Edgar Filing: 1 800 FLOWERS COM INC

tenq.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2010

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 0-26841

1-800-FLOWERS.COM, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	11-3117311
(State of	(I.R.S. Employer
incorporation)	Identification No.)

One Old Country Road, Carle Place, New York 11514

(Address of principal executive offices)(Zip code)

(516) 237-6000

(Registrant’s telephone number, including area code)

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

Yes (X) 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 x
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 (X)

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

26,884,968

(Number of shares of Class A common stock outstanding as of April 30, 2010)

36,858,465

(Number of shares of Class B common stock outstanding as of April 30, 2010)

1-800-FLOWERS.COM, Inc.

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INDEX

Page

Part I.	Financial Information
Item 1.	Consolidated Financial Statements: Consolidated Balance Sheets – March 28, 2010 (Unaudited) and June 28, 2009 Consolidated Statements of Operations (Unaudited) – Three and Nine Months Ended March 28, 2010 and March 29, 2009 Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended March 28, 2010 and March 29, 2009 Notes to Consolidated Financial Statements (Unaudited)	1 2 3 4
Item 2. Item 3. Item 4.	Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures	18 33 33
Part II.	Other Information
Item 1. Item 1A. Item 2. Item 3. Item 4. Item 5. Item 6. Signatures	Legal Proceedings Risk Factors Unregistered Sales of Equity Securities and Use of Proceeds Defaults upon Senior Securities Removed and Reserved Other Information Exhibits	34 34 34 34 34 35 35 36

TABLE OF CONTENTS

PART I. – FINANCIAL INFORMATION

ITEM 1. – CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheets

(in thousands, except share data)

	March 28, 2010			June 28, 2009
	(unaudited)

Assets
Current assets:
Cash and equivalents	$	38,023		$	29,562
Receivables, net		23,266			11,335
Inventories		45,010			45,854
Deferred tax assets		7,409			12,666
Prepaid and other		5,664			4,580
Current assets of discontinued operations		-			18,100
Total current assets		119,372			122,097

Property, plant and equipment, net		51,290			54,770
Goodwill		41,211			41,205
Other intangibles, net		41,756			42,822
Deferred income taxes		11,925			11,725
Other assets		4,111			3,890
Non-current assets of discontinued operations		-			9,647
Total assets	$	269,665		$	286,156

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses	$	53,659		$	53,460
Current maturities of long-term debt and capital leases		26,040			22,337
Current liabilities of discontinued operations		-			2,633
Total current liabilities		79,699			78,430
Long-term debt and capital leases		49,945			70,518
Other liabilities		2,831			2,091
Non-current liabilities of discontinued operations		-			1,334
Total liabilities		132,475			152,373
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued		-			-
Class A common stock, $.01 par value, 200,000,000 shares authorized; 32,271,562 and 31,730,404 shares issued at March 28, 2010 and June 28, 2009, respectively		323			317
Class B common stock, $.01 par value, 200,000,000 shares authorized; 42,138,465 shares issued at March 28, 2010 and June 28, 2009		421			421
Additional paid-in capital		284,907			281,247
Retained deficit		(115,523	)		(116,256	)
Accumulated other comprehensive loss, net of tax		(320	)		-
Treasury stock, at cost – 5,386,594 and 5,122,225 Class A shares at March 28, 2010 and June 28, 2009, respectively and 5,280,000 Class B shares		(32,618	)		(31,946	)
Total stockholders' equity		137,190			133,783
Total liabilities and stockholders' equity	$	269,665		$	286,156

See accompanying Notes to Consolidated Financial Statements.

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

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009

Net revenues	$	155,513		$	154,479		$	502,283		$	541,488
Cost of revenues		96,100			92,768			299,453			326,868
Gross profit		59,413			61,711			202,830			214,620
Operating expenses:
Marketing and sales		46,729			43,429			128,181			130,063
Technology and development		4,183			5,205			13,264			15,049
General and administrative		11,297			11,886			38,504			36,869
Goodwill and intangible impairment		-			76,460			-			76,460
Depreciation and amortization		5,482			5,559			15,771			15,728
Total operating expenses		67,691			142,539			195,720			274,169
Operating income (loss)		(8,278	)		(80,828	)		7,110			(59,549	)
Other income (expense):
Interest income		75			55			100			218
Interest expense		(1,212	)		(1,102	)		(4,744	)		(4,768	)
Other		18			47			34			65
Total other income (expense), net		(1,119	)		(1,000	)		(4,610	)		(4,485	)
Income (loss) from continuing operations before income taxes		(9,397	)		(81,828	)		2,500			(64,034	)
Income tax expense (benefit) from continuing operations		(3,468	)		(17,569	)		1,362			(10,613	)
Income (loss) from continuing operations		(5,929	)		(64,259	)		1,138			(53,421	)
Operating loss from discontinued operations before income taxes		(1,712	)		(3,309	)		(555	)		(25,485	)
(including loss on disposal of $0.7 million and $4.0 million during the three and nine months ended March 28, 2010, respectively, and impairment charges of $0.0 million and $20.0 million during the three and nine months ended March 29, 2009)
Income tax benefit from discontinued operations		(345	)		(1,793	)		(150	)		(2,716	)
Loss from discontinued operations		(1,367	)		(1,516	)		(405	)		(22,769	)
Net income (loss)	$	(7,296	)	$	(65,775	)	$	733		$	(76,190	)


Basic and diluted net income (loss) per common share:
From continuing operations	$	(0.09	)	$	(1.01	)	$	0.02		$	(0.84	)
From discontinued operations		(0.02	)		(0.02	)		(0.01	)		(0.36	)
Net income (loss) per common share	$	(0.11	)	$	(1.03	)	$	0.01		$	(1.20	)

Weighted average shares used in the calculation of net income (loss) per common share
Basic		63,687			63,646			63,571			63,598
Diluted		63,687			63,646			64,037			63,598

See accompanying Notes to Consolidated Financial Statements.

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

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended
	March 28, 2010			March 29, 2009

Operating activities:
Net income (loss)	$	733		$	(76,190	)
Reconciliation of net income (loss) to net cash provided by operating activities:
Operating activities of discontinued operations		10,534			5,092
Loss/impairment from discontinued operations		4,015			20,036
Goodwill and intangible asset impairment from continuing operations		-			76,460
Depreciation and amortization		15,771			15,728
Deferred income taxes		5,258			(16,089	)
Bad debt expense		1,470			1,220
Stock compensation expense		2,907			755
Other non-cash items		302			(243	)
Changes in operating items, excluding the effects of acquisitions:
Receivables		(13,401	)		(3,094	)
Inventories		844			(9,144	)
Prepaid and other		(1,084	)		(2,255	)
Accounts payable and accrued expenses		198			(11,686	)
Other assets		(1,292	)		(201	)
Other liabilities		219			370
Net cash provided by operating activities		26,474			759

Investing activities:
Acquisitions, net of cash acquired		-			(11,049	)
Proceeds from sale of business		10,066			25
Capital expenditures		(10,100	)		(10,699	)
Purchase of investment		(598	)		-
Other, net		239			203
Investing activities of discontinued operations		(78	)		(1,032	)
Net cash used in investing activities		(471	)		(22,552	)

Financing activities:
Acquisition of treasury stock		(672	)		(797	)
Proceeds from exercise of employee stock options		-			113
Proceeds from bank borrowings		49,000			120,000
Repayment of notes payable and bank borrowings		(64,262	)		(75,562	)
Debt issuance cost		-			(2,256	)
Repayment of capital lease obligations		(1,608	)		(9	)
Financing activities of discontinued operations		-			(86	)
Net cash (used in) provided by financing activities		(17,542	)		41,403
Net change in cash and equivalents		8,461			19,610
Cash and equivalents:
Beginning of period		29,562			12,124
End of period	$	38,023		$	31,734

See accompanying Notes to Consolidated Financial Statements.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 – Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by 1-800-FLOWERS.COM, Inc. and subsidiaries (the “Company”) in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 28, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending June 27, 2010.

The balance sheet information at June 28, 2009 has been derived from the audited financial statements at that date, but doesn’t include all information or notes necessary for a complete presentation.

Accordingly, the information in this Quarterly Report on Form 10-Q should be read in conjunction with 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, 2009.

References in this Quarterly Report on Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”) in June 2009.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

Comprehensive Income (Loss)

For the three and nine months ended March 28, 2010 and March 29, 2009, the Company’s comprehensive income (losses) were as follows:

	Three Months Ended							Nine Months Ended
	March 28, 2010				March 29, 2009			March 28, 2010			March 29, 2009
				(in thousands)

Net income (loss)	$	(7,296	)		$	(65,775	)	$	733		$	(76,190	)
Change in fair value of cash flow hedge, net of tax		(41	)			-			(320	)		-
Comprehensive income (loss)	$	(7,337	)		$	(65,775	)	$	413		$	(76,190	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Recent Accounting Pronouncements

In June 2009, the FASB issued authoritative guidance to establish the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The Codification, which changes the referencing of financial standards, supersedes current authoritative guidance and is effective for the Company’s interim reporting beginning June 29, 2009. The Codification is not intended to change or alter existing GAAP and is not expected to result in a change in accounting practice for the Company.

In April 2009, the FASB issued authoritative guidance for business combinations that amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance requires such contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, entities would typically account for the acquired contingencies in accordance with authoritative guidance for contingencies. The guidance became effective for the Company’s business combinations for which the acquisition date is on or after June 29, 2009. The Company did not complete any business combinations during the three and nine months ended March 28, 2010, and the effect on future periods will depend on the nature and significance of business combinations subject to this guidance.

In April 2009, the FASB issued authoritative guidance to increase the frequency of fair value disclosures of financial instruments, thereby enhancing consistency in financial reporting. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on a company’s balance sheet at fair value. Prior to the effective date of this guidance, fair values for these assets and liabilities have only been disclosed once a year. The guidance now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company adopted the disclosure requirements under this guidance with an effective date of June 29, 2009. The implementation did not have a material impact on the Company’s financial position, results of operations or cash flows as it is disclosure-only in nature.

In April 2008, the FASB issued authoritative guidance for general intangibles other than goodwill, amending factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance is effective for the Company for intangible assets acquired on or after June 29, 2009. The adoption did not have a material impact on the Company’s results of operations, financial position or cash flows.

Reclassifications

Certain balances in the prior fiscal years have been reclassified to conform with the presentation in the current fiscal year. As a result of the Company’s decision to dispose of its Home & Children’s Gifts businesses, this segment has been accounted for as a discontinued operation and the prior periods have been reclassified to conform to the current period presentation. During the second quarter of fiscal 2010, the Company launched its 1-800-Baskets brand. Products within this business are now being managed within the Gourmet Food & Gift Baskets segment, resulting in a change to our reportable segment structure. Gift basket products, formerly included in the Consumer Floral reportable segment are now included in the Gourmet Food & Gift Baskets segment. These changes have been reflected in the Company’s segment reporting for all periods presented.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Note 2 – Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive common equivalent shares (consisting of employee stock options and unvested restricted stock awards) outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period and excludes the effect of dilutive potential common shares as their inclusion would be antidilutive.

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

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010		March 29, 2009
				(in thousands, except per share data)
Numerator:
Net income (loss)	$	(7,296	)	$	(65,775	)	$	733	$	(76,190	)

Denominator:
Weighted average shares outstanding		63,687			63,646			63,571		63,598
Effect of dilutive securities:
Employee stock options (1)		-			-			8		-
Employee restricted stock awards		-			-			458		-
		-			-			466		-
Adjusted weighted-average shares and assumed conversions		63,687			63,646			64,037		63,598

Basic and diluted net income (loss) per common share	$	(0.11	)	$	(1.03	)	$	0.01	$	(1.20	)

(1)

The effect of options to purchase 8.2 million and 8.4 million shares during the three and nine months ended March 28, 2010 and 6.9 million and 7.9 million shares during the three and nine months ended March 29, 2009, respectively, were excluded from the calculation of net income per share on a diluted basis as their effect is anti-dilutive.

Note 3 – Stock-Based Compensation

The Company has a Long Term Incentive and Share Award Plan, which is more fully described in Note 11 to the consolidated financial statements included in the Company’s 2009 Annual Report on Form 10-K, that provides for the grant to eligible employees, consultants and directors of stock options, share appreciation rights (SARs), restricted shares, restricted share units, performance shares, performance units, dividend equivalents, and other stock-based awards.

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

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
				(in thousands)

Stock options	$	244		$	297		$	1,290		$	1,026
Restricted stock awards		447			281			1,617			(271	)
Total		691			578			2,907			755
Deferred income tax benefit		(222	)		(185	)		(924	)		(121	)
Stock-based compensation expense, net	$	469		$	393		$	1,983		$	634

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

During the nine months ended March 29, 2009, as a result of the Company’s performance due to the weakness in the retail economy, the Company reversed previously accrued long-term incentive equity awards as the goals that were established in order to vest the awards were determined to be no longer achievable.

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

	Three Months Ended				Nine Months Ended
	March 28, 2010		March 29, 2009		March 28, 2010		March 29, 2009
			(in thousands)

Marketing and sales	$	278	$	230	$	1,201	$	112
Technology and development		139		116		601		409
General and administrative		278		232		1,109		234
Total	$	695	$	578	$	2,911	$	755

The weighted average fair value of stock options on the date of grant, and the assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model granted during the respective periods were as follows:

	Three Months Ended				Nine Months Ended
	March 28, 2010		March 29, 2009		March 28, 2010		March 29, 2009

Weighted average fair value of options granted	$	1.18	$	1.25	$	1.71	$	2.21
Expected volatility		65.2%		51.0%		62.7%		44.6%
Expected life	5.6 yrs		6.4 yrs		5.6 yrs		6.4 yrs
Risk-free interest rate		2.47%		1.90%		2.45%		2.55%
Expected dividend yield		0.0%		0.0%		0.0%		0.0%

The following table summarizes stock option activity during the nine months ended March 28, 2010:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (000s)

Outstanding at June 28, 2009		8,916,672	$	7.52
Granted		253,500	$	2.99
Exercised		-		-
Forfeited		(1,062,688)	$	14.72
Outstanding at March 28, 2010		8,107,484	$	6.43	3.4 years	$	22

Options vested or expected to vest at March 28, 2010		7,926,834	$	6.49	3.3 years	$	19
Exercisable at March 28, 2010		6,130,116	$	7.22	2.4 years	$	6

As of March 28, 2010, the total future compensation cost related to nonvested options, not yet recognized in the statement of income, was $2.4 million and the weighted average period over which these awards are expected to be recognized was 2.3 years.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company grants shares of common stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service conditions (Restricted Stock Awards). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended March 28, 2010:

	Shares			Weighted Average Grant Date Fair Value

Non-vested at June 28, 2009		1,700,912		$	4.62
Granted		333,097		$	4.39
Vested		(191,158	)	$	5.86
Forfeited		(96,301	)	$	6.08
Non-vested at March 28, 2010		1,746,550		$	4.36

The fair value of nonvested shares is determined based on the closing stock price on the grant date. As of March 28, 2010, there was $3.7 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 1.8 years.

Note 4 – Acquisitions

The Company accounts for its business combinations using the purchase method of accounting. Under the purchase method of accounting for business combinations, the aggregate purchase price for the acquired business is allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Operating results of the acquired entities are reflected in the Company’s consolidated financial statements from date of acquisition.

Acquisition of Napco Marketing Corp.

On July 21, 2008, the Company acquired selected assets of Napco Marketing Corp. (“Napco”), a wholesale merchandiser and marketer of products designed primarily for the floral industry. The purchase price of approximately $9.4 million included the acquisition of a fulfillment center located in Jacksonville, FL, inventory, and certain other assets, as well as the assumption of certain related liabilities, including their seasonal line of credit of approximately $4.0 million. The acquisition was financed utilizing a combination of available cash on hand and through borrowings under the Company’s revolving credit facility. The purchase price includes an up-front cash payment of $9.3 million, net of cash acquired, and the expected portion of “earn-out” incentives, which amounted to a maximum of $1.6 million through the years ending July 2, 2012, upon achievement of specified performance targets. As of March 28, 2010, the Company does not expect that any of the specified performance targets will be achieved.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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

	Napco Purchase Price Allocation
	(in thousands)
Current assets	$	5,119
Property, plant and equipment		3,929
Intangible assets		397
Other		74
Total assets acquired		9,519
Current liabilities		162
Total liabilities assumed		162
Net assets acquired	$	9,357

Acquisition of Geerlings & Wade

On March 25, 2009, the Company acquired selected assets of Geerlings & Wade, Inc., a retailer of wine and related products. The purchase price of approximately $2.6 million included the acquisition of inventory, and certain other assets (approximately $1.4 million of goodwill is deductible for tax purposes), as well as the assumption of certain related liabilities. The acquisition was financed utilizing available cash on hand.

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

	Geerlings & Wade Purchase Price Allocation
	(in thousands)
Current assets	$	990
Intangible assets		253
Goodwill		1,440
Total assets acquired		2,683
Current liabilities		77
Total liabilities assumed		77
Net assets acquired	$	2,606

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Pro forma Results of Operation

The following unaudited pro forma consolidated financial information has been prepared as if the acquisitions of Napco and Geerlings & Wade had taken place at the beginning of fiscal year 2009. The following unaudited pro forma information is not necessarily indicative of the results of operations in future periods or results that would have been achieved had the acquisitions taken place at the beginning of the periods presented.

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010		March 29, 2009
				(in thousands, except per share data)

Net revenues from continuing operations	$	155,513		$	155,471		$	502,283	$	545,918

Operating income (loss) from continuing operations		(8,278	)		(80,628	)		7,110		(58,845	)

Income (loss) from continuing operations		(5,929	)		(64,135	)		1,138		(52,965	)

Basic and diluted income (loss) per common share from continuing operations	$	(0.09	)	$	(1.01	)	$	0.02	$	(0.83	)

Note 5 – Inventory

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

	March 28, 2010		June 28, 2009
	(in thousands)
Finished goods	$	23,390	$	23,759
Work-in-Process		15,006		16,619
Raw materials		6,614		5,476
	$	45,010	$	45,854

Note 6 – Goodwill and Intangible Assets

The change in the carrying amount of goodwill is as follows:

	1-800- Flowers.com Consumer Floral		BloomNet Wire Service		Gourmet Food and Gift Baskets		Total
					(in thousands)

Balance at June 28, 2009	$	5,728	$	-	$	35,477	$	41,205
Other		-		-		6		6
Balance at March 28, 2010	$	5,728	$	-	$	35,483	$	41,211

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill and other indefinite lived intangibles are subject to an assessment for impairment, which must be performed annually, or more frequently if events or circumstances indicate that goodwill or other indefinite lived intangibles might be impaired. Goodwill impairment testing involves a two-step process. Step 1 compares the fair value of the Company’s reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no further analysis is necessary. If the carrying amount of the reporting unit exceeds its fair value, Step 2 must be completed to quantify the amount of impairment. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit, from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss, equal to the difference, is recognized.

As a result of declines in revenue, operating income and cash flows within the Gourmet Food and Gift Baskets segment during fiscal 2009, which the Company believes was attributable to reduced consumer spending due to the overall weakness in the economy, coupled with a reduction in the outlook of the performance of this segment based upon the expectation of a continuation of the current economic downturn, along with a decline of the Company’s market capitalization and an overall contraction of public company multiples, upon completion of the impairment analysis described above, during the three months ended March 29, 2009, the Company recorded a goodwill and intangible impairment charge of $76.5 million related to this business segment, of which $65.6 million was goodwill.

Fair value was determined by using a combination of a market-based and an income-based approach, weighting both approaches equally. Under the market-based approach, the Company utilized information regarding the Company as well as publicly available industry information to determine earnings and revenue multiples that are used to value the Company’s reporting units. Under the income-based approach, the Company determined fair value based upon estimated future cash flows of the reporting unit, discounted by an estimated weighted-average cost of capital, which reflected the overall level of inherent risk of the reporting unit and the rate of return that an outside investor would expect to earn. The Company reconciled the value of its reporting units to its current market capitalization (based upon the Company’s stock price) to determine that its assumptions were consistent with that of an outside investor.

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

			March 28, 2010						June 28, 2009
	Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
					(in thousands)

Intangible assets with determinable lives
Investment in licenses	14 - 16 years		$	5,314	$	5,191	$	123	$	5,314	$	4,823	$	491
Customer lists	3 - 10 years			15,695		6,247		9,448		15,695		4,673		11,022
Other	5 - 8 years			2,388		1,254		1,134		2,388		960		1,428
				23,397		12,692		10,705		23,397		10,456		12,941

Intangible assets with indefinite lives		-		31,051		-		31,051		29,881		-		29,881
Total identifiable intangible assets			$	54,448	$	12,692	$	41,756	$	53,278	$	10,456	$	42,822

Future estimated amortization expense is as follows: remainder of fiscal 2010 - $0.7 million, fiscal 2011 - $2.2million, fiscal 2012 - $1.6 million, fiscal 2013 - $1.5 million, fiscal 2014 - $1.2 million and thereafter - $3.5 million.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Note 7 – Long-Term Debt

The Company’s long-term debt and obligations under capital leases consist of the following:

	March 28, 2010		June 28, 2009
	(in thousands)
Term loan (1)	$	72,089	$	87,351
Revolving line of credit (1)		-		-
Obligations under capital leases (2)		3,896		5,504
		75,985		92,855
Less current maturities of long-term debt and obligations under capital leases		26,040		22,337
	$	49,945	$	70,518

(1)

In order to fund the increase in working capital requirements associated with DesignPac which was acquired on April 30, 2008, on August 28, 2008, the Company entered into a $293.0 million Amended and Restated Credit Agreement with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “2008 Credit Facility”). The 2008 Credit Facility provided for borrowings of up to $293.0 million, including: (i) a $165.0 million revolving credit commitment, (ii) $60.0 million of new term loan debt, and (iii) $68.0 million of existing term loan debt associated with the Company’s previous credit facility.

On April 14, 2009, the Company entered into an amendment to the 2008 Credit Facility (the “Amended 2008 Credit Facility”). The Amended 2008 Credit Facility included a prepayment of $20.0 million, reducing the Company’s outstanding term loans under the facility to $92.4 million upon closing. In addition, the amendment reduced the Company’s revolving credit line from $165.0 million to a seasonally adjusted line ranging from $75.0 to $125.0 million. The Amended 2008 Credit Facility, effective March 29, 2009, also revised certain financial and non-financial covenants.

On April 16, 2010, the Company entered into a Second Amended and Restated Credit Agreement with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “2010 Credit Facility”). The 2010 Credit Facility included a prepayment of approximately $12.1 million, reducing the Company’s outstanding term loan under the facility to $60 million upon closing.

Outstanding amounts under the 2010 Credit Facility will bear interest at the Company’s option at either: (i) LIBOR plus a defined margin, or (ii) the agent bank’s prime rate plus a margin. The applicable margins for the Company’s term loans and revolving credit facility will range from 3.00% to 3.75% for LIBOR loans and 2.00% to 2.75% for ABR loans with pricing based upon the Company’s leverage ratio. The term loan, which matures on March 30, 2014, is payable in sixteen quarterly installments of principal and interest beginning in June 2010, amortized at the rate of 20% in year one, 25% in years two and three and 30% in year four.

In addition, the 2010 Credit Facility extended the Company’s revolving credit line through April 16, 2014, and reduced available borrowings from a seasonally adjusted limit which ranged from $75.0 million to $125.0 million to a seasonally adjusted limit ranging from $40.0 to $75.0 million. The 2010 Credit Facility, effective for covenant calculations as of March 28, 2010, also revises certain financial and non-financial covenants, including maintenance of certain financial ratios. The obligations of the Company and its subsidiaries under the 2010 Credit Facility are secured by liens on all personal property of the Company and its domestic subsidiaries.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(2)

During March 2009, the Company obtained a $5.0 million equipment lease line of credit with a bank and a $5.0 million equipment lease line of credit with a vendor. Interest under these lines, which both mature in April 2012, range from 2.99% to 7.48%. Borrowings under the bank line are collateralized by the underlying equipment purchased, while the equipment lease line with the vendor is unsecured. The borrowings are payable in 36 monthly installments of principal and interest commencing in April 2009.

The Company does not enter into derivative transactions for trading purposes, but rather to hedge its exposure to interest rate fluctuations. The Company manages its floating rate debt using interest rate swaps in order to reduce its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest.

In July 2009, the Company entered into a $45.0 million notional amount swap agreement that exchanges a variable interest rate (LIBOR) for a 1.92% fixed rate of interest over the term of the agreement. This swap matures on July 25, 2012. The Company has designated this swap as a cash flow hedge of the interest rate risk attributable to forecasted variable interest (LIBOR) payments. The effective portion of the after tax fair value gains or losses on this swap is included as a component of accumulated other comprehensive loss. The ineffective portion, if any, is recorded within interest expense in the consolidated statement of operations.

Note 8-Fair Value Measurements

On June 29, 2009, the Company adopted the newly issued accounting standard for fair value measurements of all non-financial assets and liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Goodwill and indefinite lived intangibles are also tested for impairment annually, as required under the accounting standards.

Cash and cash equivalents, receivables, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. The Company believes that the carrying amount of its debt approximates fair value as no trading market exists.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the guidance are described below:


Level 1		Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2		Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3		Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s interest rate swap, which is included in other liabilities in the consolidated balance sheet. The fair value is based on forward looking interest rate curves:

		Fair Value Measurements Assets (Liabilities)
	Total as of March 28, 2010	Level 1			Level 2	Level 3
				(in thousands)
Interest rate swap (1)	$(520)		-		$(520)		-

(1) Included in other long-term liabilities on the consolidated balance sheet.

The following presents the balances and net changes in the accumulated other comprehensive loss related to this interest rate swap, net of income taxes.


	Interest Rate Swap
	(in thousands)

Balance at the beginning of the period	$	-
Amount reclassified to interest expense, net of tax benefit of $213		319
Net change in fair value of interest rate swap, net of tax benefit of $426		(639	)
Balance at end of period	$	(320	)

Note 9 – 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 rates from continuing operations for the three and nine months ended March 28, 2010 was 36.9% and 54.4%, respectively, compared to 21.5% and 16.6% during the comparative three and nine months ended March 29, 2009 which reflect the impact of the non-deductible portions of the goodwill and other intangible impairment charges of $76.5 million, recorded during the three and nine months ended March 29, 2009. Excluding this charge, the effective rates during the three and nine months ended March 29, 2009 would have been 37.7% and 37.4%, respectively. The effective rates for fiscal 2010 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes and other permanent non-deductible items.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is currently under examination by the Internal Revenue Service for its fiscal 2007 tax year, however fiscal 2007 through fiscal 2009 remain subject to examination, with the exception of certain states where the statute remains open from fiscal 2004. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

Note 10 – Business Segments

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

·	1-800-Flowers.com Consumer Floral;

·	BloomNet Wire Service; and

·	Gourmet Food and Gift Baskets

Category performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the categories. As such, management’s measure of profitability for these categories does not include the effect of corporate overhead (see (*) below), which are operated under a centralized management platform, providing services throughout the organization, nor does it include depreciation and amortization, goodwill and intangible impairment, other income, and income taxes, or stock-based compensation and severance and restructuring costs, both of which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management and not accounted for by category.

	Three Months Ended						Nine Months Ended
Net revenues	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
				(in thousands)

Net revenues:
1-800-Flowers.com Consumer Floral	$	95,341		$	101,079		$	251,234		$	274,674
BloomNet Wire Service		17,706			16,899			46,244			47,423
Gourmet Food & Gift Baskets		42,617			37,406			205,564			221,955
Corporate (*)		349			174			601			975
Intercompany eliminations		(500	)		(1,079	)		(1,360	)		(3,539	)
Total net revenues	$	155,513		$	154,479		$	502,283		$	541,488

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

	Three Months Ended						Nine Months Ended
Operating Income	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
				(in thousands)

Category Contribution Margin:
1-800-Flowers.com Consumer Floral	$	(241	)	$	7,390		$	15,010		$	25,952
Bloomnet Wire Service		5,276			5,465			14,072			14,558
Gourmet Food & Gift Baskets		1,186			1,063			26,592			26,866
Category Contribution Margin Subtotal		6,221			13,918			55,674			67,376
Corporate (*)		(9,017	)		(12,727	)		(32,793	)		(34,737	)
Goodwill and intangible impairment		-			(76,460	)		-			(76,460	)
Depreciation and amortization		(5,482	)		(5,559	)		(15,771	)		(15,728	)
Operating income (loss)	$	(8,278	)	$	(80,828	)	$	7,110		$	(59,549	)

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

Note 11 - Discontinued Operations

During the fourth quarter of fiscal 2009, the Company made the strategic decision to divest its Home & Children’s Gifts business segment to focus on its core Consumer Floral, BloomNet Wire Service and Gourmet Foods & Gift Baskets categories. On January 25, 2010, the Company completed the sale of the assets and certain related liabilities of its Home & Children’s Gifts business to PH International, LLC. Included in the sale were the Plow & Hearth, Problem Solvers, Wind & Weather, HearthSong and Magic Cabin brands, as well as the administrative and distribution center in Madison, VA, and a distribution center in Vandalia, OH. The sales price of the assets was $17.0 million, subject to adjustments for changes in working capital. During the three and nine months ended March 28, 2010, the Company recorded a loss of $0.7 million and $4.0 million, including transaction, severance and transition obligations, which is in addition to the $14.7 million write-down that the Company recorded during the three months ended June 28, 2009. (Included within transaction costs was the issuance of 350,000 shares of common stock to the Company’s transaction advisor, valued at $2.17 per share, which was the value of the Company’s Class A Common Stock on the date of closing.) The Company has classified the results of operations of its Home & Children’s Gifts segment as discontinued operations for all periods presented.

Results for discontinued operations are as follows:

	Three Months Ended						Nine Months Ended
	March 28, 2010			March 29, 2009			March 28, 2010			March 29, 2009
	(in thousands)

Net revenues from discontinued operations	$	6,164		$	18,492		$	87,852		$	118,844

Operating loss from discontinued operations		(1,712	)		(3,309	)		(555	)		(25,485	)
(including loss on disposal of $0.7 million and $4.0 million during the three and nine months ended March 28, 2010, respectively, and impairment charges of $0.0 million and $20.0 million during the three and nine months ended March 29, 2009, respectively)

Income tax benefit from discontinued operations		(345	)		(1,793	)		(150	)		(2,716	)

Loss from discontinued operations		(1,367	)		(1,516	)		(405	)		(22,769	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and liabilities of discontinued operations are as follows:

	March 28, 2010		June 28, 2009

	(in thousands)
Assets of discontinued operations
Receivables, net	$	-	$	693
Inventories		-		15,529
Prepaid and other		-		1,878
Current assets of discontinued operations		-		18,100

Property, plant and equipment, net		-		8,871
Other intangibles, net		-		666
Other assets		-		110
Non-current assets of discontinued operations		-		9,647
Total assets of discontinued operations	$	-	$	27,747

Liabilities of discontinued operations
Accounts payable and accrued expenses	$	-	$	2,633
Current liabilities of discontinued operations		-		2,633
Non-current liabilities of discontinued operations		-		1,334
Total liabilities of discontinued operations	$	-	$	3,967

Note 12 – Commitments and Contingencies

Legal Proceedings

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

On December 21, 2007, Plaintiff, Thomas Molnar, on behalf of himself and a putative class, filed suit against the Company claiming false advertising, unfair business practices, and unjust enrichment seeking unspecified monetary damages. The Company has admitted no wrongdoing with respect to this matter, but has chosen to enter into a settlement agreement with the parties to this matter in order to avoid protracted litigation. The presiding trial Judge has given preliminary approval to the settlement, and the Company has sent out the applicable notices to the class members. As a result, the Company accrued for the estimated cost of the settlement of approximately $0.9 million within its general and administrative expenses during the three months ended December 27, 2009.

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

Forward Looking Statements

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

Overview

1-800-FLOWERS.COM, Inc. is the world’s leading florist and gift shop. For more than 30 years, 1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been providing customers with fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, balloons and plush stuffed animals perfect for every occasion. As always, 100% satisfaction is guaranteed. 1-800-FLOWERS.COM earned the 2009 Gold Award in the Online Flower Delivery category from TopTenREVIEWS; the Company’s Mobile Flower & Gift Center was named winner of the RIS (Retail Info Systems) 2010 Mobile App of the Year Award in the “Best Shopping” category and the Company was recognized by Computerworld magazine as a Premier 100 IT Leader for 2010. The Company’s BloomNet® international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

The 1-800-FLOWERS.COM, Inc. “Gift Shop” also includes gourmet gifts such as popcorn and specialty treats from The Popcorn Factory® (1-800-541-2676 or www.thepopcornfactory.com); cookies and baked gifts from Cheryl&Co.® (1-800-443-8124 or www.cherylandco.com); premium chocolates and confections from Fannie May® confections brands (www.fanniemay.com and www.harrylondon.com); wine gifts from The Winetasting NetworkSM (www.winetasting.com) and Geerlings&WadeSM (www.geerwade.com); gift baskets from 1-800-BASKETS.COM® (www.1800baskets.com) as well as Celebrations® (www.celebrations.com), a new premier online destination for fabulous party ideas and planning tips. 1-800-FLOWERS.COM, Inc. is involved in a broad range of corporate social responsibility initiatives including continuous expansion and enhancement of its environmentally-friendly “green” programs as well as various philanthropic and charitable efforts.

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

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Category Information

The following table presents the contribution of net revenues, gross profit and category contribution margin or category “EBITDA” (earnings before interest, taxes, depreciation and amortization) from each of the Company’s business categories. (As noted previously, the Company’s Home & Children’s Gifts segment has been classified as discontinued operations and therefore excluded from category information below).

	Three Months Ended								Nine Months Ended
	March 28, 2010			March 29, 2009			% Change		March 28, 2010			March 29, 2009			% Change
							(In thousands)

Net revenues from continuing operations:
1-800-Flowers.com Consumer Floral	$	95,341		$	101,079			(5.7%)	$	251,234		$	274,674			(8.5%)
BloomNet Wire Service		17,706			16,899			4.8%		46,244			47,423			(2.5%)
Gourmet Food & Gift Baskets		42,617			37,406			13.9%		205,564			221,955			(7.4%)
Corporate (*)		349			174			100.6%		601			975			(38.4%)
Intercompany eliminations		(500	)		(1,079	)		53.7%		(1,360	)		(3,539	)		61.6%
Total net revenues from continuing operations	$	155,513		$	154,479			0.7%	$	502,283		$	541,488			(7.2%)

	Three Months Ended						Nine Months Ended
	March 28, 2010		March 29, 2009		% Change		March 28, 2010		March 29, 2009		% Change
					(In thousands)

Gross profit from continuing operations:
1-800-Flowers.com Consumer Floral	$	31,629	$	35,998		(12.1%)	$	90,332	$	101,104		(10.7%)
		33.2%		35.6%				36.0%		36.8%

BloomNet Wire Service		9,390		9,382		0.1%		25,981		26,488		(1.9%)
		53.0%		55.5%				56.2%		55.9%

Gourmet Food & Gift Baskets		18,162		16,466		10.3%		86,085		87,314		(1.4%)
		42.6%		44.0%				41.9%		39.3%

Corporate (*)		232		(86)		369.8%		432		239		80.8%
		66.5%		(49.4%)				71.9%		24.5%

Intercompany eliminations		-		(49)				-		(525)
Total gross profit from continuing operations	$	59,413	$	61,711		(3.7%)	$	202,830	$	214,620		(5.5%)
		38.2%		39.9%				40.4%		39.6%

	Three Months Ended							Nine Months Ended
	March 28, 2010		March 29, 2009			% Change		March 28, 2010			March 29, 2009			% Change
						(In thousands)

EBITDA (**) from continuing operations:
1-800-Flowers.com Consumer Floral	$	(241)	$	7,390			(103.3%)	$	15,010		$	25,952			(42.2%)
BloomNet Wire Service		5,276		5,465			(3.5%)		14,072			14,558			(3.3%)
Gourmet Food & Gift Baskets		1,186		1,063			11.6%		26,592			26,866			(1.0%)
Category Contribution Margin Subtotal		6,221		13,918			(55.3%)		55,674			67,376			(17.4%)
Corporate (*)		(9,017)		(12,727	)		29.2%		(32,793	)		(34,737	)		5.6%
Goodwill and intangible impairment		-		(76,460	)		-		-			(76,460	)		-
EBITDA from continuing operations	$	(2,796)	$	(75,269	)		96.3%	$	22,881		$	(43,821	)		152.2%
Goodwill and intangible impairment		-