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 27, 2015
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
(Address of principal executive offices)(Zip code)
(516) 237-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☑ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares outstanding of each of the Registrant's classes of common stock:
34,722,189
(Number of shares of Class A common stock outstanding as of January 29, 2016)
29,983,004
(Number of shares of Class B common stock outstanding as of January 29, 2016)
1-800-FLOWERS.COM, Inc.
TABLE OF CONTENTS
INDEX
| Page | ||
Part I. | Financial Information | |
Item 1. | Consolidated Financial Statements: | |
| Condensed Consolidated Balance Sheets – December 27, 2015 (Unaudited) and June 28, 2015 | 1 | |
| Condensed Consolidated Statements of Income (Unaudited) – Three and Six Months Ended December 27, 2015 and December 28, 2014 | 2 | |
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months Ended December 27, 2015 and December 28, 2014 | 3 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) – Three and Six Months Ended December 27, 2015 and December 28, 2014 | 4 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32 |
| Item 4. | Controls and Procedures | 32 |
Part II. | Other Information | |
| Item 1. | Legal Proceedings | 33 |
| Item 1A. | Risk Factors | 34 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
| Item 3. | Defaults upon Senior Securities | 34 |
| Item 4. | Mine Safety Disclosures | 34 |
| Item 5. | Other Information | 34 |
| Item 6. | Exhibits | 35 |
Signatures |
| 36 |
PART I. – FINANCIAL INFORMATION
ITEM 1. – CONSOLIDATED FINANCIAL STATEMENTS
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
December 27 , 20 15 (unaudited) | June 28 , 20 15 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 108,444 | $ | 27,940 | ||||
Trade receivables, net | 78,206 | 16,191 | ||||||
Insurance receivable | - | 2,979 | ||||||
Inventories | 95,009 | 93,163 | ||||||
Prepaid and other | 17,995 | 14,822 | ||||||
Total current assets | $ | 299,654 | $ | 155,095 | ||||
Property, plant and equipment, net | 165,815 | 170,100 | ||||||
Goodwill | 76,956 | 77,097 | ||||||
Other intangibles, net | 79,936 | 82,125 | ||||||
Other assets | 12,981 | 12,656 | ||||||
Total assets | $ | 635,342 | $ | 497,073 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 60,679 | $ | 35,425 | ||||
Accrued expenses | 146,519 | 73,639 | ||||||
Current maturities of long-term debt | 16,031 | 14,543 | ||||||
Total current liabilities | 223,229 | 123,607 | ||||||
Long-term debt | 108,656 | 117,563 | ||||||
Deferred tax liabilities | 36,279 | 37,807 | ||||||
Other liabilities | 8,922 | 7,840 | ||||||
Total liabilities | 377,086 | 286,817 | ||||||
Total 1-800-FLOWERS.COM, Inc. stockholders' equity | 258,256 | 208,449 | ||||||
Noncontrolling interest in subsidiary | - | 1,807 | ||||||
Total equity | 258,256 | 210,256 | ||||||
Total liabilities and equity | $ | 635,342 | $ | 497,073 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Conso lidated Statements of Income
(in thousands, except per share data)
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
December 27 , 2015 | December 28, 2014 | December 27 , 2015 | December 28, 2014 | |||||||||||||
Net revenues | $ | 548,381 | $ | 534,275 | $ | 704,422 | $ | 660,978 | ||||||||
Cost of revenues | 295,798 | 293,850 | 384,330 | 367,240 | ||||||||||||
Gross profit | 252,583 | 240,425 | 320,092 | 293,738 | ||||||||||||
Operating expenses: | ||||||||||||||||
Marketing and sales | 119,539 | 122,026 | 172,065 | 157,598 | ||||||||||||
Technology and development | 9,845 | 9,329 | 19,156 | 14,929 | ||||||||||||
General and administrative | 20,055 | 25,558 | 40,026 | 39,226 | ||||||||||||
Depreciation and amortization | 8,761 | 8,679 | 16,733 | 13,780 | ||||||||||||
Total operating expenses | 158,200 | 165,592 | 247,980 | 225,533 | ||||||||||||
Operating income | 94,383 | 74,833 | 72,112 | 68,205 | ||||||||||||
Interest expense, net | 2,162 | 2,489 | 4,053 | 2,809 | ||||||||||||
Other (income) expense, net | 242 | 149 | (15,296 | ) | 582 | |||||||||||
Income before income taxes | 91,979 | 72,195 | 83,355 | 64,814 | ||||||||||||
Income tax expense | 30,495 | 26,655 | 27,307 | 23,852 | ||||||||||||
Net income | $ | 61,484 | $ | 45,540 | $ | 56,048 | $ | 40,962 | ||||||||
Less: Net loss attributable to noncontrolling interest | (55 | ) | (231 | ) | (1,007 | ) | (559 | ) | ||||||||
Net income attributable to 1-800-FLOWERS.COM, Inc. | $ | 61,539 | $ | 45,771 | $ | 57,055 | $ | 41,521 | ||||||||
Basic net income per common share attributable to 1-800-FLOWERS.COM, Inc. | $ | 0.95 | $ | 0.71 | $ | 0.88 | $ | 0.65 | ||||||||
Diluted net income per common share attributable to 1-800-FLOWERS.COM, Inc. | $ | 0.92 | $ | 0.68 | $ | 0.85 | $ | 0.62 | ||||||||
Weighted average shares used in the calculation of net income per common share: | ||||||||||||||||
Basic | 64,669 | 64,443 | 64,747 | 64,195 | ||||||||||||
Diluted | 66,979 | 67,061 | 67,220 | 66,641 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
December 27 , 2015 | December 28, 2014 | December 27 , 2015 | December 28, 2014 | |||||||||||||
Net income | $ | 61,484 | $ | 45,540 | $ | 56,048 | $ | 40,962 | ||||||||
Other comprehensive income/(loss) (currency translation) | 79 | (412 | ) | 237 | (352 | ) | ||||||||||
Comprehensive income | 61,563 | 45,128 | 56,285 | 40,610 | ||||||||||||
Less: | ||||||||||||||||
Net loss attributable to noncontrolling interest | (55 | ) | (231 | ) | (1,007 | ) | (559 | ) | ||||||||
Other comprehensive income (loss) (currency translation) attributable to noncontrolling interest | - | (170 | ) | 87 | (129 | ) | ||||||||||
Comprehensive net loss attributable to noncontrolling interest | (55 | ) | (401 | ) | (920 | ) | (688 | ) | ||||||||
Comprehensive income attributable to 1-800-FLOWERS.COM, Inc. | $ | 61,618 | $ | 45,529 | $ | 57,205 | $ | 41,298 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
1-800-FLOWERS.COM, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended | ||||||||
December 27, 2015 | December 28, 2014 | |||||||
Operating activities: | ||||||||
Net income | $ | 56,048 | $ | 40,962 | ||||
Reconciliation of net income to net cash provided by operating activities, net of acquisitions/dispositions: | ||||||||
Depreciation and amortization | 16,733 | 13,780 | ||||||
Amortization of deferred financing costs | 817 | 639 | ||||||
Deferred income taxes | (1,527 | ) | (3,429 | ) | ||||
Foreign equity method investment impairment | 1,728 | - | ||||||
Loss on sale/assets held for sale impairment-iFlorist | 2,138 | - | ||||||
Non-cash impact of write-offs related to warehouse fire | - | 29,522 | ||||||
Insurance proceeds for warehouse fire related to property damage | - | 15,000 | ||||||
Bad debt expense | 641 | 739 | ||||||
Stock-based compensation | 3,181 | 2,782 | ||||||
Other non-cash items | 181 | 1,474 | ||||||
Changes in operating items: | ||||||||
Trade receivables | (62,657 | ) | (49,166 | ) | ||||
Insurance receivable | 4,940 | (14,945 | ) | |||||
Inventories | (2,266 | ) | 48,990 | |||||
Prepaid and other | 1,572 | 6,218 | ||||||
Accounts payable and accrued expenses | 90,290 | 86,480 | ||||||
Other assets | (106 | ) | (879 | ) | ||||
Other liabilities | (69 | ) | 35 | |||||
Net cash provided by operating activities | 111,644 | 178,202 | ||||||
Investing activities: | ||||||||
Acquisitions, net of cash acquired | - | (133,117 | ) | |||||
Capital expenditures, net of non-cash expenditures | (13,052 | ) | (14,927 | ) | ||||
Other | - | 641 | ||||||
Net cash used in investing activities | (13,052 | ) | (147,403 | ) | ||||
Financing activities: | ||||||||
Acquisition of treasury stock | (11,232 | ) | (5,011 | ) | ||||
Proceeds from exercise of employee stock options | 563 | 1,788 | ||||||
Proceeds from bank borrowings | 178,000 | 239,786 | ||||||
Repayment of notes payable and bank borrowings | (185,419 | ) | (165,895 | ) | ||||
Debt issuance costs | - | (5,602 | ) | |||||
Other | - | 152 | ||||||
Net cash (used in) provided by financing activities | (18,088 | ) | 65,218 | |||||
Net change in cash and cash equivalents | 80,504 | 96,017 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of year | 27,940 | 5,203 | ||||||
End of period | $ | 108,444 | $ | 101,220 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Note 1 – Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and subsidiaries (the "Company") in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 27, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending July 3, 2016. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended June 28, 2015.
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, including the acquisition of Harry & David Holdings, Inc. ("Harry & David") on September 30, 2014, the Thanksgiving through Christmas holiday season, which falls within the Company's second fiscal quarter, is expected to generate nearly 50% of the Company's annual revenues, and all of its earnings. Additionally, due to the number of major floral gifting occasions, including Mother's Day, Valentine's Day and Administrative Professionals Week, revenues also rise during the Company's fiscal third and fourth quarters in comparison to its fiscal first quarter. The Easter Holiday, which was on April 5 th in fiscal 2015, falls on March 27 th in fiscal 2016. As a result of the timing of Easter, during fiscal 2016, all revenue and EBITDA associated with the Easter Holiday will shift into the Company's fiscal third 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.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." This standard provides guidance to help entities determine whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software or as a service contract. Upon adoption, an entity has the option to apply the provisions of ASU 2015-05 either prospectively to all arrangements entered into or materially modified, or retrospectively. This standard is effective for the Company's fiscal year ending July 2, 2017. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which amends ASC 835-30, "Interest – Imputation of Interest." In order to simplify the presentation of debt issuance costs, ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from that debt liability, consistent with the presentation of a debt discount. This presentation is consistent with the guidance in Concepts Statement 6, which states that debt issuance costs are similar to a debt discount and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs are not assets because they provide no future economic benefit. This new guidance is effective for the Company's fiscal year ending July 2, 2017 and should be applied retrospectively.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This amended guidance will enhance the comparability of revenue recognition practices and will be applied to all contracts with customers. Expanded disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized are requirements under the amended guidance. This guidance will be effective for the Company's fiscal year ending June 30, 2019 and may be applied retrospectively. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
5
In November 2015 the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," which will require entities to present deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") as noncurrent in a classified balance sheet. The ASU simplifies the current guidance (ASC 740-10-45-4), which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The ASU is effective for the Company's fiscal year ending July 1, 2018, and interim periods within those annual periods. The FASB decided to allow all entities to early adopt the ASU for financial statements that had not been issued. Therefore, we adopted this ASU at December 27, 2015, and have reclassified all prior periods to be consistent with the requirements outlined in the ASU. The impact of the adoption was to reclassify and net $4.9 million of current deferred tax assets within long-term deferred tax liabilities, as of June 28, 2015.
Reclassifications
Certain balances in the prior fiscal years have been reclassified to conform to the presentation in the current fiscal year. S ee "Recent Accounting Pronouncements" above regarding the impact of our adoption of ASU No. 2015-17 upon the classification of deferred tax assets in our consolidated balance sheets.
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 27 , 2015 | December 28 , 2014 | December 27 , 2015 | December 28 , 2014 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 61,484 | $ | 45,540 | $ | 56,048 | $ | 40,962 | ||||||||
Less: Net loss attributable to noncontrolling interest | (55 | ) | (231 | ) | (1,007 | ) | (559 | ) | ||||||||
Income attributable to 1-800-FLOWERS.COM, Inc. | $ | 61,539 | $ | 45,771 | $ | 57,055 | $ | 41,521 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding | 64,669 | 64,443 | 64,747 | 64,195 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options (1) | 1,449 | 1,534 | 1,477 | 1,373 | ||||||||||||
Employee restricted stock awards | 861 | 1,084 | 996 | 1,073 | ||||||||||||
| 2,310 | 2,618 | 2,473 | 2,446 | |||||||||||||
Adjusted weighted-average shares and assumed conversions | 66,979 | 67,061 | 67,220 | 66,641 | ||||||||||||
Net income per common share attributable to 1-800-FLOWERS.COM, Inc. | ||||||||||||||||
Basic | $ | 0.95 | $ | 0.71 | $ | 0.88 | $ | 0.65 | ||||||||
Diluted | $ | 0.92 | $ | 0.68 | $ | 0.85 | $ | 0.62 | ||||||||
Note (1): | The effect of options to purchase 0.1 million shares for both the three and six months ended December 27, 2015 and 0.3 million and 0.6 million shares for the three and six months ended December 28, 2014, respectively, were excluded from the calculation of net income per share on a diluted basis as their effect is anti-dilutive. |
|
|
6
Note 3 – Stock-Based Compensation