Edgar Filing: 1 800 FLOWERS COM INC

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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 April 1, 2012

o 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 o

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 x No o

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 o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a 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 o No x

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

27,930,222

(Number of shares of Class A common stock outstanding as of May 4, 2012)

36,858,465

(Number of shares of Class B common stock outstanding as of May 4, 2012)

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1-800-FLOWERS.COM, Inc.

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INDEX

		Page
Part I.	Financial Information

Item 1.	Consolidated Financial Statements:

	Consolidated Balance Sheets — April 1, 2012 (Unaudited) and July 3, 2011	1

	Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended April 1, 2012 and March 27, 2011	2

	Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended April 1, 2012 and March 27, 2011	3

	Notes to Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

Part II.	Other Information

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	34

Signatures		35

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PART I. — FINANCIAL INFORMATION

ITEM 1. — CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheets

(in thousands, except share data)

	April 1, 2012			July 3, 2011
	(unaudited)
Assets
Current assets:
Cash and equivalents	$	24,876		$	21,442
Receivables, net	21,477			11,916
Inventories	59,374			51,185
Deferred tax assets	6,916			5,416
Prepaid and other	6,575			7,360
Current assets of discontinued operations	145			3,506
Total current assets	119,363			100,825

Property, plant and equipment, net	47,799			49,908
Goodwill	40,695			39,348
Other intangibles, net	42,644			41,748
Deferred tax assets	9,416			17,181
Other assets	5,335			5,203
Non-current assets from discontinued operations	—			2,738
Total assets	$	265,252		$	256,951

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	68,719		$	65,603
Current maturities of long-term debt and obligations under capital leases	15,100			16,488
Current liabilities of discontinued operations	159			956
Total current liabilities	83,978			83,047

Long-term debt and obligations under capital leases	18,000			29,250
Other liabilities	3,844			2,884
Non-current liabilities of discontinued operations	—			109
Total liabilities	105,822			115,290
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; 34,249,441 and 32,987,313 shares issued at April 1, 2012 and July 3, 2011, respectively	342			330
Class B common stock, $.01 par value, 200,000,000 shares authorized; 42,138,465 shares issued at April 1, 2012 and July 3, 2011	421			421
Additional paid-in capital	292,837			289,101
Retained deficit	(98,941		)	(114,755		)
Accumulated other comprehensive loss, net of tax	(26		)	(158		)
Treasury stock, at cost — 6,323,104 and 5,633,253 Class A shares at April 1, 2012 and July 3, 2011, respectively, and 5,280,000 Class B shares	(35,203		)	(33,278		)
Total stockholders’ equity	159,430			141,661
Total liabilities and stockholders’ equity	$	265,252		$	256,951

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
	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
Net revenues	$	179,659		$	158,839		$	536,702		$	489,452
Cost of revenues	106,620			95,728			316,775			286,241
Gross profit	73,039			63,111			219,927			203,211
Operating expenses:
Marketing and sales	48,598			43,513			133,900			123,616
Technology and development	5,646			5,119			15,252			14,639
General and administrative	13,766			12,659			39,057			36,553
Depreciation and amortization	4,874			5,069			14,705			15,272
Total operating expenses	72,884			66,360			202,914			190,080
Gain on sale of stores	—			—			3,789			—
Operating income (loss)	155			(3,249		)	20,802			13,131
Interest expense, net	(319		)	(854		)	(1,990		)	(3,321		)

Income (loss) from continuing operations before income taxes	(164		)	(4,103		)	18,812			9,810
Income tax expense (benefit) from continuing operations	(215		)	(1,859		)	7,318			3,930
Income (loss) from continuing operations	51			(2,244		)	11,494			5,880
Loss from discontinued operations, net of tax	—			(432		)	(22		)	(150		)
Gain (loss) on sale of discontinued operations, net of tax	(136		)	—			4,342			—
Income (loss) from discontinued operations	(136		)	(432		)	4,320			(150		)
Net income (loss)	$	(85	)	$	(2,676	)	$	15,814		$	5,730

Basic net income (loss) per common share:
From continuing operations	$	0.00		$	(0.04	)	$	0.18		$	0.09
From discontinued operations	0.00			(0.01		)	0.07			0.00
Net income (loss) per common share	$	0.00		$	(0.04	)	$	0.24		$	0.09

Diluted net income (loss) per common share:
From continuing operations	$	0.00		$	(0.04	)	$	0.17		$	0.09
From discontinued operations	0.00			(0.01		)	0.07			0.00
Net income (loss) per common share	$	0.00		$	(0.04	)	$	0.24		$	0.09

Weighted average shares used in the calculation of net income (loss) per common share
Basic	64,988			63,999			64,683			63,953
Diluted	66,299			63,999			66,257			65,083

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
	April 1, 2012			March 27, 2011
Operating activities:
Net income	$	15,814		$	5,730
Reconciliation of net income to net cash provided by operating activities:
Operating activities of discontinued operations	1,927			(751		)
Gain on sale of discontinued operations	(8,733		)	—
Depreciation and amortization	14,705			15,272
Amortization of deferred financing costs	343			360
Deferred taxes	5,720			3,332
Bad debt expense	692			1,271
Stock-based compensation	3,736			2,857
Other non-cash items	(22		)	7
Changes in operating items, excluding the effects of acquisitions:
Receivables	(9,709		)	(5,886		)
Inventories	(7,670		)	(6,999		)
Prepaid and other	804			(2,839		)
Accounts payable and accrued expenses	2,489			39
Other assets	1,604			(561		)
Other liabilities	1,187			(29		)
Net cash provided by operating activities	22,887			11,803

Investing activities:
Acquisitions, net of cash acquired	(4,336		)	(1,450		)
Proceeds from sale of business	12,826			—
Capital expenditures	(11,986		)	(10,914		)
Purchase of investment	(1,111		)	—
Other, net	(271		)	184
Investing activities of discontinued operations	—			(124		)
Net cash used in investing activities	(4,878		)	(12,304		)

Financing activities:
Acquisition of treasury stock	(1,925		)	(101		)
Proceeds from bank borrowings	56,000			40,000
Proceeds from exercise of employee stock options	—			49
Repayment of notes payable and bank borrowings	(67,250		)	(49,000		)
Debt issuance costs	—			(17		)
Repayment of capital lease obligations	(1,400		)	(1,449		)
Net cash used in financing activities	(14,575		)	(10,518		)
Net change in cash and equivalents	3,434			(11,019		)
Cash and equivalents:
Beginning of period	21,442			27,843
End of period	$	24,876		$	16,824

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 April 1, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending July 1, 2012 due to seasonal and other factors.

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 July 3, 2011.

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”).

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 April 1, 2012 and March 27, 2011, the Company’s comprehensive income (loss) was as follows:

	Three Months Ended						Nine Months Ended
	April 1, 2012			March 27, 2011			April 1, 2012		March 27, 2011
				(in thousands)
Net income (loss)	$	(85	)	$	(2,676	)	$	15,814	$	5,730
Change in fair value of cash flow hedge, net of tax	32			44			132		128
Comprehensive income (loss)	$	(53	)	$	(2,632	)	$	15,946	$	5,858

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Recent Accounting Pronouncements

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 “Testing Goodwill for Impairment” (ASU No. 2011-08) which is intended to reduce the complexity and costs to test goodwill for impairment. The amendment allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The ASU also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company’s fiscal year ending June 30, 2013. Early adoption is permitted. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (ASU No. 2011-05), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income (OCI) by eliminating the option to present components of OCI as part of the statement of changes in stockholders’ equity. The amendments in this standard require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (ASU No. 2011-12), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning with the first quarter of the Company’s fiscal year ending on June 30, 2013 and are to be applied retrospectively. The adoption of the provisions of ASU No. 2011-05 and ASU No. 2011-12 will not have a material impact on the Company’s consolidated financial position or results of operations.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU No. 2011-04). This standard results in a common requirement between the FASB and the International Accounting Standards Board (IASB) for measuring fair value and for disclosing information about fair value measurements. This amendment was effective prospectively for the Company’s interim reporting period ended April 1, 2012. The adoption of ASU No. 2011-04 did not have a material impact on the Company’s consolidated financial position or results of operations.

Reclassifications

Certain balances in the prior fiscal year have been reclassified to conform with the presentation in the current fiscal year. On September 6, 2011, the Company, through its Winetasting Network subsidiary, completed the sale of certain assets of its wine fulfillment services business. Refer to Note 11-Discontinued Operations, for further discussion. Consequently, the Company has classified the results of operations of its wine fulfillment services business as discontinued operations 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 from Continuing Operations

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

	Three Months Ended					Nine Months Ended
	April 1, 2012		March 27, 2011			April 1, 2012		March 27, 2011
			(in thousands, except per share data)
Numerator:
Income (loss) from continuing operations	$	51	$	(2,244	)	$	11,494	$	5,880

Denominator:
Weighted average shares outstanding	64,988		63,999			64,683		63,953
Effect of dilutive securities:
Employee stock options (1)	65		—			20		—
Employee restricted stock awards	1,246		—			1,554		1,130
	1,311		—			1,574		1,130

Adjusted weighted-average shares and assumed conversions	66,299		63,999			66,257		65,083

Net income (loss) per common share from
continuing operations
Basic	$	0.00	$	(0.04	)	$	0.18	$	0.09
Diluted	$	0.00	$	(0.04	)	$	0.17	$	0.09

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

(1) The effect of options to purchase 5.5 million and 6.6 million shares during the three and nine months ended April 1, 2012 and 6.8 million and 7.1 million shares during the three and nine months ended March 27, 2011, 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 Annual Report on Form 10-K for the fiscal year ended July 3, 2011, 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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

	Three Months Ended						Nine Months Ended
	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
				(in thousands)
Stock options	$	316		$	296		$	866		$	881
Restricted stock awards	1,040			804			2,870			1,976
Total	1,356			1,100			3,736			2,857
Deferred income tax benefit	(502		)	(388		)	(1,373		)	(992		)
Stock-based compensation expense, net	$	854		$	712		$	2,363		$	1,865

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

	Three Months Ended				Nine Months Ended
	April 1, 2012		March 27, 2011		April 1, 2012		March 27, 2011
			(in thousands)
Marketing and sales	$	474	$	424	$	1,364	$	1,116
Technology and development	136		198		489		534
General and administrative	746		478		1,883		1,207
Total	$	1,356	$	1,100	$	3,736	$	2,857

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
	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
Weighted average fair value of options granted	$	2.01		$	1.73		$	1.84		$	1.19
Expected volatility	72.1		%	69.4		%	72.1		%	68.0		%
Expected life	8.0 yrs			5.9 yrs			8.0 yrs			7.5 yrs
Risk-free interest rate	0.90		%	2.02		%	0.90		%	1.28		%
Expected dividend yield	0.0		%	0.0		%	0.0		%	0.0		%

The following table summarizes stock option activity during the nine months ended April 1, 2012:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (000s)
Outstanding at July 3, 2011	6,915,535		$	6.08
Granted	1,027,500		$	2.63
Exercised	—		$	—
Forfeited	(1,198,115	)	$	11.98
Outstanding at April 1, 2012	6,744,920		$	4.51	5.0 years	$	2,039

Options vested at April 1, 2012	6,316,366		$	4.66	4.7 years	$	1,711
Exercisable at April 1, 2012	4,026,446		$	5.90	2.8 years	$	204

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of April 1, 2012, the total future compensation cost related to nonvested options, not yet recognized in the statement of income, was $2.6 million and the weighted average period over which these awards are expected to be recognized was 5.5 years.

The Company grants shares of common stock to its employees that are subject to restrictions on transfer and risk of forfeiture until fulfillment of applicable service conditions (Restricted Stock Awards). The following table summarizes the activity of non-vested restricted stock awards during the nine months ended April 1, 2012:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at July 3, 2011	3,395,261		$	2.49
Granted	2,045,862		$	2.61
Vested	(1,262,128	)	$	2.94
Forfeited	(48,500	)	$	2.63
Non-vested at April 1, 2012	4,130,495		$	2.41

The fair value of nonvested shares is determined based on the closing stock price on the grant date. As of April 1, 2012, there was $6.5 million of total unrecognized compensation cost related to non-vested restricted stock-based compensation to be recognized over the weighted-average remaining period of 2.2 years.

Note 4 — Acquisitions and dispositions

Sale and franchise of Fannie May retail stores

On November 21, 2011, Fannie May Franchise LLC, a wholly-owned subsidiary of Fannie May Confections Brands, Inc., which in turn is a wholly-owned subsidiary of 1-800-Flowers.com, Inc., and GB Chocolates LLC (GB Chocolates) entered into an area development agreement whereby GB Chocolates will open a minimum of 45 new Fannie May franchise stores by December 2014. The agreement provides exclusive development rights for several Midwestern states, as well as specific cities in Florida and Ohio. The terms of the agreement include a non-refundable area development fee of $0.9 million, store opening fees of $0.5 million, assuming successful opening of 45 stores, and a non-performance promissory note in the amount of $1.2 million, which becomes due and payable only if GB Chocolates does not open all 45 stores as set forth in the development agreement. The Company has deferred recognition of the $0.9 million area development fee associated with the 45 store area development agreement, and will recognize such fees in income on a pro-rata basis, when the conditions for revenue recognition under the area development agreement is met. Both store opening fees and area development fees are generally recognized upon the opening of a franchise store, or upon termination of the agreement between the Company and the franchisee. The Company recognized approximately $0.2 million, of the $1.2 million promissory note, based upon its assessment of the likelihood that the performance criteria under the agreement will be achieved.

In addition to the 45 store area development agreement, the Company also sold 17 existing Fannie May stores, to be operated as franchised locations by GB Chocolates, for $5.6 million, recognizing a gain on the sale of $3.8 million. Upon completion of the sale, the Company also recognized initial franchise fees associated with these 17 stores in the amount of $0.5 million.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Acquisition of Flowerama

On August 1, 2011, the Company completed the acquisition of Flowerama of America, Inc. (Flowerama), a franchisor and operator of retail flower shops under the Flowerama trademark, with annual revenue of approximately $4.6 million and annual operating income of $0.1 million in its most recent year end prior to acquisition. The purchase price, which included the acquisition of receivables, inventory, eight retail store locations and certain other assets and related liabilities, was approximately $4.3 million. The acquisition was financed utilizing available cash balances. Of the acquired intangible assets, $1.9 million was assigned to amortizable investment in licenses, which is being amortized over the estimated useful life of 20 years, based upon the estimated remaining life of the franchise agreements. Approximately $2.3 million of purchase price was assigned to goodwill which is not deductible for tax purposes.

Investment in Colonial Gifts Limited

On July 29, 2011, the Company purchased an equity investment in Colonial Gifts Limited (iflorist) in the amount of $1.2 million. Combined with prior purchases, the total equity investment in iflorist, which the Company is accounting for under the cost method, is $1.6 million. In addition, the Company has loaned iflorist $0.8 million through a senior secured debt financing at a rate of 7%. Iflorist, located in England, with revenue in its last fiscal year of approximately $7.0 million, is a direct-to-consumer marketer of floral and gift-related products sold and delivered throughout Europe, with wire-service operations within the same territory.

Acquisition of FineStationery

On May 10, 2011, the Company acquired selected assets of FineStationery Solutions, Inc. (Fine Stationery), a retailer of personalized stationery, invitations and announcements, with annual revenue of approximately $10.1 million and annual operating income of $0.4 million in its most recent year end prior to acquisition. The purchase price, which included the acquisition of inventory, production equipment and certain other assets, was approximately $3.3 million, including cash consideration of $2.8 million, plus additional consideration of $0.5 million based upon achieving specified operating results during fiscal 2012 through 2014, which is included in other liabilities in the Company’s consolidated balance sheet. The acquisition was financed utilizing available cash balances. Of the $1.7 million of acquired intangible assets, $1.6 million was assigned to trademarks that are not subject to amortization, while the remaining acquired intangibles of $0.1 million were allocated to customer related intangibles which are being amortized over the estimated useful life of 3 years. In addition, approximately $1.1 million of the purchase price was assigned to goodwill, which is expected to be deductible for tax purposes.

Acquisition of Selected Assets of Mrs. Beasley’s

On March 9, 2011, the Company acquired selected assets of Mrs. Beasley’s Bakery, LLC (Mrs. Beasley’s), a baker and marketer of cakes, muffins and gourmet gift baskets for cash consideration of approximately $1.5 million, expanding the breadth of the Company’s baked goods and gourmet gift baskets product line. The acquisition included inventory and certain manufacturing equipment, which was consolidated within the Company’s baked goods manufacturing facilities. Approximately $0.6 million of the purchase price was assigned to tradenames that are not subject to amortization, while $0.3 million was assigned to goodwill which is expected to be deductible for tax purposes.

The Company is in the process of finalizing its allocation of the purchase prices to individual assets acquired and liabilities assumed as a result of the acquisitions of Flowerama and Fine Stationery. This will result in potential adjustments to the carrying value of their respective recorded assets and liabilities, the establishment of certain additional intangible assets, revisions of useful lives of intangible assets, some of which will have indefinite lives not subject to amortization, and the determination of any residual amount that will be allocated to goodwill. The preliminary allocation of the purchase price included in the current period balance sheet is based on the best estimates of management and is subject to revision based on final determination of asset fair values and useful lives.

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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 Flowerama, Fine Stationery and Mrs. Beasley’s:

	Flowerama Purchase Price Allocation		Fine Stationery Purchase Price Allocation		Mrs. Beasley’s Purchase Price Allocation
	(in thousands)
Current assets	$	1,090	$	360	$	353
Intangible assets	1,902		1,674		585
Goodwill	2,348		1,051		308
Property, plant and equipment	104		269		204
Total assets acquired	5,444		3,354		1,450

Current liabilities	606		20		—
Other liabilities assumed	502		—		—
	1,108		20		—
Net assets acquired	$	4,336	$	3,334	$	1,450

Pro forma Results of Operation

The following unaudited pro forma consolidated financial information has been prepared as if the acquisitions of Flowerama, Fine Stationery and Mrs. Beasley’s had taken place at the beginning of fiscal year 2011. The pro forma information has been adjusted to give effect to items that are directly attributable to the transactions and are expected to have a continuing impact on the combined results. The adjustments primarily include amortization expense associated with acquired identifiable intangible assets. This information has not been adjusted to reflect any changes in the operations of the businesses subsequent to its acquisition by the Company. Changes in operations of the acquired businesses include, but are not limited to, discontinuation of products, integration of systems and personnel, changes in manufacturing processes or locations, and changes in marketing and advertising programs. Had any of these changes been implemented by the former managements of the businesses acquired prior to acquisition by us, the sales and net income information might have been materially different than the actual results achieved and from the pro forma information provided. 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
	April 1, 2012		March 27, 2011			April 1, 2012		March 27, 2011
			(in thousands, except per share data)

Net revenues from continuing operations	$	179,659	$	162,703		$	537,175	$	503,233
Operating income (loss) from continuing operations	$	155	$	(3,112	)	$	20,603	$	14,079

Income (loss) from continuing operations	$	51	(2,162		)	$	11,374	$	6,616

Net income (loss) per common share from continuing operations
Basic	$	0.00	$	0.03		$	0.18	$	0.10
Diluted	$	0.00	$	0.03		$	0.17	$	0.10

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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:

	April 1, 2012		July 3, 2011
	(in thousands)

Finished goods	$	29,585	$	26,629
Work-in-process	11,238		9,243
Raw materials	18,551		15,312

	$	59,374	$	51,185

Note 6 — Goodwill and Intangible Assets

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.

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 July 3, 2011	$	6,779	$	—	$	32,569		$	39,348

Acquisition of Flowerama	2,348		—		—			2,348

Sale of Fannie May stores	—		—		(1,001		)	(1,001		)

Balance at April 1, 2012	$	9,127	$	—	$	31,568		$	40,695

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

		April 1, 2012						July 3, 2011
	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	$	7,216	$	5,322	$	1,894	$	5,314	$	5,314	$	—
Customer lists	3 - 10 years	15,998		9,595		6,403		15,804		8,619		7,185
Other	5 - 8 years	2,538		2,072		466		2,538		1,770		768
		25,752		16,989		8,763		23,656		15,703		7,953

Trademarks with indefinite lives	—	33,881		—		33,881		33,795		—		33,795
Total identifiable intangible assets		$	59,633	$	16,989	$	42,644	$	57,451	$	15,703	$	41,748

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Future estimated amortization expense is as follows: remainder of fiscal 2012 - $0.5 million, fiscal 2013 - $1.8 million, fiscal 2014 - $1.4 million, fiscal 2015 - $1.3 million, fiscal 2016 - $1.2 million, and thereafter - $2.6 million.

Note 7 — Long-Term Debt

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

	April 1, 2012		July 3, 2011
	(in thousands)

Term loan (1)	$	33,000	$	44,250
Revolving line of credit (1)	—		—
Obligations under capital leases (2)	100		1,488
	33,100		45,738
Less current maturities of long-term debt and obligations under capital leases	15,100		16,488
	$	18,000	$	29,250

(1) On April 14, 2009, the Company amended its 2008 Credit Facility with JPMorgan Chase Bank N.A., as administrative agent, and a group of lenders (the “Amended 2008 Credit Facility”). The Amended 2008 Credit Facility provided for term loan debt of $92.4 million and a seasonally adjusted revolving credit line ranging from $75.0 to $125.0 million. The Amended 2008 Credit Facility, effective March 28, 2009, also revised certain financial and non-financial covenants.

On April 16, 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “2010 Credit Facility”) which superseded the Amended 2008 Credit Facility. The 2010 Credit Facility included a prepayment of approximately $12.1 million, comprised primarily of the proceeds from the sale of the Home & Children’s Gifts segment in January 2010, and thereby reducing the Company’s outstanding term loan under the facility to $60 million upon closing. The term loan, which matures on March 30, 2014, is payable in sixteen quarterly installments of principal and interest beginning in June 2010, with escalating principal payments at the rate of 20% in year one, 25% in years two and three and 30% in year four.

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

Outstanding amounts under the 2010 Credit Facility bear interest at the Company’s option of 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 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 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 income. The ineffective portion, if any, is recorded within interest expense in the consolidated statement of operations.

(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.

Note 8-Fair Value Measurements

The Company’s financial assets and liabilities are measured and recorded at fair value, except for the Company’s investment in i-florist, a privately-held company, which is accounted for under the cost method of accounting and is 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 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 circumstances indicate 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 impairment indicators are present, as required under the accounting standards. Although no trading market exists, the Company believes that the carrying amount of its debt approximates fair value, due to its variable nature.

The authoritative guidance for fair value 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.

All of the Company’s financial instruments were classified within Level 1 or Level 2 of the fair value hierarchy as of April 1, 2012 because they were valued using quoted market prices, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Financial assets (excluding cash held in operating accounts and time deposits of $6.8 million) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company’s Consolidated Balance Sheet as follows:

				Fair Value Measurements Assets (Liabilities)
	Total			Level 1		Level 2			Level 3
						(in thousands)
Cash Equivalents:
Money Market — April 1, 2012	$	18,095		$	18,095	—			—
Money Market — July 3, 2011	—			—		—			—

Other current liabilities
Interest rate swap — April 1, 2012	$	(44	)	—		$	(44	)	—
Interest rate swap — July 3, 2011	$	(263	)	—		$	(263	)	—

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.

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 rate from continuing operations for the three and nine months ended April 1, 2012 was 131.1% and 38.9%, respectively, compared to 45.3% and 40.1% in the prior year periods. The effective rates for fiscal 2012 differed from the U.S. federal statutory rate of 35% primarily due to state income taxes and other permanent non-deductible items, offset by various tax credits.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has concluded its federal examination by the Internal Revenue Service for its fiscal years 2007 through 2009. Fiscal 2010 and fiscal 2011 remain subject to federal examination. Due to non-conformity with the federal statute of limitations for assessment, certain states remain open from fiscal 2006. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any material accrued interest or penalties associated with any unrecognized tax benefits, nor was any material interest expense recognized during the year.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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

During the first quarter of fiscal 2012, the Company made the decision to divest its non-strategic wine fulfillment services business, which was previously included within its Gourmet Foods & Gift Baskets category. On September 6, 2011, the Company completed the sale of this business; refer to “Discontinued Operations” below for a further discussion. Consequently, the Company has classified the results of operations of its wine fulfillment services business as discontinued operations for all periods presented.

	Three Months Ended						Nine Months Ended
Net revenues	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
	(in thousands)

Net revenues:
1-800-Flowers.com Consumer Floral	$	112,987		$	100,341		$	274,168		$	245,518
BloomNet Wire Service	24,060			20,765			60,837			51,943
Gourmet Food & Gift Baskets	43,104			37,936			202,829			192,203
Corporate (**)	199			301			575			855
Intercompany eliminations	(691		)	(504		)	(1,707		)	(1,067		)
Total net revenues	$	179,659		$	158,839		$	536,702		$	489,452

	Three Months Ended						Nine Months Ended
Operating Income	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
	(in thousands)

Category Contribution Margin (*):
1-800-Flowers.com Consumer Floral	$	10,948		$	7,980		$	26,899		$	21,513
Bloomnet Wire Service	6,258			5,345			15,925			15,007
Gourmet Food & Gift Baskets (***)	948			588			29,188			26,322
Category Contribution Margin Subtotal	18,154			13,913			72,012			62,842
Corporate (**)	(13,125		)	(12,093		)	(36,505		)	(34,439		)
Depreciation and amortization	(4,874		)	(5,069		)	(14,705		)	(15,272		)
Operating income	$	155		$	(3,249	)	$	20,802		$	13,131

(*) 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 corporate overhead, which includes stock-based compensation, (see footnote (**) below), depreciation and amortization, net interest expense and income taxes. Assets and liabilities are reviewed at the consolidated level by management and are not accounted for by category.

(**) The Company’s enterprise shared service cost centers include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions. 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, which includes stock-based compensation, as they are not directly allocable to a specific category.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(***) Category contribution margin, during the nine months ended April 1, 2012, includes a $3.8 million gain on the sale of Fannie May retail stores, which are being operated as franchised locations post-sale.

Note 11-Discontinued Operations

On September 6, 2011, the Company, through its subsidiary The Winetasting Network, completed the sale of certain assets of its wine fulfillment services business in order to focus on its core Direct-to-Consumer wine business. The sales price consisted of $12.0 million of cash proceeds at closing, with the potential for an additional $1.5 million upon achieving specified revenue targets during the two year period following the closing date. The Company has classified the results of operations of its wine fulfillment services business, which had previously been included within its Gourmet Foods & Gift Baskets category, as discontinued operations for all periods presented.

Results for discontinued operations are as follows:

	Three Months Ended						Nine Months Ended
	April 1, 2012			March 27, 2011			April 1, 2012			March 27, 2011
				(in thousands)

Net revenues from discontinued operations	$	—		$	3,940		$	2,003		$	13,251

Operating loss from discontinued operations	$	—		$	(696	)	$	(232	)	$	(228	)

Gain (loss) on sale of discontinued operations, net of tax	$	(136	)	$	—		$	4,342		$	—

Income (loss) from discontinued operations	$	(136	)	$	(432	)	$	4,320		$	(150	)

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 November 10, 2010, a purported class action complaint was filed in the United States District Court for the Eastern District of New York naming the Company (along with Trilegiant Corporation, Inc., Affinion, Inc. and Chase Bank USA, N.A.) as defendants in an action purporting to assert claims against the Company alleging violations arising under the Connecticut Unfair Trade Practices Act among other statutes, and for breach of contract and unjust enrichment in connection with certain post-transaction marketing practices in which certain of the Company’s subsidiaries previously engaged in with certain third-party vendors. On March 6, 2012 and March 15, 2012, two additional purported class action complaints were filed in the United States District Court for the District of Connecticut naming the Company and numerous other parties as defendants in actions purporting to assert claims substantially similar to those asserted in the lawsuit filed on November 10, 2010. In each case, plaintiffs seek to have the respective case certified as a class action and seek restitution and other damages, each in an amount in excess of $5.0 million. On April 26, 2012, the two Connecticut cases were consolidated with a third case previously pending in the United States District Court for the District of Connecticut in which the Company is not a party. The Company intends to defend each of these actions vigorously.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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

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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 I, Item 1A, of the Company’s Annual Report on Form 10-K under the heading “Risk Factors.”

Overview

1-800-FLOWERS.COM, Inc. is the world’s leading florist and gift shop. For more than 30 years, 1-800-FLOWERS® (1-800-356-9377 or www.1800flowers.com) has been helping deliver smiles for our customers with gifts for every occasion, including fresh flowers and the finest selection of plants, gift baskets, gourmet foods, confections, candles, balloons and plush stuffed animals. As always, our 100% Smile Guarantee backs every gift. 1-800-FLOWERS.COM’s Mobile Flower & Gift Center was named winner of the Mobile Shopping Summit’s “Best Mobile Site of 2011.” 1-800-FLOWERS.COM was also rated number one vs. competitors for customer satisfaction by STELLAService and named by the E-Tailing Group as one of only nine online retailers out of 100 benchmarked to meet the criteria for Excellence in Online Customer Service. 1-800-FLOWERS.COM has been honored in Internet Retailer’s “Hot 100: America’s Best Retail Web Sites” for 2011. The Company’s BloomNet® international floral wire service (www.mybloomnet.net) provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

The 1-800-FLOWERS.COM “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’s® (1-800-443-8124 or www.cheryls.com); premium chocolates and confections from Fannie May® confections brands (www.fanniemay.com and www.harrylondon.com); gift baskets and towers from 1-800-Baskets.com® (www.1800baskets.com); wine gifts from Winetasting.com® (www.winetasting.com); top quality steaks and chops from Stockyards.com (www.stockyards.com); as well as premium branded customizable invitations and personal stationery from FineStationery.com (www.finestationery.com). The Company’s Celebrations® brand (www.celebrations.com) is a 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.

On September 6, 2011, the Company, through its Winetasting Network subsidiary, completed the sale of certain assets of its non-strategic wine fulfillment services business in order to focus on its core Direct-to-Consumer wine business. The Company has classified the results of operations of its wine fulfillment services business, which had previously been included within its Gourmet Foods & Gift Baskets category, as discontinued operations for all periods presented.

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

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Category Information

The following table presents the contribution of net revenues, gross profit and category contribution margin from each of the Company’s business categories, as well as consolidated “EBITDA” (earnings before interest, taxes, depreciation and amortization). Additionally, the table adjusts Category Contribution Margin to EBITDA, EBITDA excluding stock-based compensation, and Adjusted EBITDA from continuing operations, excluding stock-based compensation, and reconciles Net Income (Loss) from continuing operations to EBITDA, EBITDA excluding stock-based compensation and Adjusted EBITDA from continuing operations, excluding stock-based compensation. As previously noted, the Company’s wine fulfillment services business has been classified as discontinued operations and therefore is excluded from category information below.

	Three Months Ended								Nine Months Ended
	April 1, 2012			March 27, 2011			% Change		April 1, 2012			March 27, 2011			% Change
	(in thousands)								(in thousands)
Net revenues from continuing operations:
1-800-Flowers.com Consumer Floral	$	112,987		$	100,341		12.6	%	$	274,168		$	245,518		11.7	%
BloomNet Wire Service	24,060			20,765			15.9	%	60,837			51,943			17.1	%
Gourmet Food & Gift Baskets	43,104			37,936			13.6	%	202,829			192,203			5.5	%
Corporate (*)	199			301			(33.9	)%	575			855			(32.7	)%
Intercompany eliminations	(691		)	(504		)	36.9	%	(1,707		)	(1,067		)	60.0	%
Total net revenues from continuing operations	$	179,659		$	158,839		13.1	%	$	536,702		$	489,452		9.7	%

	Three Months Ended								Nine Months Ended
	April 1, 2012			March 27, 2011			% Change		April 1, 2012			March 27, 2011			% Change
	(in thousands)								(in thousands)
Gross profit from continuing operations:
1-800-Flowers.com Consumer Floral	$	44,045		$	37,160		18.5	%	$	106,258		$	92,853		14.4	%
	39.0		%	37.0		%			38.8		%	37.8		%

BloomNet Wire Service	10,733			9,813			9.4	%	28,254			27,362			3.3	%
	44.6		%	47.3		%			46.4		%	52.7		%

Gourmet Food & Gift Baskets	18,116			16,002			13.2	%	84,981			82,572			2.9	%
	42.0		%	42.2		%			41.9		%	43.0		%

Corporate (*)	145			136			7.0	%	434			424			2.4	%
	72.9		%	45.2		%			75.6		%	49.6		%
Total gross profit from continuing operations	$	73,039		$	63,111		15.7	%	$	219,927		$	203,211		8.2	%
	40.7		%	39.7		%			41.0		%	41.5		%

	Three Months Ended								Nine Months Ended
	April 1, 2012			March 27, 2011			% Change		April 1, 2012			March 27, 2011			% Change
	(in thousands)								(in thousands)
Adjusted EBITDA from continuing operations, excluding stock-based compensation:
Category Contribution Margin ()**
1-800-Flowers.com Consumer Floral	$	10,948		$	7,980		37.2	%	$	26,899		$	21,513		25.0	%
BloomNet Wire Service	6,258			5,345			17.1	%	15,925			15,007			6.1	%
Gourmet Food & Gift Baskets (***)	948			588			61.2	%	29,188			26,322			10.9	%
Category Contribution Margin Subtotal	18,154			13,913			30.5	%	72,012			62,842			14.6	%
Corporate (*)	(13,125		)	(12,093		)	(8.5	)%	(36,505		)	(34,439		)	(6.0	)%
EBITDA	5,029			1,820			176.3	%	35,507			28,403			25.0	%
Add: Stock-based compensation	1,356			1,098			23.5	%	3,736			2,855			30.9	%
EBITDA, excluding stock-based compensation	6,385			2,918			118.8	%	39,243			31,258			25.5	%
Less: Gain on sale of stores (***)	—			—			—		(3,789		)	—			—
Adjusted EBITDA from continuing operations, excluding stock-based compensation	$	6,385		$	2,918		118.8	%	$	35,454		$	31,258		13.4	%

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	Three Months Ended						Nine Months Ended
	April 1, 2012	March 27, 2011			% Change		April 1, 2012			March 27, 2011		% Change
	(in thousands)						(in thousands)
Discontinued Operations:
Net revenues	—	$	3,940		(100.0	)%	$	2,003		$	13,251	(84.9	)%
Gross profit	—	94			(100.0	)%	405			2,407		(83.2	)%
Contribution margin	—	(534		)	(100.0	)%	(190		)	152		(225.0	)%

	Three Months Ended					Nine Months Ended
	April 1, 2012		March 27, 2011			April 1, 2012			March 27, 2011
	(in thousands)					(in thousands)
Reconciliation of net income (loss) from continuing operations to EBITDA and Adjusted EBITDA from continuing operations, less stock-based compensation:
Net income (loss) from continuing operations	$	51	$	(2,244	)	$	11,494		$	5,880
Add:
Interest expense	319		854			1,990			3.321
Depreciation and amortization	4,874		5,069			14,705			15,272
Income tax expense	—		—			7,318			3,930
Less:
Income tax benefit	215		1,859			—			—
EBITDA	5,029		1,820			35,507			28,403
Add: Stock-based compensation	1,356		1,098			3,736			2,855
EBITDA, less stock-based compensation	6,385		2,918			39,243			31,258
Less: Gain on sale of stores	—		—			(3,789		)	—
Adjusted EBITDA from continuing operations, less stock-based compensation	$	6,385	$	2,918		$	35,454		$	31,258

(*)		The Company’s enterprise shared service cost centers include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions. 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, which includes stock-based compensation, as they are not directly allocable to a specific category.

(**)		Performance is measured based on category contribution margin or category Adjusted EBITDA, reflecting 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, described above, depreciation and amortization, other income (net), nor does it include one-time charges. Management utilizes EBITDA, and adjusted financial information, as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization. The Company also uses EBITDA and adjusted financial information as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees. The Company’s credit agreement uses EBITDA and adjusted financial information to measure compliance with covenants such as interest coverage and debt incurrence. EBITDA and adjusted financial information is also used by the Company to evaluate and price potential acquisition candidates. EBITDA and adjusted financial information have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. Some of these limitations are: (a) EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital needs; (b) EBITDA does 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. Because of these limitations, EBITDA should only be used on a supplemental basis combined with GAAP results when evaluating the Company’s performance.

(***)		GFGB category contribution margin, during the nine months ended April 1, 2012, includes a $3.8 million gain on the sale of 17 Fannie May retail stores, which are being operated as franchised locations post-sale.

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Results of Operations