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10-Q

1 800 Flowers Com Inc (FLWS)

10-Q 2020-02-07 For: 2019-12-29
View Original
Added on April 08, 2026

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 **** December 29, 2019

or

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

For the transition period from ___ to ___

Commission File No. 0-26841

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

​DELAWARE 11-3117311
(State of incorporation) (I.R.S. Employer Identification No.)
One Old Country Road, Carle Place, New York, 11514 (516) 237-6000
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(Address of principal executive offices) (Zip code) (Registrant’s telephone number, including area code)

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

Title of each class Trading symbol(s) Name of each exchange on which registered
Class A common stock FLWS The Nasdaq Stock Market

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

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

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

☐ Large accelerated filer ☑ Accelerated filer
☐ Non-accelerated filer ☐ Smaller reporting company
☐ Emerging growth company

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

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

The number of shares outstanding of each of the Registrant’s classes of common stock as of January 31, 2020:

Class A common stock: 35,753,963
Class B common stock: 28,542,823

Table of Contents

1-800-FLOWERS.COM, Inc.

FORM 10-Q

For the quarterly period ended December 29, 2019

TABLE OF CONTENTS

Page
Part I. Financial Information **** ****
Item 1. Condensed Consolidated Financial Statements 1
Condensed Consolidated Balance Sheets – December 29, 2019 (Unaudited) and June 30, 2019 1
Condensed Consolidated Statements of Income (Unaudited) – Three and Six Months Ended December 29, 2019 and December 30, 2018 2
Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months Ended December 29, 2019 and December 30, 2018 3
Condensed Consolidated Statements of Stockholder’s Equity (Unaudited) – Three and Six Months Ended December 29, 2019 and December 30, 2018 4
Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended December 29, 2019 and December 30, 2018 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 20
Part II. Other Information **** ****
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Mine Safety Disclosures 20
Item 5. Other Information 20
Item 6. Exhibits 21
Signatures 22

Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1.– CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

June 30, 2019
Assets
Current assets:
Cash and cash equivalents 295,561 $ 172,923
Trade receivables, net 44,561 12,374
Inventories 68,032 92,361
Prepaid and other 23,439 25,580
Total current assets 431,593 303,238
Property, plant and equipment, net 162,568 166,681
Operating lease right-of-use assets 72,943 -
Goodwill 74,711 62,590
Other intangibles, net 66,727 59,615
Other assets 17,678 14,316
Total assets 826,220 $ 606,440
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 61,826 $ 25,704
Accrued expenses 151,028 96,793
Current maturities of long-term debt 5,000 5,000
Current portion of long-term operating lease liabilities 8,849 -
Total current liabilities 226,703 127,497
Long-term debt 89,738 91,973
Long-term operating lease liabilities 66,405 -
Deferred tax liabilities 27,895 28,898
Other liabilities 14,571 15,361
Total liabilities 425,312 263,729
Commitments and contingencies (See Note 13 and Note 14)
Stockholders’ equity:
Preferred stock, 0.01 par value, 10,000,000 shares authorized, none issued - -
Class A common stock, 0.01 par value, 200,000,000 shares authorized, 53,678,919 and 53,084,127 shares issued at December 29, 2019 and June 30, 2019, respectively 536 530
Class B common stock, 0.01 par value, 200,000,000 shares authorized, 33,822,823 shares issued at December 29, 2019 and June 30, 2019 338 338
Additional paid-in-capital 353,643 349,319
Retained earnings 167,406 108,525
Accumulated other comprehensive loss (253 ) (269 )
Treasury stock, at cost, 17,579,956 and 17,209,093 Class A shares at December 29, 2019 and June 30, 2019, respectively, and 5,280,000 Class B shares at December 29, 2019 and June 30, 2019 (120,762 ) (115,732 )
Total stockholders’ equity 400,908 342,711
Total liabilities and stockholders’ equity 826,220 $ 606,440

All values are in US Dollars.

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Condensed Consolidated Statements of Income

(in thousands, except for per share data)

(unaudited)

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
Net revenues $ 605,642 $ 571,316 $ 792,905 $ 740,812
Cost of revenues 336,470 316,489 447,587 417,445
Gross profit 269,172 254,827 345,318 323,367
Operating expenses:
Marketing and sales 127,404 119,664 184,243 172,618
Technology and development 11,733 10,906 22,536 21,185
General and administrative 22,634 21,603 44,156 42,033
Depreciation and amortization 7,830 7,969 15,465 15,812
Total operating expenses 169,601 160,142 266,400 251,648
Operating income 99,571 94,685 78,918 71,719
Interest expense, net 985 1,430 1,580 2,420
Other (income) expense, net (975 ) 1,266 (891 ) 992
Income before income taxes 99,561 91,989 78,229 68,307
Income tax expense 25,409 23,411 19,348 16,995
Net income $ 74,152 $ 68,578 $ 58,881 $ 51,312
Basic net income per common share $ 1.15 $ 1.07 $ 0.91 $ 0.80
Diluted net income per common share $ 1.12 $ 1.04 $ 0.89 $ 0.77
Weighted average shares used in the calculation of net income per common share:
Basic 64,687 64,209 64,595 64,415
Diluted 66,401 66,136 66,486 66,483

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

Condensed Consolidated Statements of Comprehensive

(in thousands)

(unaudited)

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
Net income $ 74,152 $ 68,578 $ 58,881 $ 51,312
Other comprehensive income (currency translation & other miscellaneous items) 16 71 16 61
Comprehensive income $ 74,168 $ 68,649 $ 58,897 $ 51,373

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

Three Months Ended December 29, 2019 and December 30, 2018
Common Stock Additional Retained Accumulated **** **** **** **** **** Total
Class A Class B Paid-in Earnings Other Treasury Stock Stockholders’
Shares Amount Shares Amount Capital **** **** **** Comprehensive Loss Shares Amount Equity
Balance at September 29, 2019 53,216,294 $ 532 33,822,823 $ 338 $ 351,304 $ 93,254 $ (269 ) 22,491,206 $ (115,763 ) $ 329,396
Net income - - - - - 74,152 - - - 74,152
Translation adjustment - - - - - - 16 - - 16
Stock-based compensation 437,625 4 - - 2,276 - - - - 2,280
Exercise of stock options 25,000 - - - 63 - - - - 63
Acquisition of Class A treasury stock - - - - - - - 368,750 (4,999 ) (4,999 )
Balance at December 29, 2019 53,678,919 $ 536 33,822,823 $ 338 $ 353,643 $ 167,406 $ (253 ) 22,859,956 $ (120,762 ) $ 400,908
Balance at September 30, 2018 52,162,960 $ 521 33,822,823 $ 338 $ 343,038 $ 57,283 $ (190 ) 21,604,412 $ (105,006 ) $ 295,984
Net income - - - - - 68,578 - - - 68,578
Translation adjustment - - - - - (71 ) - - (71 )
Stock-based compensation 408,009 4 - - 1,669 - - - - 1,673
Exercise of stock options 178,234 2 - - 62 - - - - 64
Other - - - - - (790 ) - - - (790 )
Acquisition of Class A treasury stock - - - - - - - 779,326 (9,365 ) (9,365 )
Balance at December 30, 2018 52,749,203 $ 527 33,822,823 $ 338 $ 344,769 $ 125,071 $ (261 ) 22,383,738 $ (114,371 ) $ 356,073
Six Months Ended December 29, 2019 and December 30, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Common Stock Additional Retained Accumulated **** **** **** **** **** **** Total
Class A Class B Paid-in Earnings Other Treasury Stock Stockholders’
Shares Amount Shares Amount Capital **** **** Comprehensive Loss Shares Amount Equity
Balance at June 30, 2019 53,084,127 $ 530 33,822,823 $ 338 $ 349,319 $ 108,525 $ (269 ) 22,489,093 $ (115,732 ) $ 342,711
Net income - - - - - 58,881 - - - 58,881
Translation adjustment - - -- - - 16 - - 16
Stock-based compensation 444,792 4 - - 4,041 - - - - 4,045
Exercise of stock options 150,000 2 - - 283 - - - - 285
Acquisition of Class A treasury stock - - - - - - - 370,863 (5,030 ) (5,030 )
Balance at December 29, 2019 53,678,919 $ 536 33,822,823 $ 338 $ 353,643 $ 167,406 $ (253 ) 22,859,956 $ (120,762 ) $ 400,908
Balance at July 1, 2018 52,071,293 $ 520 33,822,823 $ 338 $ 341,783 $ 73,429 $ (200 ) 21,258,790 $ (100,966 ) $ 314,904
Net income - - - - - 51,312 - - - 51,312
Translation adjustment - - - - - - (61 ) - - (61 )
Stock-based compensation 409,676 4 - - 2,624 - - - - 2,628
Exercise of stock options 268,234 3 - - 362 - - - - 365
Other - - - - - 330 - - - 330
Acquisition of Class A treasury stock - - - - - - - 1,124,948 (13,405 ) (13,405 )
Balance at December 30, 2018 52,749,203 $ 527 33,822,823 $ 338 $ 344,769 $ 125,071 $ (261 ) 22,383,738 $ (114,371 ) $ 356,073

See accompanying Notes to Condensed Consolidated Financial Statements.

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

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six months ended
December 29, 2019 December 30, 2018
Operating activities:
Net income $ 58,881 $ 51,312
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,465 15,812
Amortization of deferred financing costs 325 452
Deferred income taxes (1,003 ) (654 )
Bad debt expense 731 582
Stock-based compensation 4,045 2,628
Other non-cash items (187 ) (501 )
Changes in operating items:
Trade receivables (32,918 ) (36,047 )
Inventories 25,358 24,819
Prepaid and other 1,021 3,159
Accounts payable and accrued expenses 90,166 78,361
Other assets and liabilities 272 (340 )
Net cash provided by operating activities 162,156 139,583
Investing activities:
Acquisitions, net of cash acquired (20,500 ) -
Capital expenditures, net of non-cash expenditures (10,712 ) (11,786 )
Purchase of equity investments (1,001 ) -
Net cash used in investing activities (32,213 ) (11,786 )
Financing activities:
Acquisition of treasury stock (5,030 ) (13,405 )
Proceeds from exercise of employee stock options 285 365
Proceeds from bank borrowings 20,000 30,000
Repayment of notes payable and bank borrowings (22,500 ) (34,312 )
Debt issuance cost (60 ) -
Net cash used in financing activities (7,305 ) (17,352 )
Net change in cash and cash equivalents 122,638 110,445
Cash and cash equivalents:
Beginning of period 172,923 147,240
End of period $ 295,561 $ 257,685

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 29, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 28, 2020. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

The Company’s quarterly results may experience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’s second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter and Administrative Professionals Week, revenues also rise during the Company’s fiscal third and fourth quarters compared to its fiscal first quarter.

Use of Estimates

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

Revenue Recognition

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

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

● E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.
● Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.
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● Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically 30 days from the date control over the product is transferred to the customer.
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● BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result no consideration allocation is necessary across multiple reporting periods. Payment is typically due less than 30 days from the date the services were performed.
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Deferred Revenues

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

Our total deferred revenue as of June 30, 2019 was $17.3 million (included in “Accrued expenses” on our consolidated balance sheets), of which, $5.9 million and $15.9 million was recognized as revenue during the three and six months ended December 29, 2019. The deferred revenue balance as of December 29, 2019 was $28.8 million.

Recently Issued Accounting Pronouncements - Adopted

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”). Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted the new standard effective July 1, 2019 and elected the optional transition method and therefore, we will not apply the standard to the comparative periods presented in our financial statements. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, that did not require us to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The adoption of the new standard had a material impact to the Company’s Consolidated Balance Sheets, but no impact to the Consolidated Statements of Income (Operations) or Consolidated Statements of Cash Flows. As such, we recorded operating lease liabilities of $80.7 million, based on the present value of the remaining minimum rental payments using discount rates as of the effective date, and a corresponding right-of-use assets of $78.7 million based on the operating lease liabilities adjusted for deferred rent and lease incentives received. See Note 13 - Leases for further information about our transition to ASC 842 and the newly required disclosures.

Recently Issued Accounting Pronouncements – Not Yet Adopted

Financial Instruments – Measurement of Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. ASU 2016-13 is effective for the Company’s fiscal 2021, and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

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Goodwill – Impairment Test. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company’s fiscal 2021, with early adoption permitted, and should be applied prospectively. We do not expect the standard to have a material impact on our consolidated financial statements.

Note 2 – Net Income Per Common Share

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

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
(in thousands, except per share data)
Numerator: **** **** **** **** **** **** **** ****
Net income $ 74,152 $ 68,578 $ 58,881 $ 51,312
Denominator: **** **** **** **** **** **** **** ****
Weighted average shares outstanding 64,687 64,209 64,595 64,415
Effect of dilutive securities:
Employee stock options 997 1,415 1,046 1,476
Employee restricted stock awards 717 512 845 592
1,714 1,927 1,891 2,068
Adjusted weighted-average shares and assumed conversions 66,401 66,136 66,486 66,483
Net income per common share **** **** **** **** **** **** **** ****
Basic $ 1.15 $ 1.07 $ 0.91 $ 0.80
Diluted $ 1.12 $ 1.04 $ 0.89 $ 0.77

Note 3 – Stock-Based Compensation

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 12 and Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, 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 Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
(in thousands)
Stock options $ 28 $ 78 $ 93 $ 183
Restricted stock 2,252 1,595 3,952 2,445
Total 2,280 1,673 4,045 2,628
Deferred income tax benefit 300 395 1,003 654
Stock-based compensation expense, net $ 1,980 $ 1,278 $ 3,042 $ 1,974

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

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
(in thousands)
Marketing and sales $ 1,047 $ 731 $ 1,863 $ 986
Technology and development 173 105 292 156
General and administrative 1,060 837 1,890 1,486
Total $ 2,280 $ 1,673 $ 4,045 $ 2,628

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

Stock Options

The following table summarizes stock option activity during the six months ended December 29, 2019:

Options Weighted Average<br><br> <br>Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
(in years) (in thousands)
Outstanding at June 30, 2019 1,365,000 $ 2.48
Granted - $ -
Exercised (150,000 ) $ 1.90
Forfeited - $ -
Outstanding at December 29, 2019 1,215,000 $ 2.55 1.7 $ 14,288
Exercisable at December 29, 2019 1,210,000 $ 2.52 1.7 $ 14,267

As of December 29, 2019, the total future compensation cost related to non-vested options, not yet recognized in the statement of income, was $0.0 million and the weighted average period over which these awards are expected to be recognized was 0.2 years.

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Restricted Stock

The Company grants shares of Common Stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service and performance conditions and, in certain cases, holding periods (Restricted Stock). The following table summarizes the activity of non-vested restricted stock awards during the six months ended December 29, 2019:

Shares Weighted Average Grant Date Fair Value
Non-vested at June 30, 2019 1,438,592 $ 10.81
Granted 724,055 $ 13.04
Vested (444,792 ) $ 10.28
Forfeited (45,474 ) $ 12.54
Non-vested at December 29, 2019 1,672,381 $ 11.87

The fair value of non-vested shares is determined based on the closing stock price on the grant date. As of December 29, 2019, there was $14.6 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 2.0 years.

Note 4 – Acquisition

Acquisition of Shari’s Berries

On August 14, 2019, the Company completed its acquisition of the Shari’s Berries business ("Shari's Berries"), a leading provider of dipped berries and other specialty treats, through a bankruptcy proceeding of certain assets of the gourmet food business of the FTD Companies, Inc. The transaction, for a purchase price of $20.5 million, included the Shari’s Berries domain names, copyrights, trademarks, customer data, phone numbers and other intellectual property, as well as certain raw material inventory and the assumption of specified liabilities.

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, $0.6 million was assigned to customer lists, which is being amortized over the estimated remaining life of 2 years, $6.9 million was assigned to tradenames, and $12.1 million was assigned to goodwill, which is expected to be deductible for tax purposes. The goodwill recognized in conjunction with our acquisition of Shari’s Berries is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits.

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

Shari’s Berries Preliminary Purchase Price Allocation
(in thousands)
Current assets $ 1,029
Intangible assets 7,540
Goodwill 12,121
Total assets acquired 20,690
Current liabilities 190
Net assets acquired $ 20,500

Raw materials inventory was valued at book value, as there have not been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

The estimated fair value of the acquired tradenames was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company’s weighted average cost of capital, the riskiness of the earnings stream associated with the trademarks and the overall composition of the acquired assets.

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

Operating results of the Shari’s Berries brand are reflected in the Company’s consolidated financial statements from the date of acquisition, within the Gourmet Food & Gift Baskets segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results would not have been material.

Note 5 – Inventory

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

December 29, 2019 June 30, 2019
(in thousands)
Finished goods $ 36,430 $ 36,820
Work-in-process 7,644 17,535
Raw materials 23,958 38,006
Total inventory $ 68,032 $ 92,361

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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<br><br> <br>Wire Service Gourmet Food &<br><br> <br>Gift Baskets Total
(in thousands)
Balance at June 30, 2019 $ 17,441 $ - $ 45,149 $ 62,590
Acquisition of Shari’s Berries - - 12,121 12,121
Balance at December 29, 2019 $ 17,441 $ - $ 57,270 $ 74,711

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

**** **** December 29, 2019 June 30, 2019
Amortization Period Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
(in years) (in thousands)
Intangible assets with determinable lives
Investment in licenses 14-16 $ 7,420 $ 6,200 $ 1,220 $ 7,420 $ 6,148 $ 1,272
Customer lists 2-10 12,825 10,123 2,702 12,184 9,798 2,386
Other 5-14 2,946 2,332 614 2,946 2,280 666
Total intangible assets with determinable lives 23,191 18,655 4,536 22,550 18,226 4,324
Trademarks with indefinite lives 62,191 - 62,191 55,291 - 55,291
Total identifiable intangible assets $ 85,382 $ 18,655 $ 66,727 $ 77,841 $ 18,226 $ 59,615

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 2020 - $0.5 million, fiscal 2021 - $0.9 million, fiscal 2022 - $0.6 million, fiscal 2023 - $0.5 million, fiscal 2024 - $0.5 million and thereafter - $1.5 million.

Note 7 – Investments

Equity investments without a readily determinable fair value

Investments in non-marketable equity instruments of private companies, where the Company does not possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s cost method investments was $2.6 million as of December 29, 2019 and $1.6 million as of June 30, 2019.

Equity investments with a readily determinable fair value

The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note 10 - Fair Value Measurements).

Note 8 –Debt

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

December 29, 2019 June 30, 2019
(in thousands)
Revolver (1) $ - $ -
Term Loan (1) 97,500 100,000
Deferred financing costs (2,762 ) (3,027 )
Total debt 94,738 96,973
Less: current debt 5,000 5,000
Long-term debt $ 89,738 $ 91,973
(1) On May 31, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, and a group of lenders. The 2019 Credit Agreement amended and restated the Company’s existing amended and restated credit agreement dated as of December 23, 2016 (the “2016 Credit Agreement”) to, among other modifications: (i) increase the amount of the outstanding term loan (“Term Loan”) from approximately $97 million to $100 million, (ii) extend the maturity date of the outstanding Term Loan and the revolving credit facility (“Revolver”) by approximately 29 months to May 31, 2024, and (iii) decrease the applicable interest rate margins for LIBOR and base rate loans by 25 basis points. The Term Loan is payable in 19 quarterly installments of principal and interest beginning on September 29, 2019, with escalating principal payments, at the rate of 5.0% per annum for the first eight payments, and 10.0% per annum for the remaining 11 payments, with the remaining balance of $62.5 million due upon maturity. The Revolver, in the aggregate amount of $200 million, subject to seasonal reduction to an aggregate amount of $100 million for the period from January 1 through August 1, may be used for working capital and general corporate purposes, subject to certain restrictions.
--- ---

For each borrowing under the 2019 Credit Agreement, the Company may elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5% and (c) a LIBOR rate plus 1% or (2) an adjusted LIBOR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The 2019 Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of December 29, 2019. The 2019 Credit Agreement is secured by substantially all of the assets of the Company.

Future principal payments under the Term Loan are as follows: $2.5 million – remainder of fiscal 2020, $5.0 million – fiscal 2021, $10.0 million - fiscal 2022, $10.0 million – fiscal 2023 and $70.0 million – fiscal 2024.

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Note 9 - Property, Plant and Equipment

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

December 29, 2019 June 30, 2019
(in thousands)
Land $ 30,789 $ 30,789
Orchards in production and land improvements 11,701 11,339
Building and building improvements 60,255 59,236
Leasehold improvements 14,135 13,861
Production equipment and furniture and fixtures 63,556 61,415
Computer and telecommunication equipment 54,104 53,694
Software 139,797 132,078
Capital projects in progress - orchards 8,524 9,902
Property, plant and equipment, gross 382,861 372,314
Accumulated depreciation and amortization (220,293 ) (205,633 )
Property, plant and equipment, net $ 162,568 $ 166,681

Note 10 - Fair Value Measurements

Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature. The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment, when an event or circumstances indicate that an other-than-temporary decline in value may have occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely than not that an impairment may exist, as required under the accounting standards.

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

Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

Carrying Value Fair Value Measurements<br><br> <br>Assets (Liabilities)
**** **** Level 1 Level 2 Level 3
(in thousands)
As of December 29, 2019: **** **** **** **** **** **** **** ****
Trading securities held in a “rabbi trust” (1) $ 14,159 $ 14,159 $ - $ -
Total assets (liabilities) at fair value $ 14,159 $ 14,159 $ - $ -
As of June 30, 2019: **** **** **** **** **** **** **** ****
Trading securities held in a “rabbi trust” (1) $ 11,816 $ 11,816 $ - $ -
Total assets (liabilities) at fair value $ 11,816 $ 11,816 $ - $ -
(1) The Company has established an NQDC Plan for certain members of senior management. Deferred compensation plan assets are invested in mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Trading securities held in a rabbi trust are measured using quoted market prices at the reporting date and are included in the “Other assets” line item, with the corresponding liability included in the “Other liabilities” line item in the consolidated balance sheets.
--- ---

Note 11 – Income Taxes

At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used in providing for income taxes on a year-to-date basis and may change in subsequent interim periods. The Company’s effective tax rate from operations for the three and six months ended December 29, 2019 was 25.5% and 24.7% respectively, compared to 25.4% and 24.9% in the same periods of the prior year. The effective rates for fiscal 2020 and fiscal 2019 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various permanent differences and tax credits, including excess tax benefits from stock-based compensation.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company is currently undergoing its U.S. federal examination for fiscal 2017, however, fiscal year 2018 remains subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 2015. The Company's foreign income tax filings from fiscal 2014 are open for examination by its respective foreign tax authorities, mainly Canada, Brazil, and the United Kingdom.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At December 29, 2019, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $0.9 million. The Company believes that $0.2 million of unrecognized tax positions will be resolved over the next twelve months.

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Note 12 – Business Segments

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

•     1-800-Flowers.com Consumer Floral,

•     BloomNet Wire Service, and

•     Gourmet Food & Gift Baskets

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

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
Net Revenues: (in thousands)
Segment Net Revenues:
1-800-Flowers.com Consumer Floral $ 115,716 $ 108,106 $ 206,484 $ 193,182
BloomNet Wire Service 25,722 23,435 51,162 47,428
Gourmet Food & Gift Baskets 464,584 440,003 535,799 500,521
Corporate 165 315 360 582
Intercompany eliminations (545 ) (543 ) (900 ) (901 )
Total net revenues $ 605,642 $ 571,316 $ 792,905 $ 740,812
Operating Income: **** **** **** **** **** **** **** **** **** **** **** ****
Segment Contribution Margin:
1-800-Flowers.com Consumer Floral $ 10,890 $ 9,808 $ 19,414 $ 17,303
BloomNet Wire Service 9,134 8,257 17,491 15,895
Gourmet Food & Gift Baskets 113,387 105,514 106,787 96,393
Segment Contribution Margin Subtotal 133,411 123,579 143,692 129,591
Corporate (a) (26,010 ) (20,925 ) (49,309 ) (42,060 )
Depreciation and amortization (7,830 ) (7,969 ) (15,465 ) (15,812 )
Operating income $ 99,571 $ 94,685 $ 78,918 $ 71,719

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

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

Three Months Ended Three Months Ended
December 29, 2019 December 30, 2018
Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated
Net revenues *(in thousands) **** **** **** **** **** **** **** **** **** **** **** ***** ****
E-commerce $ 113,858 $ - $ 373,226 $ 487,084 $ 106,300 $ - $ 352,521 $ 458,821
Retail 1,082 - 23,120 24,202 1,063 - 24,971 26,034
Wholesale - 7,270 68,238 75,508 - 5,793 62,511 68,304
BloomNet services - 18,452 - 18,452 - 17,642 - 17,642
Other 776 - - 776 743 - - 743
Corporate - - - 165 - - - 315
Eliminations - - - (545 ) - - - (543 )
Net revenues $ 115,716 $ 25,722 $ 464,584 $ 605,642 $ 108,106 $ 23,435 $ 440,003 $ 571,316
Six months ended Six months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
December 29, 2019 December 30, 2018
Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated
Net revenues (in thousands) ****
E-commerce $ 202,946 $ - $ 413,188 $ 616,134 $ 189,750 $ - $ 386,771 $ 576,521
Retail 2,021 - 30,610 32,631 1,924 - 32,750 34,674
Wholesale - 16,018 92,001 108,019 - 13,926 81,000 94,926
BloomNet services - 35,144 - 35,144 - 33,502 - 33,502
Other 1,517 - - 1,517 1,508 - - 1,508
Corporate - - - 360 - - - 582
Eliminations - - - (900 ) - - - (901 )
Net revenues $ 206,484 $ 51,162 $ 535,799 $ 792,905 $ 193,182 $ 47,428 $ 500,521 $ 740,812

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Note 13 – Leases

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal 2034. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements may 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 accounts for its leases in accordance with ASC 842. At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

At the lease commencement date, we determine if a lease should be classified as an operating or a finance lease (we currently have no finance leases) and recognize a corresponding lease liability and a right-of-use asset on our Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

We recognize expense for our operating leases on a straight-line basis over the lease term. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Renewal option periods are included in the measurement of lease liability, where the exercise is reasonably certain to occur. Key estimates and judgments in accounting for leases include how we determine: (1) lease payments, (2) lease term and (3) the discount rate used in calculating the lease liability.

Additional information related to our leases is as follows:

Three Months Ended Six Months Ended
December 29, 2019 December 29, 2019
(in thousands)
Lease costs: **** **** **** **** **** ****
Operating lease costs $ 3,666 $ 7,306
Variable lease costs 4,346 7,886
Short-term lease cost 3,905 4,970
Sublease income (208 ) (478 )
Total lease costs $ 11,709 $ 19,684
Six Months Ended
--- --- ---
December 29, 2019
(in thousands)
Cash paid for amounts included in measurement of operating lease liabilities $ 6,807
Right-of-use assets obtained in exchange for new operating lease liabilities $ 178
December 29, 2019
--- --- --- ---
(in thousands)
Weighted-average remaining lease term - operating leases 9.7 years
Weighted-discount rate - operating leases 3.8 %

Maturities of lease liabilities in accordance with ASC 842 as of December 29, 2019 are as follows (in thousands):

Remainder of 2020 $ 5,402
2021 11,679
2022 10,310
2023 9,901
2024 9,452
Thereafter 44,888
Total Future Minimum Lease Payments $ 91,632
Less Imputed Remaining Interest 16,378
Total $ 75,254

****** At June 30, 2019, in accordance with ASC 840, future minimum rental payments under non-cancelable operating leases with initial terms of one year or more consisted of the following (in thousands):

2020 $ 16,588
2021 13,490
2022 12,081
2023 9,957
2024 9,498
Thereafter 44,953
Total Future Minimum Lease Payments $ 106,567

Note 14 – Commitments and Contingencies

Litigation

There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

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

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q and in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2019. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information and Factors That May Affect Future Results” and under Part I, Item 1A, of the Company’s Annual Report on Form 10-K, for the year ended June 30, 2019 under the heading “Risk Factors.”

Overview

1-800-FLOWERS.COM, Inc. and its subsidiaries (collectively, the “Company”) is a leading provider of gifts designed to help customers express, connect and celebrate. For more than 40 years, 1-800-Flowers.com® has been delivering smiles to customers with gifts for every occasion, including fresh flowers and the best selection of plants, gift baskets, gourmet foods, confections, jewelry, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee® backs every gift.

The Company’s Celebrations Ecosystem includes the following brands: 1-800-Flowers.com®, 1-800-Baskets.com®, Cheryl’s Cookies®, Harry & David®, Shari's Berries®, FruitBouquets.com^SM^, Moose Munch®, The Popcorn Factory®, Wolferman’s Bakery ®, Personalization Universe®, Simply Chocolate®, Goodsey®, DesignPac® and Stock Yards®. Through the Celebrations Passport® loyalty program, which provides members with free standard shipping and no service charge across our portfolio of brands, 1-800-FLOWERS.COM, Inc. strives to deepen its relationships with its customers. The Company also operates BloomNet®, an international floral wire service providing a broad range of products and services designed to help professional florists grow their businesses profitably; as well as Napco^SM^, a resource for floral gifts and seasonal décor.

1-800-FLOWERS.COM, Inc. was recognized as the 2019 Mid-Market Company of the Year by CEO Connection.

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

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our Annual Report on Form 10-K for the year ended June 30, 2019.

Definitions of non-GAAP Financial Measures:

We sometimes use financial measures derived from consolidated financial information, but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these are considered "non-GAAP financial measures" under the U.S. Securities and Exchange Commission rules. See below for definitions and the reasons why we use these non-GAAP financial measures. Where applicable, see the Segment Information and Results of Operations sections below for reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are referred to as “adjusted" or “on a comparable basis” below.

EBITDA and adjusted EBITDA

We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of stock-based compensation, NQDC Plan investment appreciation/depreciation, and for certain items affecting period to period comparability. See Segment Information for details on how EBITDA and adjusted EBITDA were calculated for each period presented.

The Company presents EBITDA and adjusted EBITDA because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies. The Company uses EBITDA and adjusted EBITDA as factors to determine the total amount of incentive compensation available to be awarded to executive officers and other employees. The Company's credit agreement uses EBITDA and adjusted EBITDA to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted EBITDA are also used by the Company to evaluate and price potential acquisition candidates.

EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of the limitations are: (a) EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, the Company's working capital needs; (b) EBITDA and adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debts; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and EBITDA does not reflect any cash requirements for such capital expenditures. EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company's performance.

Segment contribution margin

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

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

Segment contribution margin is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of the segment contribution margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.

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Segment Information

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

Three Months Ended
December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Net revenues: **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 115,716 $ 108,106 7.0 %
BloomNet Wire Service 25,722 23,435 9.8 %
Gourmet Food & Gift Baskets 464,584 440,003 5.6 %
Corporate 165 315 (47.6 %)
Intercompany eliminations (545 ) (543 ) (0.4 %)
Total net revenues $ 605,642 $ 571,316 6.0 %
Gross profit: **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 44,544 $ 41,632 7.0 %
38.5 % 38.5 %
BloomNet Wire Service 13,161 12,328 6.8 %
51.2 % 52.6 %
Gourmet Food & Gift Baskets 211,362 200,666 5.3 %
45.5 % 45.6 %
Corporate 105 201 (47.8 %)
63.6 % 63.8 %
Total gross profit $ 269,172 $ 254,827 5.6 %
44.4 % 44.6 %
EBITDA (non-GAAP): **** **** **** **** **** **** **** **** ****
Segment Contribution Margin (non-GAAP) (a): **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 10,890 $ 9,808 11.0 %
BloomNet Wire Service 9,134 8,257 10.6 %
Gourmet Food & Gift Baskets 113,387 105,514 7.5 %
Segment Contribution Margin Subtotal 133,411 123,579 8.0 %
Corporate (b) (26,010 ) (20,925 ) (24.3 %)
EBITDA (non-GAAP) 107,401 $ 102,654 4.6 %
Add: Stock-based compensation 2,280 1,673 36.3 %
Add: Compensation charge related to NQ plan investment appreciation/(depreciation) 1,002 (1,249 ) 180.2 %
Adjusted EBITDA (non-GAAP) $ 110,683 $ 103,078 7.4 %
Six Months Ended
--- --- --- --- --- --- --- --- --- ---
December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Net revenues: **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 206,484 $ 193,182 6.9 %
BloomNet Wire Service 51,162 47,428 7.9 %
Gourmet Food & Gift Baskets 535,799 500,521 7.0 %
Corporate 360 582 (38.1 %)
Intercompany eliminations (900 ) (901 ) 0.1 %
Total net revenues $ 792,905 $ 740,812 7.0 %
Gross profit: **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 80,594 $ 74,920 7.6 %
39.0 % 38.8 %
BloomNet Wire Service 26,119 24,235 7.8 %
51.1 % 51.1 %
Gourmet Food & Gift Baskets 238,404 223,702 6.6 %
44.5 % 44.7 %
Corporate 201 510 (60.6 %)
55.8 % 87.6 %
Total gross profit $ 345,318 $ 323,367 6.8 %
43.6 % 43.7 %
EBITDA (non-GAAP): **** **** **** **** **** **** **** **** ****
Segment Contribution Margin (non-GAAP) (a): **** **** **** **** **** **** **** **** ****
1-800-Flowers.com Consumer Floral $ 19,414 $ 17,303 12.2 %
BloomNet Wire Service 17,491 15,895 10.0 %
Gourmet Food & Gift Baskets 106,787 96,393 10.8 %
Segment Contribution Margin Subtotal 143,692 129,591 10.9 %
Corporate (b) (49,309 ) (42,060 ) (17.2 %)
EBITDA (non-GAAP) 94,383 87,531 7.8 %
Add: Stock-based compensation 4,045 2,628 53.9 %
Add: Compensation charge related to NQ plan investment appreciation/(depreciation) 958 (967 ) 199.1 %
Adjusted EBITDA (non-GAAP) $ 99,386 $ 89,192 11.4 %

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Reconciliation of net income to adjusted EBITDA (non-GAAP): Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 December 29, 2019 December 30, 2018
(in thousands)
Net income $ 74,152 $ 68,578 $ 58,881 $ 51,312
Add:
Interest expense, net 10 2,696 689 3,412
Depreciation and amortization 7,830 7,969 15,465 15,812
Income tax expense 25,409 23,411 19,348 16,995
EBITDA 107,401 102,654 94,383 87,531
Add: Stock-based compensation 2,280 1,673 4,045 2,628
Add: Compensation charge related to NQ plan investment appreciation/(depreciation) 1,002 (1,249 ) 958 (967 )
Adjusted EBITDA $ 110,683 $ 103,078 $ 99,386 $ 89,192
(a) Segment performance is measured based on segment contribution margin or segment Adjusted EBITDA, reflecting only the direct controllable revenue and operating expenses of the segments, both of which are non-GAAP measurements. As such, management’s measure of profitability for these segments does not include the effect of corporate overhead, described above, depreciation and amortization, other income (net), and other items that we do not consider indicative of our core operating performance.
(b) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-Based Compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they are not directly allocable to a specific segment.

Results of Operations

Net revenues

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Net revenues:
E-Commerce $ 487,084 $ 458,821 6.2 % $ 616,134 $ 576,521 6.9 %
Other 118,558 112,495 5.4 % 176,771 164,291 7.6 %
Total net revenues $ 605,642 $ 571,316 6.0 % $ 792,905 $ 740,812 7.0 %

Net revenues consist primarily of the selling price of the merchandise, service or outbound shipping charges, less discounts, returns and credits.

Net revenues increased 6.0% and 7.0% during the three and six months ended December 29, 2019, respectively, compared to the same periods of the prior year, due to growth across all three of the Company’s business segments. Revenues within the 1-800-Flowers.com Consumer Floral segment increased 7.0% and 6.9% during the three and six months ended December 29, 2019, compared to the same periods of teh prior year, due to marketing and product innovations introduced by the 1-800-Flowers flagship brand, while revenues within the BloomNet Wire Service segment increased 9.8% and 7.9% over the same periods as a result of increases in its advertising services and wholesale product volume. Due to the seasonality of its businesses, the Gourmet Food & Gift Baskets segment comprises approximately 77% and 68% of total consolidated revenues during the three and six months ended December 29, 2019, respectively. Revenue growth of 5.6% and 7.0% for the periods presented, is primarily attributable to: (i) Harry & David e-commerce growth, resulting from the continuing digital transformation of its marketing programs, as well as its expanded product offerings, combined with (ii) strong growth in the 1-800-Baskets wholesale gift business, and (iii) contributions from the Shari’s Berries brand, which was acquired in August 2019, and contributed approximately 1.2% of consolidated incremental growth during both the three and six months ended December 29, 2019, partially offset by the impact of the shortened holiday shopping season caused by the late Thanksgiving/Cyber Monday, which resulted in 6 fewer shopping days between Thanksgiving and Christmas in the second quarter of fiscal 2020 in comparison to the prior year.

Disaggregated revenue by channel follows:

Three Months Ended Three Months Ended
December 29, 2019 December 30, 2018
Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated
Net revenues **** (in thousands)
E-commerce $ 113,858 $ - $ 373,226 $ 487,084 $ 106,300 $ - $ 352,521 $ 458,821
Retail 1,082 - 23,120 24,202 1,063 - 24,971 26,034
Wholesale - 7,270 68,238 75,508 - 5,793 62,511 68,304
BloomNet services - 18,452 - 18,452 - 17,642 - 17,642
Other 776 - - 776 743 - - 743
Corporate - - - 165 - - - 315
Eliminations - - - (545 ) - - - (543 )
Net revenues $ 115,716 $ 25,722 $ 464,584 $ 605,642 $ 108,106 $ 23,435 $ 440,003 $ 571,316
Six months ended Six months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
December 29, 2019 December 30, 2018
Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated Consumer Floral BloomNet Wire Service Gourmet Food and Gift Baskets Consolidated
Net revenues (in thousands) ****
E-commerce $ 202,946 $ - $ 413,188 $ 616,134 $ 189,750 $ - $ 386,771 $ 576,521
Retail 2,021 - 30,610 32,631 1,924 - 32,750 34,674
Wholesale - 16,018 92,001 108,019 - 13,926 81,000 94,926
BloomNet services - 35,144 - 35,144 - 33,502 - 33,502
Other 1,517 - - 1,517 1,508 - - 1,508
Corporate - - - 360 - - - 582
Eliminations - - - (900 ) - - - (901 )
Net revenues $ 206,484 $ 51,162 $ 535,799 $ 792,905 $ 193,182 $ 47,428 $ 500,521 $ 740,812

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Revenue by sales channel:

E-commerce revenues (combined online and telephonic) increased by 6.2% during the three months ended December 29, 2019, compared to the same period of the prior year, primarily as a result of growth within the Gourmet Food & Gift Baskets segment of 5.9%, complemented by growth within the 1-800-Flowers.com **** Consumer Floral segment of 7.1%. During the three months ended December 29, 2019, the Company fulfilled approximately 5.8 million orders through its e-commerce sales channels (online and telephonic sales), an increase of 4.8% compared to the same period of the prior year, while average order value increased 1.3%, to $84.53, during the three months ended December 29, 2019, compared to the same period of the prior year.

E-commerce revenues (combined online and telephonic) increased by 6.9% during the six months ended December 29, 2019, compared to the same period of the prior year, as a result of growth within the Gourmet Food & Gift Baskets and 1-800-Flowers.com Consumer Floral segments of 6.8% and 7.0%, respectively. During the six months ended December 29, 2019, the Company fulfilled approximately 7.5 million orders through its e-commerce sales channels (online and telephonic sales), an increase of 5.3% compared to the same period of the prior year, while average order value increased 1.5%, to $81.82, during the six months ended December 29, 2019, compared to the same period of the prior year.

Other revenues are comprised of the Company’s BloomNet Wire Service segment, as well as the wholesale and retail channels of its 1-800-Flowers.com **** Consumer Floral and Gourmet Food & Gift Baskets segments. Other revenues increased by 5.4% during the three months ended December 29, 2019, compared to the same period of the prior year, due to growth within the Gourmet Food & Gift Baskets segment of 4.4% and BloomNet Wire Service segment of 9.8%.

Other revenues increased by 7.6% during the six months ended December 29, 2019, compared to the same period of the prior year, driven primarily by growth within the Gourmet Food & Gift Baskets segment of 7.8% and BloomNet Wire Service segment of 7.9%.

Revenue by segment:

1-800-Flowers.com Consumer Floral – this segment, which consists primarily of the operations of the 1-800-Flowers.com brand, derives revenue from the sale of consumer floral products through its e-commerce sales channels (telephonic and online sales), retail stores, and royalties from its franchise operations. Net revenues increased 7.0% and 6.9% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, reflecting the strategic marketing and merchandising investments that we have been making in the Company’s flagship brand.

BloomNet Wire Service - revenues in this segment are derived from membership fees, as well as other product and service offerings to florists. Net revenues increased 9.8% and 7.9% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, primarily due to higher services revenue, including digital directory and transaction fees (driven primarily by increased 1-800-Flowers and Shari’s Berries order volume sent through the network), as well as increasing demand for our expanded line of wholesale products.

Gourmet Food & Gift Baskets – this segment includes the operations of Harry & David, Wolferman’s, Stock Yards, Cheryl’s Cookies, The Popcorn Factory, 1-800-Baskets/DesignPac, and Shari’s Berries (acquired on August 14, 2019). Revenue is derived from the sale of gourmet fruits, cookies, baked gifts, premium chocolates and confections, gourmet popcorn, gift baskets, dipped berries, and prime steaks and chops through the Company’s e-commerce sales channels (telephonic and online sales) and company-owned and operated retail stores under the Harry & David and Cheryl’s brand names, as well as wholesale operations. Net revenues increased 5.6% and 7.0% during the three and six months ended December 29, 2019, compared to the same periods of the prior year primarily due to: (i) Harry & David growth which continues to benefit from the digital transformation of its marketing programs as well as its expanded product offerings of unique, shareable gifts for both holiday (seasonal fruits and bakery) and everyday occasions, as well as Harry & David’s Gourmet line, which includes prepared meals and wines for both gifting and entertaining, which is enabling the brand to attract new customers while also deepening engagement with existing customers, (ii) strong growth in the DesignPac wholesale business due to increased demand fueled by new product designs and an expanded customer list, and (iii) the acquisition of Shari’s Berries on August 14, 2019.

Gross profit

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Gross profit $ 269,172 $ 254,827 5.6 % $ 345,318 $ 323,367 6.8 %
Gross profit % 44.4 % 44.6 % 43.6 % 43.7 %

Gross profit consists of net revenues less cost of revenues, which is comprised primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through third parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to direct-to-consumer and wholesale production operations, as well as payments made to sending florists related to order volume sent through the Company’s BloomNet network.

Gross profit increased 5.6% and 6.8% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, as a result of the increase in revenues noted above, partially offset by a slight decrease in gross profit percentage. Gross profit percentage declined 20 basis points and 10 basis points, to 44.4% and 43.6%, during the respective three and six months ended December 29, 2019, compared to the same periods of the prior year, as a result of a product mix, combined with macro-economic headwinds including: (i) rising labor and transportation costs; (ii) tariffs; and (iii) a highly promotional Christmas holiday associated with the shortened shopping season caused by the late Thanksgiving holiday, largely offset by the Company’s strategic pricing initiatives, efficient use of promotional marketing programs, and operational productivity improvements.

1-800-Flowers.com Consumer Floral segment - Gross profit increased by 7.0% and 7.6% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, as a result of the revenue increases noted above. Gross profit percentage of 38.5%, during the three months ended December 29, 2019, was consistent with the same period of the prior year, and improved 20 basis points, to 39.0%, during the six months ended December 29, 2019 compared to the same period of the prior year, primarily due to efficient use of promotional pricing programs.

BloomNet Wire Service segment - Gross profit increased by 6.8% during the three months ended December 29, 2019, compared to the same period of the prior year, due to the increase in revenues noted above, partially offset by a decline in gross margin percentage of 140 basis points, to 51.2%, due to product sales mix associated with the outsized increase in wholesale product revenues. Gross profit increased by 7.8% during the six months ended December 29, 2019 compared to the same period of the prior year due to the increase in revenues noted above, as gross margin percentage of 51.1% was consistent with the same period of the prior year.

Gourmet Food & Gift Baskets segment - Gross profit increased by 5.3% and 6.6% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, due to the revenue increase noted above, partially offset by gross profit percentage which decreased 10 basis points to 45.5%, and 20 basis points to 44.5% during the three months ended and six months ended December 29, 2019 compared to the same periods of the prior year, primarily as a result of the input cost increases described above.

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Marketing and sales expense

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Marketing and sales $ 127,404 $ 119,664 6.5 % $ 184,243 $ 172,618 6.7 %
Percentage of net revenues 21.0 % 20.9 % 23.2 % 23.3 %

Marketing and sales expense consists primarily of advertising and promotional expenditures, catalog costs, online portal and search costs, retail store and fulfillment operations (other than costs included in cost of revenues) and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities.

Marketing and sales expense increased 6.5% and 6.7% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, primarily due to increased advertising spend within the Gourmet Food & Gift Baskets and 1-800-Flowers.com **** Consumer Floral segments, due to the Company’s incremental marketing efforts designed to accelerate revenue growth and capture market share, partially offset by operational efficiencies and platform leverage attributable to the revenue growth. As a result, marketing and sales as a percentage of net revenues increased 10 basis points, to 21.0% for the three months ended December 29, 2019, but decreased 10 basis points, to 23.2%, for the six months ended December 29, 2019, in comparison to the same periods of the prior year. ******

Technology and development expense

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Technology and development $ 11,733 $ 10,906 7.6 % $ 22,536 $ 21,185 6.4 %
Percentage of net revenues 1.9 % 1.9 % 2.8 % 2.9 %

Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, design, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems.

Technology and development expenses increased 7.6% and 6.4% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, primarily due to increased license and maintenance costs required to support the Company’s technology platform.

General and administrative expense

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
General and administrative $ 22,634 $ 21,603 4.8 % $ 44,156 $ 42,033 5.1 %
Percentage of net revenues 3.7 % 3.8 % 5.6 % 5.7 %

General and administrative expense consists of payroll and other expenses in support of the Company’s executive, finance and accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses.

General and administrative expense increased 4.8% and 5.1% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, primarily due to higher labor costs, attributable to an increase in the value of Non-Qualified Deferred Compensation Plan investments (offset by an increase in other income on the financials statement – see below), and higher acquisition related professional fees, partially offset by lower insurance costs due to favorable claims experience.

Depreciation and amortization expense

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Depreciation and amortization $ 7,830 $ 7,969 (1.7 %) $ 15,465 $ 15,812 (2.2 %)
Percentage of net revenues 1.3 % 1.4 % 2.0 % 2.1 %

Depreciation and amortization expense during the three and six months ended December 29, 2019 decreased 1.7% and 2.2%, respectively, compared to the same periods of the prior year, primarily as a result of timing of capital projects.

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Interest (income) expense, net

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Interest expense, net $ 985 $ 1,430 (31.1 %) $ 1,580 $ 2,420 (34.7 %)

Interest expense, net consists primarily of interest expense and amortization of deferred financing costs attributable to the Company’s credit facility (See Note 8 - Debt, in Item 1. for details), net of income earned on the Company’s available cash balances.

Interest expense, net decreased 31.1% and 34.7% during the three and six months ended December 29, 2019, compared to the same periods of the prior year, due to lower borrowings outstanding, and a lower interest rate resulting from the 2019 Credit Agreement amendment, combined with higher invested cash balances and associated rates earned on these balances.

Other ( income ) expense, net

Three Months Ended Six Months Ended
December 29, 2019 December 30, 2018 % Change December 29, 2019 December 30, 2018 % Change
(dollars in thousands)
Other (income) expense, net $ (975 ) $ 1,266 177.0 % $ (891 ) $ 992 189.8 %

Other income, net for the three and six months ended December 29, 2019 consists primarily of investment income on the Company’s Non-Qualified Deferred Compensation Plan assets of approximately $1.0 million, whereas in the prior year, there was a loss of $1.2 million.

Income Taxes

The Company recorded income tax expense of $25.4 million and $19.3 million, during the three and six months ended December 29, 2019, respectively, and $23.4 million and $17.0 million, during the three and six months ended December 30, 2018, respectively. The Company’s effective tax rate for the three and six months ended December 29, 2019 was 25.5% and 24.7%, respectively, compared to 25.4% and 24.9% in the same periods of the prior year. The effective rates for fiscal 2020 and fiscal 2019 differed from the U.S. federal statutory rate of 21% due to state income taxes and nondeductible expenses for executive compensation, which were partially offset by various permanent differences and tax credits, including excess tax benefits from stock-based compensation. At December 29, 2019, the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $0.9 million. The Company believes that $0.2 million of unrecognized tax positions will be resolved over the next twelve months.

Liquidity and Capital Resources

Liquidity and borrowings

The Company's principal sources of liquidity are cash on hand, cash flows generated from operations and borrowings available under the 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details). At December 29, 2019, the Company had working capital of $204.9 million, including cash and cash equivalents of $295.6 million, compared to working capital of $175.7 million, including cash and cash equivalents of $172.9 million, at June 30, 2019.

Due to the seasonal nature of the Company’s business, the Thanksgiving through Christmas holiday season, which falls within its second fiscal quarter, generates nearly 50% of the Company’s annual revenues, and all of its earnings. The Company utilized cash on hand to fund operations through September 2019. In October 2019, the Company borrowed under its Revolver to fund short-term working capital needs, with borrowings peaking at $20.0 million in November 2019. Cash generated from operations during the Christmas holiday shopping season enabled the Company to repay the Revolver prior to the end of December 2019. Based on current projected cashflows, the Company believes that available cash balances are expected to be sufficient to provide for the Company’s operating needs through fiscal 2021.

While we believe that our sources of funding will be sufficient to meet our anticipated operating cash needs for at least the next twelve months, any projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate opportunities to repurchase common stock and we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to require additional financing.

Cash Flows

Net cash provided by operating activities of $162.2 million, for the six months ended December 29, 2019, was primarily attributable to the Company’s net income during the period, adjusted by non-cash charges for depreciation/amortization and stock based compensation, combined with seasonal changes in working capital, including holiday related increases in accounts payable and accrued expenses, and reductions in inventory, partially offset by increases in receivables related to holiday season sales.

Net cash used in investing activities of $32.2 million, for the six months ended December 29, 2019, was primarily attributable to the acquisition of Shari’s Berries for $20.5 million, and capital expenditures of $10.7 million related to the Company's technology initiatives and Gourmet Food & Gift Baskets segment manufacturing production and warehousing equipment.

Net cash used in financing activities of $7.3 million, for the six months ended December 29, 2019, was primarily due to net bank repayments of $2.5 million, and the acquisition of $5.0 million of treasury stock.

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Stock Repurchase Program

See Item 2 in Part II below for details.

Contractual Obligations

At December 29, 2019, the Company’s contractual obligations consist of:

● Long-term debt obligations - payments due under the Company's 2019 Credit Agreement (see Note 8 - Debt in Item 1 for details).
● Operating lease obligations – payments due under the Company’s long-term operating leases (see Note 13 - Leases in Item 1 for details).
--- ---
● Purchase commitments - consisting primarily of inventory and IT related equipment purchase orders and license agreements made in the ordinary course of business – see below for the contractual payments due by period.
--- ---
Payments due by period
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(in thousands)
Remaining Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023 Fiscal 2024 Thereafter Total
Purchase commitments $ 52,739 $ 8,403 $ 7,460 $ 4,612 $ 1,103 $ - $ 74,317

Critical Accounting Policies and Estimates

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019, the discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements of 1-800-FLOWERS.COM, Inc., which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, and management evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. The Company’s most critical accounting policies relate to goodwill, other intangible assets and income taxes. There have been no significant changes to the assumptions and estimates related to the Company’s critical accounting policies, since June 30, 2019, except for the adoption of ASC 842 (see Note 1 - Accounting Policies in Item 1 above for details).

Recently Issued Accounting Pronouncements

See Note 1 - Accounting Policies in Item 1 for details regarding the impact of accounting standards that were recently issued on our consolidated financial statements.

Forward Looking Information and Factors that May Affect Future Results

Our disclosure and analysis in this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events and can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or similar words or phrases. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements, including:

● the Company’s ability:
o to achieve revenue and profitability;
--- ---
o to leverage its operating platform and reduce operating expenses;
--- ---
o to manage the increased seasonality of its business;
--- ---
o to cost effectively acquire and retain customers;
--- ---
o to effectively integrate and grow acquired companies;
--- ---
o to reduce working capital requirements and capital expenditures;
--- ---
o to compete against existing and new competitors;
--- ---
o to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and
--- ---
o to cost effectively manage inventories;
--- ---
● the outcome of contingencies, including legal proceedings in the normal course of business; and
--- ---
● general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s products.
--- ---

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Annual Report on Form 10-K filing for the fiscal year ended June 30, 2019 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”. We incorporate that section of that Form 10-K in this filing and investors should refer to it.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from the effect of interest rate changes.

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment of available cash balances and its long-term debt. The Company generally invests its cash and cash equivalents in investment grade corporate and U.S. government securities. Due to the currently low rates of return the Company is receiving on its cash equivalents, the potential for a significant decrease in short-term interest rates is low and, therefore, a further decrease would not have a material impact on the Company’s interest income. Borrowings under the Company’s 2019 Credit Agreement bear interest at a variable rate, plus an applicable margin, and therefore expose the Company to market risk for changes in interest rates. The effect of a 50 basis point increase in current interest rates on the Company’s interest expense would be approximately $0.1 million and $0.2 million during the three and six months ended December 29, 2019.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 29, 2019. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 29, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the Company’s evaluation required by Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934 during the quarter ended December 29, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation

There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS.

There were no material changes to the Company’s risk factors as discussed in Part 1, Item 1A-Risk Factors in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company has a stock repurchase plan through which purchases can be made from time to time in the open market and through privately negotiated transactions, subject to general market conditions. The repurchase program is financed utilizing available cash. On June 27, 2019, the Company’s Board of Directors authorized an increase to its stock repurchase plan of up to $30.0 million. As of December 29, 2019, $25.0 million remained authorized under the plan.

The following table sets forth, for the months indicated, the Company’s purchase of common stock during the first six months of fiscal 2020, which includes the period July 1, 2019 through December 29, 2019:

Period Total Number of<br><br> <br>Shares Purchased Average Price<br><br> <br>Paid Per Share (1) Total Number of Shares<br><br> <br>Purchased as Part of<br><br> <br>Publicly Announced<br><br> <br>Plans or Programs Dollar Value of Shares<br><br> <br>that May Yet Be Purchased<br><br> <br>Under the Plans or Programs
(in thousands, except average price paid per share)
07/01/19 - 07/28/19 - $ - - $ 30,000
07/29/19 - 08/25/19 - $ - - $ 30,000
08/26/19 - 09/29/19 2,113 $ 14.85 2,113 $ 29,969
09/30/19 - 10/27/19 - $ - - $ 29,969
10/28/19 - 11/24/19 158,750 $ 13.24 158,750 $ 27,867
11/25/19 - 12/29/19 210,000 $ 13.76 210,000 $ 24,970
Total 370,863 $ 13.55 370,863

(1) Average price per share excludes commissions and other transaction fees.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

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. *
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Document
101.PRE XBRL Taxonomy Definition Presentation Document

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

1-800-FLOWERS.COM, Inc.<br><br> <br>(Registrant)
Date:      February 7, 2020 /s/ Christopher G. McCann<br><br> <br>Christopher G. McCann<br> Chief Executive Officer, <br> Director and President<br> (Principal Executive Officer)
Date:      February 7, 2020 /s/ William E. Shea      <br> William E. Shea<br> Senior Vice President, Treasurer and<br> Chief Financial Officer (Principal<br> Financial and Accounting Officer)

22

ex_170512.htm

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(RULE 13a-14 (a))

I, Christopher G. McCann, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of 1-800-FLOWERS.COM, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: February 7, 2020 /s/ Christopher G. McCann
--- ---
Christopher G. McCann
Chief Executive Officer,
Director and President

ex_170513.htm

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(RULE 13a-14(a))

I, William E. Shea, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of 1-800-FLOWERS.COM, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: February 7, 2020 /s/ William E. Shea
--- ---
William E. Shea
Senior Vice President, Treasurer and
Chief Financial Officer

ex_170514.htm

Exhibit 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 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of 1-800-FLOWERS.COM, Inc. (the “Company”) hereby certifies, to the best of such officer's knowledge, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended December 29, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 7, 2020 /s/ Christopher G. McCann
Christopher G. McCann<br><br> <br>Chief Executive Officer,<br><br> <br>Director and President
Dated: February 7, 2020 /s/ William E. Shea
William E. Shea<br><br> <br>Senior Vice President, Treasurer<br><br> <br>and Chief Financial Officer

These certifications are furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates them by reference.

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