors authorized an increase to its stock repurchase plan, which when added to the $8.7 million remaining on its earlier authorization, increased the amount available forto repurchase to $15.0 million. Any such purchases could be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program will be financed utilizing available cash. As of June 27, 2010, $12.3July 3, 2011, $11.8 remains authorized.
Under this program, as of June 27, 2010,July 3, 2011, the Company had repurchased 2,401,5062,569,713 shares of common stock for $14.0$14.5 million, of which $0.5 million (168,207 shares), $0.9 million (342,821 shares), and $0.8 million (397,899 shares) and $1.1 million (133,609 shares) were repurchased during the fiscal years ended July 3, 2011, June 27, 2010 and June 28, 2009, respectively.
The Company has stock options and June 29, 2008, respectively.restricted stock awards outstanding to participants under the 1-800-FLOWERS.COM 2003 Long Term Incentive and Share Award Plan (the “Plan”). Options are also outstanding under the Company’s 1999 Stock Incentive Plan, but no further options may be granted under this plan. The Plan is a broad-based, long-term incentive program that is intended to attract, retain and motivate employees, consultants and directors to achieve the Company’s long-term growth and profitability objectives, and therefore align stockholder and employee interests. The Plan provides for the grant to eligible employees, consultants and directors of stock options, share appreciation rights (“SARs”), restricted shares, restricted share units, performance shares, performance units, dividend equivalents, and other share-based awards (collectively “Awards”).
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Note 12. Stock Based Compensation
The Company has stock options and restricted stock awards outstanding to participants under the 1-800-FLOWERS.COM 2003 Long Term Incentive and Share Award Plan (the “Plan”). Options are also outstanding under the Company’s 1999 Stock Incentive Plan, but no further options may be granted under this plan. The Plan is a broad-based, long-term incentive program that is intended to attract, retain and motivate employees, consultants and directors to achieve the Company’s long-term growth and profitability objectives, and therefore align stockholder and employee interests. The Plan provides for the grant to eligible employees, consultants and directors of stock options, share appreciation rights (“SARs”), restricted shares, restricted share units, performance shares, performance units, dividend equivalents, and other share-based awards (collectively “Awards”).
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 “Committee”). Unless otherwise determined by the Board, the Committee will consist of two or more members of the Board who are non-employee directors within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Committee will determine which eligible employees, consultants and directors receive awards, the types of awards to be received and the terms and conditions thereof. The Chief Executive Officer shall have the power and authority to make Awards under the Plan to employees and consultants not subject to Section 16 of t hethe Exchange Act, subject to limitations imposed by the Committee.
At June 27, 2010,July 3, 2011, the Company has reserved approximately 15.9 milli13.6on million shares of common stock for issuance, including options previously authorized for issuance under the 1999 Stock Incentive Plan.
The amounts of stock-based compensation expense recognized in the periods presented are as follows:
| | | Years Ended | | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | Years Ended | | | | | | | | | | | | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | (in thousands, except per share data) | | | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | Stock options | | $ | 1,460 | | | $ | 1,383 | | | $ | 1,416 | | | $ | 1,181 | | | $ | 1,460 | | | $ | 1,383 | | | Restricted stock awards | | | 2,423 | | | | 341 | | | | 2,118 | | | | 2,780 | | | | 2,423 | | | | 341 | | | Total | | | 3,883 | | | | 1,724 | | | | 3,534 | | | | 3,961 | | | | 3,883 | | | | 1,724 | | | Deferred income tax benefit | | | 1,245 | | | | 444 | | | | 1,333 | | | | 1,381 | | | | 1,245 | | | | 444 | | | Stock-based compensation expense, net | | $ | 2,638 | | | $ | 1,280 | | | $ | 2,201 | | | $ | 2,580 | | | $ | 2,638 | | | $ | 1,280 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock based compensation expense is recorded within the following line items of operating expenses:
| | | Years Ended | | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | Years Ended | | | | | | | | | | | | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | (in thousands) | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | Marketing and sales | | $ | 1,590 | | | $ | 465 | | | $ | 1,051 | | | $ | 1,587 | | | $ | 1,590 | | | $ | 465 | | | Technology and development | | | 795 | | | | 583 | | | | 546 | | | | 791 | | | | 795 | | | | 583 | | | General and administrative | | | 1,498 | | | | 676 | | | | 1,937 | | | | 1,583 | | | | 1,498 | | | | 676 | | | Total | | $ | 3,883 | | | $ | 1,724 | | | $ | 3,534 | | | $ | 3,961 | | | $ | 3,883 | | | $ | 1,724 | |
Stock-based compensation expense has not been allocated between business segments, but is reflected in Corporate. (Refer to Note 15 – Business Segments.)
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Stock OptionsOption Plans
The weighted average fair value of stock options on the date of grant, and the assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model, were as follows:
| | | Years ended | | | Years ended | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | | | | | | | | | | | | | Weighted average fair value of options granted | | $ | 1.71 | | | $ | 1.83 | | | $ | 4.36 | | | $ | 1.23 | | | $ | 1.71 | | | $ | 1.83 | | | Expected volatility | | | 63 | % | | | 56 | % | | | 45 | % | | | 68 | % | | | 63 | % | | | 56 | % | | Expected life (in years) | | | 5.6 | | | | 5.8 | | | | 5.3 | | | | 7.5 | | | | 5.6 | | | | 5.8 | | | Risk-free interest rate | | | 2.4 | % | | | 2.2 | % | | | 4.1 | % | | | 1.3 | % | | | 2.4 | % | | | 2.2 | % | | Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
The expected volatility of the option is determined using historical volatilities based on historical stock prices. The Company estimated the expected life of options granted based upon the historical weighted average. The risk-free interest rate is determined using the yield available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the option. The Company has never paid a dividend, and as such the dividend yield is 0.0%.
The following table summarizes stock option activity during the year ended June 27, 2010:July 3, 2011: | | | Options | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (000s) | | | Options | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value (000s) | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding beginning of period | | | 8,916,672 | | | $ | 7.52 | | | | | | | | 6,890,089 | | | $ | 6.50 | | | | | | | Granted | | | 257,500 | | | $ | 3.54 | | | | | | | | 1,329,500 | | | $ | 1.86 | | | | | | | Exercised | | | - | | | $ | - | | | | | | | | (20,000 | ) | | $ | 2.44 | | | | | | | Forfeited/Expired | | | (2,284,083 | ) | | $ | 10.09 | | | | | | | | (1,284,054 | ) | | $ | 4.00 | | | | | | | Outstanding end of period | | | 6,890,089 | | | $ | 6.50 | | 3.6 years | | | $3 | | | | 6,915,535 | | | $ | 6.08 | | 4.2 years | | $ | 1,827 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Options vested or expected to vest at end of period | | | 6,780,077 | | | $ | 6.55 | | 3.5 years | | | $2 | | | | 6,576,081 | | | $ | 6.29 | | 3.9 years | | $ | 1,409 | | | Exercisable at June 27, 2010 | | | 5,518,284 | | | $ | 7.15 | | 2.9 years | | | $- | | | Exercisable at July 3, 2011 | | | | 5,044,561 | | | $ | 7.47 | | 2.6 years | | $ | 74 | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company’sCompany’s closing stock price on the last trading day of fiscal 20102011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 27, 2010.July 3, 2011. 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 3, 2011, June 27, 2010 and June 28, 2009 and June 29, 2008 was $0.0 million, $0.0 million, and $5.9$0.0 million, respectively.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
The following table summarizes information about stock options outstanding at June 27, 2010:July 3, 2011:
| | | | | Options Outstanding | | | Options Exercisable | | | | | Options Outstanding | | | Options Exercisable | | Exercise Price | Exercise Price | | | Options Outstanding | | Weighted- Average Remaining Contractual Life | | Weighted- Average Exercise Price | | | Options Exercisable | | | Weighted- Average Exercise Price | | Exercise Price | | | Options Outstanding | | Weighted- Average Remaining Contractual Life | | Weighted- Average Exercise Price | | | Options Exercisable | | | Weighted- Average Exercise Price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 2.01 – 3.11 | | | | 1,532,368 | | 6.4 years | | $ | 3.02 | | | | 485,763 | | | $ | 3.01 | | 1.69 – 2.87 | | | | 1,467,500 | | 9.2 years | | $ | 1.92 | | | | 90,000 | | | $ | 2.57 | | | $ | 3.26 - 6.42 | | | | 2,291,703 | | 2.0 years | | $ | 5.15 | | | | 2,176,703 | | | $ | 5.15 | | 3.11 - 6.42 | | | | 2,465,217 | | 3.4 years | | $ | 4.70 | | | | 1,997,243 | | | $ | 5.03 | | | $ | 6.52 – 7.38 | | | | 1,386,500 | | 4.2 years | | $ | 6.73 | | | | 1,223,800 | | | $ | 6.73 | | 6.52 – 8.40 | | | | 1,420,980 | | 3.2 years | | $ | 6.81 | | | | 1,418,980 | | | $ | 6.81 | | | $ | 7.40 – 12.87 | | | | 1,655,918 | | 2.6 years | | $ | 11.27 | | | | 1,608,418 | | | $ | 11.31 | | 8.45 – 12.87 | | | | 1,539,038 | | 1.5 years | | $ | 11.46 | | | | 1,515,538 | | | $ | 11.49 | | | $ | 13.05 – 15.77 | | | | 23,600 | | 1.6 years | | $ | 14.12 | | | | 23,600 | | | $ | 14.12 | | 13.05 – 15.77 | | | | 22,800 | | 0.7 years | | $ | 14.13 | | | | 22,800 | | | $ | 14.13 | | | | | | | | 6,890,089 | | 3.6 years | | $ | 6.50 | | | | 5,518,284 | | | $ | 7.15 | | | | | | 6,915,535 | | 4.2 years | | $ | 6.08 | | | | 5,044,561 | | | $ | 7.47 | |
As of June 27, 2010,July 3, 2011, the total future compensation cost related to nonvested options not yet recognized in the statement of operations was $1.9$1.8 million and the weighted average period over which these awards are expected to be recognized was 2.12.3 years.
The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service conditions and, in certain cases, holding periods (Restricted Stock).
The following table summarizes the activity of non-vested restricted stock during the year ended June 27, 2010:July 3, 2011: | | | Shares | | | Weighted Average Grant Date Fair Value | | | Shares | | | Weighted Average Grant Date Fair Value | | | | | | | | | | | | | | | | | Non-vested –beginning of period | | | 1,700,912 | | | $ | 4.62 | | | | 1,661,811 | | | $ | 4.35 | | | Granted | | | 866,842 | | | $ | 2.29 | | | | 2,551,568 | | | $ | 1.82 | | | Vested | | | (761,862 | ) | | $ | 2.37 | | | | (475,047 | ) | | $ | 4.72 | | | Forfeited | | | (144,081 | ) | | $ | 5.60 | | | | (343,071 | ) | | $ | 3.41 | | | Non-vested at June 27, 2010 | | | 1,661,811 | | | $ | 4.35 | | | Non-vested at July 3, 2011 | | | | 3,395,261 | | | $ | 2.49 | |
The fair value of nonvested shares is determined based on the closing stock price on the grant date. As of June 27, 2010,July 3, 2011, there was $3.5$4.0 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over a weighted-average period of 1.52.3 years.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 13. Profit Sharing Plan
The Company has a 401(k) Profit Sharing Plan covering substantially all of its eligible employees. All full-time employees who have attained the age of 21 are eligible to participate upon completion of one yearmonth 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 2011 and 2010. The Company made contributions of $1.1 million, and $0.7 million, forduring the yearsfiscal year ended June 28, 2009 and June 29, 2008, respectively.2009.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
The Company adoptedalso has a nonqualified supplemental deferred compensation plan for certain executives pursuant to Section 409A of the Internal Revenue Code. Participants can defer from 1% up to a maximum of 100% of salary and performance and non-performance based bonus. The Company will match 50% of the deferrals made by each participant during the applicable period, up to a maximum of $2,500. Employees are vested in the Company's contributions based upon years of participation in the plan. Distributions will be made to Participantsparticipants upon termination of employment or death in a lump sum, unless installments are selected. Company contributions during the years ended July 3, 2011, June 27, 2010 and June 28, 2009 and June 29, 2008 were less than $0.1 million.
Note 14. Restructuring
During the third and fourth quarters of fiscal 2009 the Company implemented expense reduction initiatives in order to reduce its cost structure. The initiatives primarily involved the termination of employees and facility site consolidation and closures. The Company recorded restructuring charges of $2.5 million, which are included within the following line items of the Company’s consolidated statement of operations: cost of revenues ($0.2 million), marketing and sales ($1.7 million), technology and development ($0.4 million) and general and administrative ($0.2 million). Approximately $1.0 million of severance costs associated with the fourth quarter restructuring was included within accounts payable and accrued expenses and was paid out during the first quarter of fiscal 2010.
Note 15. Business Segments
The Company’s management reviews the results of the Company’s operations by the following three business categories:
| · | 1-800-Flowers.com Consumer Floral; |
| · | BloomNet Wire Service; and |
| · | Gourmet Food and Gift Baskets; and |
During the fourth quarter of fiscal 2009, the Company made the strategic decision to divest its Home & Children’s Gifts business segment to focus on its core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets categories. On January 25, 2010, the Company completed the sale of these businesses; refer to “Discontinued Operations” below for a further discussion. Consequently, the Company has classified the results of operations of its Home & Children’s Gifts segment, which includes home decor and children’s gift products from Plow & Hearth®, Wind & Weather®, HearthSong® and Magic Cabin®, as discontinued operations for all periods presented.
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Category performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the categories. As such, management’s measure of profitability for these categories does not include the effect of corporate overhead (see (1) below), which are operated under a centralized management platform, providing services throughout the organization, nor does it include depreciation and amortization, goodwill and intangible impairment, other income, and income taxes, or stock-based compensation and severance and restructuring costs, both of which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by category.
| | | Years ended | | | Years ended | | Net revenues | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues (2): | | | | | | | | | | | | | | | | | | | | 1-800-Flowers.com Consumer Floral | | $ | 366,516 | | | $ | 394,782 | | | $ | 464,298 | | | $ | 369,198 | | | $ | 366,516 | | | $ | 394,782 | | | BloomNet Wire Service | | | 61,883 | | | | 63,515 | | | | 53,488 | | | | 73,281 | | | | 61,883 | | | | 63,515 | | | Gourmet Food & Gift Baskets | | | 239,942 | | | | 258,710 | | | | 223,696 | | | | 247,574 | | | | 239,942 | | | | 258,710 | | | Corporate (1) | | | 1,071 | | | | 1,119 | | | | 2,431 | | | | 1,150 | | | | 1,071 | | | | 1,119 | | | Intercompany eliminations | | | (1,702 | ) | | | (4,176 | ) | | | (4,702 | ) | | | (1,416 | ) | | | (1,702 | ) | | | (4,176 | ) | | Total net revenues | | $ | 667,710 | | | $ | 713,950 | | | $ | 739,211 | | | $ | 689,787 | | | $ | 667,710 | | | $ | 713,950 | |
| | | Years ended | | | Years ended | | Operating Income | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Category Contribution Margin (2): | | | | | | | | | | | | | | | | | | | | 1-800-Flowers.com Consumer Floral | | $ | 22,141 | | | $ | 38,830 | | | $ | 58,806 | | | $ | 32,669 | | | $ | 22,141 | | | $ | 38,830 | | | BloomNet Wire Service | | | 19,051 | | | | 18,764 | | | | 18,099 | | | | 20,195 | | | | 19,051 | | | | 18,764 | | | Gourmet Food & Gift Baskets | | | 27,303 | | | | 24,606 | | | | 28,002 | | | | 28,833 | | | | 27,303 | | | | 24,606 | | | Category Contribution Margin Subtotal | | | 68,495 | | | | 82,200 | | | | 104,907 | | | | 81,697 | | | | 68,495 | | | | 82,200 | | | Corporate (1) | | | (43,735 | ) | | | (48,284 | ) | | | (47,760 | ) | | | (47,569 | ) | | | (43,735 | ) | | | (48,284 | ) | | Depreciation and amortization | | | (21,378 | ) | | | (21,010 | ) | | | (17,822 | ) | | | (20,715 | ) | | | (21,378 | ) | | | (21,010 | ) | | Goodwill and intangible impairment | | | - | | | | (85,438 | ) | | | - | | | | - | | | | - | | | | (85,438 | ) | | Operating income (loss) | | $ | 3,382 | | | $ | (72,532 | ) | | $ | 39,325 | | | $ | 13,413 | | | $ | 3,382 | | | $ | (72,532 | ) |
(1) | Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among others, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center which are allocated directly to the above categories based upon usage, are included within corporate expenses, as they are not directly allocable to a specific category. |
| (2) | Certain balances in the prior fiscal years have been reclassified to conform to the presentation in the current fiscal year. During the second quarter of fiscal 2010, the Company launched its 1-800-Baskets brand. Products within this business are now being managed within the Gourmet Food & Gift Baskets segment, resulting in a change to our reportable segment structure. Gift basket products, formerly included in the Consumer Floral reportable segment are now included in the Gourmet Food & Gift Baskets segment. These changes have been reflected in the Company’s segment reporting for all periods presented. | |
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
Note 16. Discontinued Operations
During the fourth quarter of fiscal 2009, the Company made the strategic decision to divest its Home & Children’s Gifts business segment to focus on its core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets categories. On January 25, 2010, the Company completed the sale of the assets and certain related liabilities of its Home & Children’s Gifts business to PH International, LLC. Included in the sale were the Plow & Hearth, Problem Solvers, Wind & Weather, HearthSong and Magic Cabin brands, as well as the administrative and distribution center in Madison, VA, and a distribution center in Vandalia, OH.business. The sales price of the assets was $17.0 million, subject to adjustments for changes in working capital. (Net proceeds amounted to $10.5 million.) During the years ended Jun eJune 27, 2010 and June 28, 2009, the Company recorded losses related to the sale in the amounts of $5.3 million and $14.7 million, respectively, which is in addition to a goodwill and intangible asset impairment charge of $20.0 million during the year ended June 28, 2009. The Company has classified the results of operations of its Home & Children’s Gifts segment as discontinued operations for all periods presented.
Results for discontinued operations are as follows:
| | | | | | Years Ended | | | | | | | | | Years Ended | | | | | | | | June 27, 2010 | | | June 28, 2009 | | | June 29, 2008 | | | July 3, 2011 | | | June 27, 2010 | | | June 28, 2009 | | | | | (in thousands, except per share data) | | | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | Net revenues from discontinued operations | | $ | 87,852 | | | $ | 143,786 | | | $ | 180,181 | | | | - | | | $ | 87,852 | | | $ | 143,786 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating loss from discontinued operations (1) (2) | | $ | ( 1,723 | ) | | $ | (39,754 | ) | | $ | ( 1,785 | ) | | | - | | | $ | ( 1,723 | ) | | $ | (39,754 | ) | | (including losses on disposal of $5.2 million and $14.7 million during the years ended June 27, 2010 and June 28, 2009, respectively, and impairment charges of $20.0 million during the year ended June 27, 2009) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income tax expense (benefit) from discontinued operations | | $ | 410 | | | $ | ( 7,838 | ) | | $ | ( 810 | ) | | | - | | | $ | 410 | | | $ | (7,838 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss from discontinued operations | | $ | (2,133 | ) | | $ | (31,916 | ) | | $ | ( 975 | ) | | | - | | | $ | (2,133 | ) | | $ | (31,916 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | (1) Operating income (loss) from discontinued operations during the year ended June 28, 2009 includes approximately $0.4 million of restructuring costs associated with the Company’s cost reduction initiatives implemented during the third quarter. Refer to Note 14. Restructuring. |
(2) | (2) During the three months ended December 28, 2008, the Home and Children’s Gift segment experienced significant declines in revenue and operating performance when compared to prior years and their strategic outlook. The Company believes that this weak performance was attributable to reduced consumer spending due to the overall weakness in the economy, and in particular, as a result of the continued decline in demand for home décor products. As a result of these factors, as well as the Company’s plans to resize this category based on the expectation of continued weakness in the home décor retail sector, upon completion of the impairment analysis described above, the goodwill and intangibles related to this reporting unit was deemed to be fully impaired. Therefore, during the three months ended December 28, 2008, the Company recorded a goodwill and intangible impairment charge of $20.0 mi llionmillion related to this business segment. In the fourth quarter ended June 28, 2009, the Company made the strategic decision to divest its Home & Children’s Gifts business segment. Consequently, the Company has classified the results of its Home & Children’s Gifts segment as a discontinued operation, and recorded losses on disposal of $14.7 million and $5.2 million to write-down the assets of the discontinued business to management’s estimate of their fair value. |
1-800-FLOWERS.COM, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
| | | June 27, 2010 | | | June 28, 2009 | | | | | | | | | | | Assets of discontinued operations | | | | | | | Receivables, net | | $ | - | | | $ | 693 | | Inventories | | | - | | | | 15,529 | | Prepaid and other | | | - | | | | 1,878 | | Current assets of discontinued operations | | | - | | | | 18,100 | | | Property, plant and equipment, net | | | - | | | | 8,871 | | | Other intangibles, net | | | - | | | | 666 | | | Other assets | | | - | | | | 110 | | | Non-current assets of discontinued operations | | | - | | | | 9,647 | | | Total assets of discontinued operations | | $ | - | | | $ | 27,747 | | | | | | | | | | | | Liabilities of discontinued operations | | | | | | | | | Accounts payable and accrued expenses | | $ | - | | | $ | 2,633 | | Current liabilities of discontinued operations | | | - | | | | 2,633 | | | Non-current liabilities of discontinued operations | | | - | | | | 1,334 | | | Total liabilities of discontinued operations | | $ | - | | | $ | 3,967 | |
Note 17. Commitments and Contingencies
Leases
The Company currently leases office, store facilities, and equipment under various operating leases through fiscal 2019. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Most lease agreements contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company has also entered into leases that are on a month-to-month basis. In addition, the Company has a $5.0 million equipment lease line of credit with a bank and a $5.0 million equipment lease line of credit with a vendor. Interest under these lines, which both mature in April 2012, range from 2.99% to 7.48%. The borrowings, aggregating $6.0 million, are payable in 36 monthly install mentsinstallments of principal and interest commencing in April 2009. These leases are classified as either capital leases, operating leases or subleases, as appropriate.
1-800-FLOWERS.COM, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
As of June 27, 2010July 3, 2011 future minimum payments under non-cancelable capital lease obligations and operating leases with initial terms of one year or more consist of the following:
| | | Obligations under Capital Leases | | | Operating Leases | | | Obligations under Capital Leases | | | Operating Leases | | | | | (in thousand) | | | (in thousands) | | | | | | | | | | | | | | | | 2011 | | $ | 2,281 | | | $ | 11,426 | | | 2012 | | | 1,626 | | | | 10,124 | | | $ | 1,641 | | | $ | 12,724 | | 2013 | | | 7 | | | | 8,844 | | | | 6 | | | | 11,710 | | 2014 | | | - | | | | 7,978 | | | | - | | | | 10,624 | | 2015 | | | - | | | | 4,497 | | | | - | | | | 7,391 | | 2016 | | | | - | | | | 6,863 | | Thereafter | | | - | | | | 9,475 | | | | - | | | | 19,174 | | | Total minimum lease payments | | $ | 3,914 | | | $ | 52,344 | | | $ | 1,647 | | | $ | 68,486 | | | Less amounts representing interest | | | 406 | | | | | | | | 159 | | | | | | | | | $ | 3,508 | | | | | | | $ | 1,488 | | | | | |
At June 27, 2010,July 3, 2011, the aggregate future sublease rental income under long-term operating sub-leases for land and buildings and corresponding rental expense under long-term operating leases were as follows:
| | | Sublease Income | | | Sublease Expense | | | Sublease Income | | | Sublease Expense | | | | | (in thousands) | | | (in thousands) | | | | | | | | | | | | | | | | 2011 | | $ | 2,311 | | | $ | 2,311 | | | 2012 | | | 1,552 | | | | 1,552 | | | $ | 1,666 | | | $ | 1,666 | | 2013 | | | 1,036 | | | | 1,036 | | | | 1,082 | | | | 1,082 | | 2014 | | | 470 | | | | 470 | | | | 535 | | | | 535 | | 2015 | | | 226 | | | | 226 | | | | 265 | | | | 265 | | 2016 | | | | 226 | | | | 226 | | Thereafter | | | 166 | | | | 166 | | | | 143 | | | | 143 | | | | | | | | | | | | | $ | 3,917 | | | $ | 3,917 | | | | | $ | 5,761 | | | $ | 5,761 | | |
Rent expense was approximately $18.4 million, $18.9 million, $19.9 million, and $17.1$19.9 million for the years ended July 3, 2011, June 27, 2010 and June 28, 2009, respectively. 1-800-FLOWERS.COM, Inc. and June 29, 2008, respectively.Subsidiaries Notes to Consolidated Financial Statements (continued)
Litigation
From time to time, the Company is subject to legal proceedings and claims arising in the ordinary course of business.
On December 21, 2007, Plaintiff, Thomas Molnar, on behalf of himself and a putative class, filed suit against the Company claiming false advertising, unfair business practices, and unjust enrichment seeking unspecified monetary damages. The Company admitted to no wrongdoing with respect to this matter, but entered into a settlement agreement with the parties to this matter in order to avoid protracted litigation. The presiding trial Judge’s Order Granting Final Approval of the Class Action Settlement and Entry of Judgment was issued May 17, 2010. The Company has sent out the applicable notices to the class members, and the Company accrued for the estimated cost of the settlement of approximately $0.9 million within its general and administrative expenses.
On November 10, 2010, a purported class action complaint was filed in the United States District Court for the Eastern District of New York naming the Company (along with Trilegiant Corporation, Inc., Affinion, Inc. and Chase Bank USA, N.A.) as defendants in an action purporting to assert claims against the Company alleging violations arising under the Connecticut Unfair Trade Practices Act among other statutes, and for breach of contract and unjust enrichment in connection with certain post-transaction marketing practices in which certain of the Company’s subsidiaries previously engaged in with certain third-party vendors. Plaintiffs seek to have this case certified as a class action and seek restitution and other damages, all in an amount in excess of $5 million. The Company intends to defend this action vigorously.
In 2009, the United States Senate Committee on Commerce, Science and Transportation commenced an investigation of post-transaction marketing practices and the Company was one of many involved in that investigation. The Company fully complied with all requests from the committee. In addition, the Company received a civil investigative demand from the Attorney General of the State of New York regarding the same activities. The Company fully complied with that investigation, supplied the information sought and voluntarily entered into an Assurance of Discontinuance with the Attorney General’s Office in December 2010. As part of the resolution of that matter, the Company paid the sum of $325,000 to a fund to be used for consumer education, consumer redress and costs and fees of the investigation.
There are no assurances that additional legal actions will not be instituted in connection with the Company’s former post-transaction marketing practices involving third party vendors nor can we predict the outcome of any such legal action.
Note 18. Subsequent Events
Acquisition of Flowerama On August 1, 2011, the Company completed the acquisition of Flowerama of America, Inc. (Flowerama), a franchisor and operator of retail flower shops under the Flowerama trademark for cash consideration of approximately $5.0 million. Revenues for the most recently completed fiscal year associated with the acquired business were approximately $4.0 million. expenses.
Disposition of the Winetasting Network Fulfillment Operations
On September 6, 2011, the Company completed the sale of certain assets of its WinetastingNetwork wine fulfillment services business. The sale price consisted of $12.0 million of cash proceeds at closing, with the potential for an additional $1.5 million upon achieving specified revenue targets during the two year period following the closing date. Revenues for the most recently completed fiscal year associated with the discontinued business were approximately $18.2 million.
1-800-FLOWERS.COM, INC.
Schedule II - Valuation and Qualifying Accounts
| | | | | | Additions | | | | | | | | | | | | Additions | | | | | | | | | Description | | Balance at Beginning of Period | | | Charged to Costs and Expenses | | | Charged to Other Accounts- Describe (b) | | | Deductions- Describe (a) | | | Balance at End of Period | | | Balance at Beginning of Period | | | Charged to Costs and Expenses | | | Charged to Other Accounts- Describe (b) | | | Deductions- Describe (a) | | | Balance at End of Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reserve for estimated doubtful accounts-accounts/notes receivable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended July 3, 2011 | | | $ | 1,458,000 | | | $ | 346,000 | | | $ | - | | | $ | (773,000 | ) | | $ | 1,031,000 | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended June 27, 2010 | | $ | 1,803,000 | | | $ | 708,000 | | | $ | - | | | $ | (1,053,000 | ) | | $ | 1,458,000 | | | $ | 1,803,000 | | | $ | 708,000 | | | $ | - | | | $ | (1,053,000 | ) | | $ | 1,458,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended June 28, 2009 | | $ | 1,386,000 | | | $ | 566,000 | | | $ | 300,000 | | | $ | (449,000 | ) | | $ | 1,803,000 | | | $ | 1,386,000 | | | $ | 566,000 | | | $ | 300,000 | | | $ | (449,000 | ) | | $ | 1,803,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended June 29, 2008 | | $ | 1,113,000 | | | $ | 1,000,000 | | | $ | - | | | $ | (727,000 | ) | | $ | 1,386,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Reduction in reserve due to write-off of accounts/notes receivable balances. |
| (b) | Amount represents opening balances from acquired businesses. |
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