flws20140330_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  X  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2014

 

 

or

 

___

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

 

 

Commission File No. 0-26841

 

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter) 

DELAWARE

 

11-3117311

(State of

 

(I.R.S. Employer

incorporation)

 

Identification No.)

 

One Old Country Road, Carle Place, New York 11514

(Address of principal executive offices)(Zip code)

 

(516) 237-6000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.           

Yes        No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes        No 

 

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

 

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No

 

The number of shares outstanding of each of the Registrant’s classes of common stock:

 

 27,307,929

(Number of shares of Class A common stock outstanding as of May 5, 2014)

 

36,778,594

(Number of shares of Class B common stock outstanding as of May 5, 2014)

 

 
 

 

 

1-800-FLOWERS.COM, Inc.

 

TABLE OF CONTENTS

 

INDEX

    Page
     

Part I.

Financial Information

 
     

    Item 1.

Consolidated Financial Statements: 

 

     
 

Consolidated Balance Sheets – March 30, 2014 (Unaudited) and June 30, 2013

1
     
 

Consolidated Statements of Operations (Unaudited) – Three and Nine Months Ended March 30, 2014 and March 31, 2013

2
     
 

Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months Ended March 30, 2014 and March 31, 2013

3
     
 

Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended March 30, 2014 and March 31, 2013

4
     
  Notes to Consolidated Financial Statements (Unaudited) 5
     

    Item 2.

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

 17

     
Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28
     
Item 4. Controls and Procedures 28
     

Part II.

Other Information

 
     

    Item 1. 

Legal Proceedings

29

     
Item 1A.

Risk Factors

30
     
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30
     
Item 3.

Defaults upon Senior Securities

30
     
Item 4.

Mine Safety Disclosures

30
     
Item 5. Other Information 30
     
Item 6. Exhibits 31
     
Signatures 32

 

 
 

 

 

PART I. – FINANCIAL INFORMATION

ITEM 1. – CONSOLIDATED FINANCIAL STATEMENTS

 

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

Consolidated Balance Sheets

(in thousands, except share data)

 

   

March 30,

2014

   

June 30,

2013

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 1,314     $ 154  

Receivables, net

    17,092       14,957  

Inventories

    61,441       55,756  

Deferred tax assets

    7,780       5,746  

Prepaid and other

    5,874       9,941  

Current assets of discontinued operations

    1,133       6,095  

Total current assets

    94,634       92,649  
                 

Property, plant and equipment, net

    55,886       52,943  

Goodwill

    54,008       47,943  

Other intangibles, net

    45,176       43,276  

Deferred tax assets

    1,755       2,127  

Other assets

    8,264       10,086  

Non-current assets of discontinued operations

    1,262       1,049  

Total assets

  $ 260,985     $ 250,073  
                 

Liabilities and equity

               

Current liabilities:

               

Accounts payable

  $ 18,335     $ 26,235  

Accrued expenses

    54,941       45,044  

Current maturities of long-term debt

    394       -  

Current liabilities of discontinued operations

    940       4,484  

Total current liabilities

    74,610       75,763  
                 

Other liabilities

    5,565       5,039  

Total liabilities

    80,175       80,802  

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; 38,043,473 and 36,280,425 shares issued at March 30, 2014 and June 30, 2013, respectively

    380       362  

Class B common stock, $.01 par value, 200,000,000 shares authorized; 42,058,594 and 42,125,465 shares issued at March 30, 2014 and June 30, 2013, respectively

    420       421  

Additional paid-in capital

    302,387       298,580  

Retained deficit

    (71,973 )     (83,937 )

Accumulated other comprehensive loss

    (52 )     -  

Treasury stock, at cost – 10,659,119 and 9,257,231 Class A shares at March 30, 2014 and June 30, 2013, respectively, and 5,280,000 Class B shares at March 30, 2014 and June 30, 2013

    (53,578 )     (46,155 )

Total stockholders’ equity

    177,584       169,271  

Noncontrolling interest in subsidiary

    3,226       -  

Total equity

    180,810       169,271  

Total liabilities and equity

  $ 260,985     $ 250,073  

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
1

 

 

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

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
                                 

Net revenues

  $ 179,591     $ 191,582     $ 568,976     $ 562,534  
                                 

Cost of revenues

    106,048       111,125       333,159       328,171  
                                 

Gross profit

    73,543       80,457       235,817       234,363  
                                 

Operating expenses:

                               

Marketing and sales

    51,581       51,439       143,716       138,645  

Technology and development

    6,045       5,613       16,762       16,372  

General and administrative

    13,865       13,757       41,944       40,172  

Depreciation and amortization

    4,932       4,838       14,657       13,806  
                                 

Total operating expenses

    76,423       75,647       217,079       208,995  
                                 

Operating income (loss)

    (2,880 )     4,810       18,738       25,368  

Interest expense and other, net

    249       199       959       1,024  
                                 

Income (loss) from continuing operations before income taxes

    (3,129 )     4,611       17,779       24,344  

Income tax expense (benefit)

    (1,391 )     1,491       6,590       9,161  

Income (loss) from continuing operations

    (1,738 )     3,120       11,189       15,183  
                                 

Income (loss) from discontinued operations, net of tax

    75       (481 )     (381 )     (1,140 )

Adjustment to loss on sale of discontinued operations, net of tax

    (62 )     -       815       -  

Income (loss) from discontinued operations, net of tax

    13       (481 )     434       (1,140 )

Net income (loss)

    (1,725 )     2,639       11,623       14,043  

Less: Net loss attributable to noncontrolling interest

    (300 )     -       (341 )     -  
                                 

Net income (loss) attributable to 1-800-FLOWERS.COM, Inc.

  $ (1,425 )   $ 2,639     $ 11,964     $ 14,043  
                                 

Basic income (loss) per share attributable to 1-800-FLOWERS.COM, Inc.

                               

Continuing operations

  $ (0.02 )   $ 0.05     $ 0.18     $ 0.24  

Discontinued operations

  $ 0.00     $ (0.01 )   $ 0.01     $ (0.02 )

Net income (loss)

  $ (0.02 )   $ 0.04     $ 0.19     $ 0.22  
                                 

Diluted income (loss) per share attributable to 1-800-FLOWERS.COM, Inc.

                               

Continuing operations

  $ (0.02 )   $ 0.05     $ 0.17     $ 0.23  

Discontinued operations

  $ 0.00     $ (0.01 )   $ 0.01     $ (0.02 )

Net income (loss)

  $ (0.02 )   $ 0.04     $ 0.18     $ 0.21  
                                 

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

                               

Basic

    64,214       64,256       64,010       64,528  

Diluted

    64,214       66,111       66,429       66,647  

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
2

 

 

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

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
    (in thousands)  
                                 

Net income (loss)

  $ (1,725 )   $ 2,639     $ 11,623     $ 14,043  

Other comprehensive income (loss)

    (40 )     -       (52 )     17  

Comprehensive income (loss)

    (1,765 )     2,639       11,571       14,060  
                                 

Net loss attributable to noncontrolling interest

    (300 )     -       (341 )     -  

Other comprehensive loss attributable to noncontrolling interest

    (18 )     -       (23 )     -  

Comprehensive loss attributable to noncontrolling interest

    (318 )     -       (364 )     -  
                                 

Comprehensive income (loss) attributable to 1-800-FLOWERS.COM, Inc.

  $ (1,447 )   $ 2,639     $ 11,935     $ 14,060  

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
3

 

  

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

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   

Nine Months Ended

 
   

March 30,

2014

   

March 31, 2013

 
                 

Operating activities

               

Net income

  $ 11,623     $ 14,043  

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

               

Operating activities of discontinued operations

    869       (10 )
Adjustment to loss on sale of discontinued ops     (815 )     -  

Depreciation and amortization

    14,657       13,839  

Amortization of deferred financing costs

    229       343  

Deferred income taxes

    (1,376 )     (1,337 )

Bad debt expense

    1,027       762  

Stock based compensation

    3,491       3,397  

Other non-cash items

    433       213  

Changes in operating items, excluding the effects of acquisitions:

               

Receivables

    (5,492 )     (10,500 )

Inventories

    (5,585 )     (4,133 )

Prepaid and other

    4,162       2,226  

Accounts payable and accrued expenses

    197       7,694  

Other assets

    (274 )     (464 )

Other liabilities

    426       662  

Net cash provided by operating activities

    23,572       26,735  
                 

Investing activities

               

Acquisitions, net of cash acquired

    (1,385 )     (2,000 )

Capital expenditures, net of non-cash expenditures

    (14,458 )     (15,118 )

Purchase of investment

    8       (1,337 )

Other, net

    10       22  

Investing activities of discontinued operation

    500       -  

Net cash used in investing activities

    (15,325 )     (18,433 )
                 

Financing activities

               

Acquisition of treasury stock

    (7,423 )     (8,921 )

Proceeds from exercise of employee stock options

    334       67  

Proceeds from bank borrowings

    120,000       47,000  

Repayment of bank borrowings

    (120,002 )     (58,250 )

Repayment of capital lease obligations

    -       (48 )

Other

    4       -  

Net cash used in financing activities

    (7,087 )     (20,152 )
                 

Net change in cash and equivalents

    1,160       (11,850 )

Cash and equivalents:

               

Beginning of period

    154       28,854  

End of period

  $ 1,314     $ 17,004  

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 
4

 

 

Note 1 – Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended March 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 29, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2013.

 

The Company’s quarterly results may experience seasonal fluctuations. Due to the Company’s expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates the highest proportion of the Company’s annual revenues. Additionally, as the result of a number of major floral gifting occasions, including Mother's Day, Valentine’s Day and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters. The Easter Holiday, which was in the Company’s third quarter during fiscal 2013, is in the fourth quarter of fiscal 2014.

 

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.

 

Recently Adopted Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU No. 2012-02”), which allows entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. This ASU became effective for annual and interim goodwill impairment tests performed for the Company’s fiscal year ending June 29, 2014. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Reclassifications

 

Certain balances in the prior fiscal years have been reclassified to conform to the presentation in the current fiscal year.

 

 
5

 

 

Note 2 – Net Income (Loss) Per Common Share from Continuing Operations

 

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

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
    (in thousands, except per share data)  

Numerator:

                               

Income (loss) from continuing operations

  $ (1,738 )   $ 3,120     $ 11,189     $ 15,183  

Less: Net loss attributable to noncontrolling interest

    (300 )     -       (341 )     -  

Income (loss) from continuing operations attributable to 1-800-FLOWERS.COM, Inc.

  $ (1,438 )   $ 3,120     $ 11,530     $ 15,183  
                                 

Denominator:

                               

Weighted average shares outstanding

    64,214       64,256       64,010       64,528  

Effect of dilutive securities:

                               

Employee stock options (1)

    -       769       1,075       610  

Employee restricted stock awards

    -       1,086       1,344       1,509  
      -       1,855       2,419       2,119  
                           

 

 

Adjusted weighted-average shares and assumed conversions

    64,214       66,111       66,429       66,647  
                                 

Net income (loss) per common share from continuing operations attributable to 1-800-FLOWERS.COM, Inc.

                               

Basic

  $ (0.02 )   $ 0.05     $ 0.18     $ 0.24  

Diluted

  $ (0.02 )   $ 0.05     $ 0.17     $ 0.23  

 

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share from continuing operations, for the three months ended March 30, 2014, is computed using the weighted-average number of common shares outstanding during the period, and excludes the dilutive potential common shares (consisting of employee stock options and unvested restricted stock awards), as their inclusion would be antidilutive. Diluted net income per share is computed using the weighted-average number of common and dilutive common equivalent shares (consisting of employee stock options and unvested restricted stock awards) outstanding during the period.

 

 

(1)

The effect of options to purchase 1.2 million shares during both the three and nine months ended March 30, 2014 and 1.8 million and 3.2 million shares during the three and nine months ended March 31, 2013, respectively, were excluded from the calculation of net income per share on a diluted basis as their effect is anti-dilutive.

 

Note 3 – Stock-Based Compensation

 

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013, that provides for the grant to eligible employees, consultants and directors of stock options, restricted shares, and other stock-based awards.

 

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

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
           

(in thousands)

         
                                 

Stock options

  $ 111     $ 116     $ 322     $ 353  

Restricted stock

    1,169       977       3,169       3,044  

Total

    1,280       1,093       3,491       3,397  

Deferred income tax benefit

    439       301       1,270       1,210  

Stock-based compensation expense, net

  $ 841     $ 792     $ 2,221     $ 2,187  

 

 
6

 

 

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

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
           

(in thousands)

         
                                 

Marketing and sales

  $ 320     $ 383     $ 968     $ 1,189  

Technology and development

    64       109       239       340  

General and administrative

    896       601       2,284       1,868  

Total

  $ 1,280     $ 1,093     $ 3,491     $ 3,397  

 

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 granted during the respective periods were as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013 (1)

   

March 30,

2014

   

March 31,

2013

 
                                 

Weighted average fair value of options granted

  $ 3.14       n/a     $ 3.14     $ 2.40  

Expected volatility

    65.3 %  

n/a

      65.3 %     72.1 %

Expected life (years)

    6.6    

n/a

      6.6       6.4  

Risk-free interest rate

    1.46 %  

n/a

      1.46 %     0.69 %

Expected dividend yield

    0.0 %     n/a       0.0 %     0.0 %

 

 

(1)

No options were granted during the three months ended March 31, 2013.

 

The following table summarizes stock option activity during the nine months ended March 30, 2014:

 

   

Options

   

Weighted Average Exercise Price

   

Weighted Average Remaining Contractual Term (years)

   

Aggregate Intrinsic Value (000s)

 
                                 

Outstanding at July 1, 2013

    4,723,240     $ 3.89                  

Granted

    10,000     $ 5.08                  

Exercised

    (94,125 )   $ 2.97                  

Forfeited

    (234,400 )   $ 6.48                  

Outstanding at March 30, 2014

    4,404,715     $ 3.78       4.4     $ 9,509  
                                 

Options vested or expected to vest at March 30, 2014

    4,288,119     $ 3.81       4.3     $ 9,144  

Exercisable at March 30, 2014

    2,947,315     $ 4.49       3.1     $ 4,931  

 

As of March 30, 2014, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $1.9 million and the weighted average period over which these awards are expected to be recognized was 5.0 years.

 

 
7

 

 

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 awards during the nine months ended March 30, 2014:

 

    Shares    

Weighted Average
Grant Date Fair Value

 
                 

Non-vested at July 1, 2013

    3,433,355     $ 2.80  

Granted

    1,725,918     $ 5.08  

Vested

    (1,602,052 )   $ 2.50  

Forfeited

    (822,369 )   $ 4.62  

Non-vested at March 30, 2014

    2,734,852     $ 3.86  

 

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of March 30, 2014, there was $7.9 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 3.1 years. 

 

Note 4 – Acquisitions and Dispositions

 

Acquisition of Colonial Gifts Limited

 

On December 3, 2013, the Company completed its acquisition of a controlling interest in Colonial Gifts Limited (iFlorist). IFlorist, located in the UK, is a direct-to-consumer marketer of floral and gift-related products sold and delivered throughout Europe, with annual revenue of approximately $12.8 million and an operating loss of approximately $0.9 million in its most recently completed year end, prior to acquisition. The acquisition was achieved in stages and was accounted for using the purchase method of accounting in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance regarding business combinations.

 

Prior to December 3, 2013, the Company maintained an investment in iFlorist in the amount of $1.6 million, which was included on the Company’s balance sheet within Other assets. This investment was accounted for under the cost method, as the Company’s ownership stake was 19.9%, and it did not have the ability to exercise significant influence.

 

On December 3, 2013, the Company acquired an additional interest in iFlorist, bringing the Company’s ownership interest to 56.2%. The acquisition of the additional interest was financed through the conversion of $1.9 million of notes owed by iFlorist to the Company, and a $1.6 million cash payment to iFlorist’s founders. Concurrent with the additional investment, the Company remeasured its initial equity investment in iFlorist, and determined that the acquisition date fair value approximated the Company’s carrying value of $1.6 million, and therefore no gain or loss was recognized. On the acquisition date, the Company also measured the fair value of the noncontrolling interest which amounted to $3.6 million. The acquisition-date fair values of the Company’s previously held equity interest in iFlorist and the noncontrolling interest were determined based on the market price the Company paid for its ownership interest in iFlorist on the acquisition date, assuming that a 20% control premium was paid to obtain the controlling interest. The following summarizes the fair values of the acquisition date purchase price components:

 

   

iFlorist Fair Value of Purchase Price Components

 
   

(in thousands)

 

Cash

  $ 1,640  

Converted debt

    1,915  

Initial equity investment

    1,629  

Noncontrolling interest

    3,567  

Total purchase price

  $ 8,751  

 

 
8

 

 

The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on our preliminary estimates of their fair values on the acquisition date. The Company is in the process of finalizing its allocation and this may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain additional intangible assets, revisions of useful lives of intangible assets, and the determination of any residual amount that will be allocated to goodwill. Of the acquired intangible assets, $1.3 million was assigned to customer lists, which is being amortized over the estimated remaining life of 3 years, $1.9 million was assigned to trademarks, and $6.2 million was assigned to goodwill, which is not expected to be deductible for tax purposes. As a result of cumulative tax losses in the foreign jurisdiction, offset in part by the deferred tax liability arising from the amortizable customer list which was considered a source of future income, the Company concluded that a full valuation allowance be recorded in such jurisdiction.

 

The following table summarizes the allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of acquisition of iFlorist:

 

   

iFlorist Preliminary

Purchase Price Allocation

 
   

(in thousands)

 

Current assets

  $ 856  

Intangible assets

    3,177  

Goodwill

    6,162  

Property, plant and equipment

    2,006  

Other assets

    30  

Total assets acquired

    12,231  
         

Current liabilities, including current maturities of long-term debt

    3,014  

Deferred tax liabilities

    371  

Other liabilities assumed

    95  
      3,480  

Net assets acquired

  $ 8,751  

 

Operating results of the Company’s membership interest in iFlorist are reflected in the Company’s consolidated financial statements from the date of acquisition, essentially all of which is in the 1-800-Flowers.com Consumer Floral segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results would not have been material.

 

Acquisition of Pingg

 

On May 31, 2013, the Company completed the acquisition of Pingg Corp., an online invitation and event planner with annual revenues of approximately $0.6 million in its most recently completed year end prior to the acquisition. The purchase price, which included the acquisition of software, receivables and certain other assets and related liabilities, was approximately $1.6 million. Approximately $0.4 million of the purchase price was assigned to goodwill. The acquisition was financed utilizing available cash balances. Operating results of the acquired entity, which are not significant, are reflected in the Company’s consolidated financial statements from the date of acquisition, in the 1-800-Flowers.com Consumer Floral segment.

 

Acquisition of 1-800-Flowers’ European trademarks

 

On March 11, 2013, the Company acquired the European rights to various derivations of the 1-800-Flowers’ tradename, trademark, URL’s and telephone numbers from Flowerscorp Pty Ltd. for a purchase price of $4.0 million, which is included within Other Intangibles, net. The Company has paid $3.0 million of the $4.0 million purchase price, and is required to make a final payment of $1.0 million on March 11, 2015, the balance of which is included on the balance sheet within Accrued Expenses.

 

 
9

 

 

Note 5 – Inventory

 

The Company’s inventory, stated at cost, which is not in excess of market, includes purchased and manufactured finished goods for resale, packaging supplies, raw material ingredients for manufactured products and associated manufacturing labor, and is classified as follows:

 

   

March 30,
2014

    June 30,
2013
 
    (in thousands)  
                 

Finished goods

  $ 28,884     $ 30,906  

Work-in-process

    9,589       6,465  

Raw materials

    22,968       18,385  
    $ 61,441     $ 55,756  

 

Note 6 – Goodwill and Intangible Assets

 

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

 

   

1-800-Flowers.com Consumer Floral

   

BloomNet Wire Service

   

Gourmet Food & Gift Baskets (1)

   

Total

 
   

(in thousands)

 
                                 

Balance at June 30, 2013

  $ 10,251     $ -     $ 37,692     $ 47,943  

Acquisition of iFlorist

    6,162       -       -       6,162  

Acquisition related adjustment

    (97 )     -       -       (97 )

Balance at March 30, 2014

  $ 16,316     $ -     $ 37,692     $ 54,008  

 

 

(1)

The total carrying amount of goodwill for all periods in the table above is reflected net of $71.1 million of accumulated impairment charges, which were recorded in the Gourmet Food & Gift Baskets segment during fiscal 2009.

 

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

 

           

March 30, 2014

   

June 30, 2013

 
   

Amortization Period

(in years)

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net

 
                   

(in thousands)

                 
                                                         

Intangible assets with determinable lives

                                                       

Investment in licenses

    14 - 16     $ 7,420     $ 5,595     $ 1,825     $ 7,420     $ 5,516     $ 1,904  

Customer lists

    3 - 10       17,313       12,364       4,949       15,989       11,334       4,655  

Other

    5 - 8       2,587       2,538       49       2,538       2,513       25  
              27,320       20,497       6,823       25,947       19,363       6,584  
                                                         

Trademarks with indefinite lives

            38,353       -       38,353       36,692       -       36,692  

Total identifiable intangible assets

          $ 65,673     $ 20,497     $ 45,176     $ 62,639     $ 19,363     $ 43,276  

 

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Future estimated amortization expense is as follows: remainder of fiscal 2014 - $0.4 million, fiscal 2015 - $1.8 million, fiscal 2016 - $1.7 million, fiscal 2017 - $0.9 million, fiscal 2018 - $0.6 million and thereafter - $1.4 million.

 

 
10

 

 

Note 7 – Investments

 

The Company has certain investments in non-marketable equity instruments of private companies. The Company accounts for these investments using the equity method if they provide the Company the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate. The Company records equity method investments initially at cost, and adjusts the carrying amount to reflect the Company’s share of the earnings or losses of the investee, including all adjustments similar to those made in preparing consolidated financial statements. The Company’s equity method investments are comprised of a 32% interest in Flores Online, a Sao Paulo, Brazil based internet floral and gift retailer, that the Company made on May 31, 2012. The book value of this investment was $3.5 million as of March 30, 2014 and $3.8 million as of June 30, 2013, and is included in Other assets within the consolidated balance sheets. The Company’s equity in the net loss of Flores Online for the three and nine months ended March 30, 2014 was $0.1 million and $0.3 million, respectively.

 

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for under the cost method. Cost method investments are originally recorded at cost, and are included within Other assets in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $0.8 million as of March 30, 2014 and $2.3 million as of June 30, 2013. In addition, the Company had notes receivable from companies it maintains an investment in of $0.5 million as of March 30, 2014 and $2.3 million as of June 30, 2013. As described in Note 4 “Acquisitions and Dispositions”, on December 3, 2013, the Company increased its investment in iFlorist, resulting in a majority ownership interest (56%), through the conversion of notes receivable and the purchase of additional shares from the Company’s founders. The acquisition of a majority interest in iFlorist resulted in the consolidation of iFlorist’s operations, and the reduction of both the Company’s cost-basis investment and notes receivable between June 30, 2013 and March 30, 2014.

 

The Company also holds certain trading securities in a “rabbi trust”, associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included in Other assets in the consolidated balance sheets (see Note 9).

 

Each reporting period, the Company uses available qualitative and quantitative information to evaluate its investments for impairment. When a decline in fair value, if any, is determined to be other-than-temporary, an impairment charge is recorded in the consolidated statement of operations.

 

Note 8 –Debt

 

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

 

   

March 30,
2014

   

June 30,

2013

 
    (in thousands)    
                 

Revolving line of credit (1)

  $ -     $ -  

Bank loan (2)

    394       -  

Total debt

  $ 394     $ -  

Less current maturities of long-term debt

    394       -  

Long-term debt

  $ -     $ -  

 

 

(1)

On April 10, 2013, the Company repaid all amounts outstanding under its 2010 Credit Facility, and entered into a Third Amended and Restated Credit Agreement (the “2013 Credit Facility”). The 2013 Credit Facility consists of a revolving line of credit with a seasonally adjusted limit ranging from $150.0 to $200.0 million and a working capital sublimit ranging from $25.0 to $75.0 million. The 2013 Credit Facility also revised certain financial and non-financial covenants, including the maintenance of certain financial ratios. The Company was in compliance with these covenants as of March 30, 2014 and June 30, 2013. Outstanding amounts under the 2013 Credit Facility, which matures on April 10, 2018, bear interest at the Company’s option at either: (i) LIBOR, plus a spread of between 150 and 225 basis points, as determined by the Company’s leverage ratio, or (ii) the agent bank’s prime rate plus a margin. The obligations of the Company and its subsidiaries under the 2013 Credit Facility are secured by liens on all personal property of the Company and its domestic subsidiaries.

 

 
11

 

 

 

(2)

Bank loan assumed through the Company’s acquisition of a majority interest in iFlorist.

 

Note 9-Fair Value Measurements

 

Cash and cash equivalents, receivables, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature. The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as 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.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:

 

Level 1

   

Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

   

Level 2

   

Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

   

Level 3

   

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

  

The following table presents by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis as of March 30, 2014:

  

           

Fair Value Measurements

Assets (Liabilities)

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

 
    (in thousands)  

Assets (liabilities):

                               

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

  $ 2,135     $ 2,135     $ -     $ -  

Non-performance promissory note

    205       -       -       205  
    $ 2,340     $ 2,135     $ -     $ 205  

  

 

(1)

Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in Other assets in the consolidated balance sheets. The Company established a Non-qualified Deferred Compensation Plan for certain members of senior management in fiscal 2009. Deferred compensation is invested in mutual funds held in a “rabbi trust” which is restricted for payment to participants of the NQDC Plan.

 

 
12

 

 

The following table presents, by level, within the fair value hierarchy, financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2013:

  

           

Fair Value Measurements

Assets (Liabilities)

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

 
    (in thousands)  

Assets (liabilities):

                               

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

  $ 1,708     $ 1,708     $ -     $ -  

Non-performance promissory note

    205       -       -       205  
    $ 1,913     $ 1,708     $ -     $ 205  

  

 

(1)

Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in Other assets in the consolidated balance sheets. The Company established a Non-qualified Deferred Compensation Plan for certain members of senior management in fiscal 2009. Deferred compensation is invested in mutual funds held in a “rabbi trust” which is restricted for payment to participants of the NQDC Plan.

 

Note 10 – Income Taxes

 

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate from continuing operations for the three and nine months ended March 30, 2014 was 44.5% and 37.1% respectively, compared to 32.3% and 37.6% in the same periods of the prior year. The effective rate for fiscal 2014 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes, and other permanent differences, offset by tax credits and incentives as well as the reversal of certain unrecognized tax positions. The effective rate for fiscal 2013 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes, other permanent differences and a change in uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company concluded its federal examination for fiscal 2011 during the quarter ended December 29, 2013, however, fiscal years 2012 and 2013 remain subject to federal examination. Due to ongoing state examinations and non-conformity with the federal statute of limitations for assessment, certain states remain open from fiscal 2008.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During the three months ended March 30, 2014, the Company reversed approximately $0.2 million of unrecognized tax position as a result of expiring statute of limitations. As such, at March 30, 2014 the Company has remaining unrecognized tax positions of approximately $0.6 million, including accrued interest and penalties of $0.1 million. The Company believes that an additional $0.2 million of its unrecognized tax positions will be resolved over the next twelve months.


Note 11 – Business Segments

 

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

 

 

1-800-Flowers.com Consumer Floral,

 

BloomNet Wire Service, and

 

Gourmet Food and Gift Baskets

 

Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead (see (1) below), nor does it include depreciation and amortization, other income, and income taxes, or stock-based compensation, which is included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by segment.

 

 
13

 

 

   

Three Months Ended

   

Nine Months Ended

 

Net Revenues from Continuing Operations

 

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
           

(in thousands)

         
                                 

Segment Net Revenues:

                               

1-800-Flowers.com Consumer Floral

  $ 122,256     $ 121,006     $ 290,938     $ 285,608  

BloomNet Wire Service

    22,571       22,819       62,829       61,320  

Gourmet Food & Gift Baskets

    35,330       48,298       216,193       216,509  

Corporate (1)

    202       200       600       594  

Intercompany eliminations

    (768 )     (741 )     (1,584 )     (1,497 )

Total net revenues

  $ 179,591     $ 191,582     $ 568,976     $ 562,534  

 

 

   

Three Months Ended

   

Nine Months Ended

 

Operating Income from Continuing Operations

 

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
           

(in thousands)

         
                                 

Segment Contribution Margin:

                               

1-800-Flowers.com Consumer Floral

  $ 11,165     $ 13,902     $ 26,274     $ 31,074  

Bloomnet Wire Service

    7,079       6,952       20,043       18,797  

Gourmet Food & Gift Baskets

    (3,180 )     1,605       25,817       26,926  

Segment Contribution Margin Subtotal

    15,064       22,459       72,134       76,797  

Corporate (1)

    (13,012 )     (12,811 )     (38,739 )     (37,623 )

Depreciation and amortization

    (4,932 )     (4,838 )     (14,657 )     (13,806 )

Operating income

    (2,880 )     4,810       18,738       25,368  

 

(1)

Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above segments based upon usage, are included within corporate expenses, as they are not directly allocable to a specific segment.

 

Note 12 – Discontinued Operations

 

During the fourth quarter of fiscal 2013, the Company made the strategic decision to divest the e-commerce and procurement businesses of The Winetasting Network in order to focus on growth opportunities in its Gourmet Foods and Gift Baskets business segment. The Company closed on the sale of its Winetasting Network business on December 31, 2013, at an estimated loss of $1.0 million ($0.6 million, net of tax). The Company had originally estimated a loss of $2.3 million ($1.5 million, net of tax), which was provided for during the fourth quarter of fiscal 2013, but the loss was reduced to $1.0 million, upon finalization of terms and closing on the sale. As a result, the Company reversed $1.3 million ($0.8 million, net of tax) of its accrual for the estimated loss during the nine months ended March 30, 2014. The Company has classified the results of its e-commerce and procurement business of Winetasting Network as a discontinued operation for all periods presented.

 

Results for discontinued operations are as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

March 30,

2014

   

March 31,

2013

 
   

(in thousands)

 

Net revenues from discontinued operations

  $ 9     $ 1,041     $ 1,669     $ 3,973  

Income (loss) from discontinued operations, net of tax

  $ 13     $ (481 )   $ 434     $ (1,140 )

 

 
14

 

 

Note 13 – Commitments and Contingencies

 

Legal Proceedings

 

From time to time, the Company is subject to legal proceedings and claims arising in the ordinary course of business.

 

On November 10, 2010, a purported class action complaint was filed in the United States District Court for the Eastern District of New York naming the Company (along with Trilegiant Corporation, Inc., Affinion, Inc. and Chase Bank USA, N.A.) as defendants in an action purporting to assert claims against the Company alleging violations arising under the Connecticut Unfair Trade Practices Act ("CUTPA") among other statutes, and for breach of contract and unjust enrichment in connection with certain post-transaction marketing practices in which certain of the Company's subsidiaries previously engaged in with certain third-party vendors.  On December 23, 2011, plaintiff filed a notice of voluntary dismissal seeking to dismiss the entire action without prejudice.  The court entered an Order on November 28, 2012, dismissing the case in its entirety. This case was subsequently refiled in the United States District Court for the District of Connecticut.

 

On March 6, 2012 and March 15, 2012, two additional purported class action complaints were filed in the United States District Court for the District of Connecticut naming the Company and numerous other parties as defendants in actions purporting to assert claims substantially similar to those asserted in the lawsuit filed on November 10, 2010.  In each case, plaintiffs seek to have the respective case certified as a class action and seek restitution and other damages, each in an amount in excess of $5.0 million. On April 26, 2012, the two Connecticut cases were consolidated with a third case previously pending in the United States District Court for the District of Connecticut in which the Company is not a party (the "Consolidated Action"). A consolidated amended complaint was filed by plaintiffs on September 7, 2012, purporting to assert claims substantially similar to those originally asserted.  The Company moved to dismiss the consolidated amended complaint on December 7, 2012, which was subsequently refiled at the direction of the Court on January 16, 2013.  

 

On December 5, 2012, the same plaintiff from the action voluntarily dismissed in the United States District Court for the Eastern District of New York filed a purported class action complaint in the United States District Court for the District of Connecticut naming the Company and numerous other parties as defendants, purporting to assert claims substantially similar to those asserted in the consolidated amended complaint (the “Frank Action”).  On January 23, 2013, plaintiffs in the Consolidated Action filed a motion to transfer and consolidate the action filed on December 5, 2012 with the Consolidated Action.  The Company intends to defend each of these actions vigorously.

 

On January 31, 2013, the court issued an order to show cause directing plaintiffs' counsel in the Frank Action, also counsel for plaintiffs in the Consolidated Action, to show cause why the Frank Action is distinguishable from the Consolidated Action such that it may be maintained despite the prior-pending action doctrine. On June 13, 2013, the court issued an order in the Frank Action suspending deadlines to answer or to otherwise respond to the complaint until 21 days after the court decides whether the Frank Action should be consolidated with the Consolidated Action. On July 24, 2013 the Frank Action was reassigned to Judge Vanessa Bryant, before whom the Consolidated Action is currently pending, for all further proceedings. On August 14, 2013, other defendants filed a motion for clarification in the Frank Action requesting that Judge Bryant clarify the order suspending deadlines.

 

On March 28, 2014, the Court issued a series of rulings disposing of all the pending motions in both the Consolidated Action and the Frank Action.  Among other things, the Court dismissed several causes of action, leaving pending a claim for CUTPA violations stemming from Trilegiant’s refund mitigation strategy and a claim for unjust enrichment. Thereafter, the Court consolidated the Frank case into the Consolidated Action. The time of the remaining defendants to answer what is left of the complaint has not yet expired and on April 28, 2014 Plaintiffs moved for leave to appeal the various rulings against them to the United States Court of Appeals for the Second Circuit and to have a partial final judgment entered dismissing those claims that the Court had ordered dismissed.  The Court has not yet ruled on this new motion.

 

 
15

 

 

There are no assurances that additional legal actions will not be instituted in connection with the Company’s former post-transaction marketing practices involving third party vendors nor can we predict the outcome of any such legal action. At this time, we are unable to estimate a possible loss or range of possible loss for the aforementioned actions for various reasons, including, among others: (i) the damages sought are indeterminate, (ii) the proceedings are in the very early stages and the court has not yet ruled as to whether the classes will be certified, and (iii) there is uncertainty as to the outcome of pending motions.  As a result of the foregoing, we have determined that the amount of possible loss or range of loss is not reasonably estimable.  However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which may be beyond our control.

 

 
16

 

 

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

 

Forward Looking Statements

 

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

 

Overview

 

1-800-FLOWERS.COM, Inc. is the world's leading florist and gift shop. For more than 35 years, 1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift. 1-800-FLOWERS.COM has been honored in Internet Retailer's "Hot 500 Guide" for 2013. 1-800-FLOWERS.COM mobile commerce site was recognized with a Gold Award in the Ecommerce/Shopping category of the 2012 Horizon Interactive Awards. 1-800-FLOWERS.COM was also rated number one vs. competitors for customer service by STELLAService and named by the E-Tailing Group as one of only nine online retailers out of 100 benchmarked to meet the criteria for Excellence in Online Customer Service in 2011.

 

The Company's BloomNet® international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably. The Company’s Gourmet Food and Gift Baskets offering includes gifts such as popcorn and specialty treats from: The Popcorn Factory® (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl's® (1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May® confections (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com® (www.1800baskets.com); carved fresh fruit arrangements from FruitBouquets.com (www.fruitbouquets.com); top quality steaks and chops from Stock Yards® (www.stockyards.com). The Company's Celebrations® brand (www.celebrations.com) is a leading online destination for party planning ideas and tips and its FineStationery.com® (www.finestationery.com) brand provides premium branded customizable invitations and personal stationery for all occasions. 1-800-FLOWERS.COM, Inc. is involved in a broad range of corporate social responsibility initiatives including continuous expansion and enhancement of its environmentally-friendly "green" programs as well as various philanthropic and charitable efforts.

 

During the fourth quarter of fiscal 2013, the Company made the strategic decision to divest the e-commerce and procurement businesses of The Winetasting Network in order to focus on growth opportunities in its Gourmet Foods and Gift Baskets business segment. The Company closed on the sale of its Winetasting Network business on December 31, 2013, at an estimated loss of $1.0 million ($0.6 million, net of tax). The Company had originally estimated a loss of $2.3 million ($1.5 million, net of tax), which was provided for during the fourth quarter of fiscal 2013, but the loss was reduced to $1.0 million, upon finalization of terms and closing on the sale. As a result, the Company reversed $1.3 million ($0.8 million, net of tax) of its accrual for the estimated loss during the nine months ended March 30, 2014. The Company has classified the results of its e-commerce and procurement business of Winetasting Network as a discontinued operation for all periods presented.

 

Shares in 1-800-FLOWERS.COM, Inc. are traded on the NASDAQ Global Select Market, ticker symbol: FLWS.

 

 
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Segment Information

 

The following table presents the contribution of net revenues, gross profit and contribution margin from each of the Company’s business segments, as well as consolidated EBITDA and EBITDA, excluding stock-based compensation. As noted previously, the Company’s e-commerce and procurement businesses of The Winetasting Network, which had previously been included within its Gourmet Foods & Gift Baskets category, have been classified as discontinued operations and therefore excluded from segment information below.

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 30,

2014

   

March 31,

2013

   

% Change

   

March 30,

2014

   

March 31,

2013

   

% Change

 
   

(dollars in thousands)

           

(dollars in thousands)

         

Net revenues from continuing operations:

                                               

1-800-Flowers.com Consumer Floral

  $ 122,256     $ 121,006       1.0 %   $ 290,938     $ 285,608       1.9 %

BloomNet Wire Service

    22,571       22,819       -1.1 %     62,829       61,320       2.5 %

Gourmet Food & Gift Baskets

    35,330       48,298       -26.8 %     216,193       216,509       -0.1 %

Corporate (*)

    202       200       1.0 %     600       594       1.0 %

Intercompany eliminations

    (768 )     (741 )     -3.6 %     (1,584 )     (1,497 )     -5.8 %

Total net revenues from continuing operations

  $ 179,591     $ 191,582       -6.3 %   $ 568,976     $ 562,534       1.1 %

 

    Three Months Ended     Nine Months Ended  
   

March 30,

2014

   

March 31,

2013

   

%
Change

   

March 30,

2014

   

March 31,

2013

   

%
Change

 
                                                 

Gross profit from continuing operations:

                                               

1-800-Flowers.com Consumer Floral

  $ 47,565     $ 48,455       -1.8 %   $ 113,166     $ 112,701       0.4 %
      38.9 %     40.0 %             38.9 %     39.5 %        

BloomNet Wire Service

    12,019       11,382       5.6 %     33,566       30,974       8.4 %
      53.2 %     49.9 %             53.4 %     50.5 %        

Gourmet Food & Gift Baskets

    13,686       20,472       -33.1 %     88,328       90,039       -1.9 %
      38.7 %     42.4 %             40.9 %     41.6 %        
Corporate (*)     273       148       84.5 %     757       649       16.6 %
      135.1 %     74.0 %             126.2 %     109.3 %        

Total gross profit from continuing operations

  $ 73,543     $ 80,457       -8.6 %   $ 235,817     $ 234,363       0.6 %
      41.0 %     42.0 %             41.4 %     41.7 %        

 

    Three Months Ended     Nine Months Ended  
   

March 30,

2014

   

March 31,

2013

   

%

Change

   

March 30,

2014

   

March 31,

2013

   

%

Change

 
                                                 

EBITDA from continuing operations, excluding stock-based compensation:

                                               

Segment Contribution Margin (**)

                                               

1-800-Flowers.com Consumer Floral

  $ 11,165     $ 13,902       -19.7 %   $ 26,274     $ 31,074       -15.4 %

BloomNet Wire Service

    7,079       6,952       1.8 %     20,043       18,797       6.6 %

Gourmet Food & Gift Baskets

    (3,180 )     1,605       -298.1 %     25,817       26,926       -4.1 %

Category Contribution Margin Subtotal

    15,064       22,459       -32.9 %     72,134       76,797       -6.1 %

Corporate (*)

    (13,012 )     (12,811 )     -1.6 %     (38,739 )     (37,623 )     -3.0 %

EBITDA from continuing operations

  $ 2,052     $ 9,648       -78.7 %   $ 33,395     $ 39,174       -14.8 %

Add: Stock-based compensation

    1,279       1,093       17.1 %     3,491       3,397       2.8 %

EBITDA from continuing operations, excluding stock-based compensation

  $ 3,331     $ 10,741       -69.0 %   $ 36,886     $ 42,571       -13.4 %

 

 
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    Three Months Ended     Nine Months Ended  
   

March 30,

2014

   

March 31,

2013<