1-800-FLOWERS.COM, Inc.
May 19, 2006
United States Securities and Exchange Commission
Mail Stop 3561
100 F Street, NE
Washington, D.C. 20549-0405
Attention: William Choi
Branch Chief
Division of Corporation Finance
Re: 1-800-FLOWERS.COM, Inc.
Form 10-K for the Fiscal Year Ended July 3, 2005
Filed September 15, 2005
File No. 0-26841
Dear Mr. Choi:
Reference is made to the comments of the Staff of the Securities and
Exchange Commission (the "SEC") with respect to the above-referenced filing on
Form 10-K of 1-800-FLOWERS.COM, Inc., a Delaware corporation (the "Company" or
"1-800-FLOWERS.COM"), in your letter dated April 6, 2006 (the "Comment Letter")
addressed to Mr. William E. Shea, Chief Financial Officer of the Company.
We are writing to respond to the comments and, where appropriate, to show
you what the applicable revisions will look like in future filings. The numbered
paragraphs and headings below correspond to the headings and numbers set forth
in the Comment Letter.
Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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Results of Operations, page 31
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General
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1. We note your response to comment 2 in our letter dated February 27,
2006 and the additional disclosure contained in your Form 10-Q for the
three months ended January 1, 2006. We also note that you provide
descriptions of all material increases and decreases in revenue and
operating expenses. However, in circumstances where you describe
material events or transactions or significant changes that materially
affect the amount of reported income from continuing operations you
should indicate the extent to which income was so affected as required
by Item 303(a)(3) of Regulation S-K. Please do so in future filings.
The Company concurs with this comment and will continue to provide
disclosure which indicates the extent to which operating income from
continuing operations was affected by material events or transactions
or significant changes in the Company's continuing operations as
required by Item 303(a)(3) of Regulation S-K.
Consolidated Financial Statements
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Note 1 - Description of Business, page F-6
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2. We note your response to comment 4 in our letter dated February 27,
2006. You indicate that you operate in one segment because your chief
operating decision maker only regularly reviews consolidated operating
results. However, you also indicated that your chief operating decision
maker reviews consolidated sales and gross margin by product category
and by fulfillment method. In addition, we note that the executive
officers disclosed on page 24 include the President of The Plow &
Hearth, Inc. and the President of Specialty Brands Division.
Accordingly, it appears that you may be operating by product category.
Please explain to us in detail how you determined that your segment
reporting is consistent with the requirements of paragraphs 10 through
21 of SFAS 131. Provide us with an organizational chart showing all
personnel involved in managing your organization at the executive and
senior management levels, clearly indicating the name of the employee
and the job function. Submit all reports, financial summaries,
schedules, and information memorandum given to your chief operating
decision maker and board of directors during the quarter ended January
1, 2006. We may have further comment after reviewing your response.
The Company's Strategy, as stated in its Annual Report on Form 10-K,
is to become the leading authority on thoughtful gifting, to serve an
expanding range of our customers' celebratory needs, thereby helping
our customers connect with the important people in their lives. The
Company offers products for all of its customers' gifting needs,
including fresh-cut flowers, floral arrangements and plants, popcorn,
gourmet food and wine, home and garden merchandise and unique toys and
games for children. Based upon its analysis of the requirements of
paragraphs 10 through 21 of SFAS 131, the Company determined that it
operates within one business segment, as a direct marketer of gift
products to its customers, who can access the Company's offerings via
the Internet, telephone, catalogs and retail stores.
2
FAS 131 Paragraph 10 - 11:
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FAS 131 defines an operating segment as a component of an enterprise:
a. That engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating
to transactions with other components of the same enterprise),
b. Whose operating results are regularly reviewed by the enterprise's
chief operating decision maker to make decisions about resources to
be allocated to the segment and assess its performance, and
c. For which discrete financial information is available.
While the Company tracks consolidated sales and gross margin by
product category and by fulfillment method, which information crosses
over individual brands as a result of brand integration (ie, the
1-800-flowers brand sells cookies manufactured by Cheryl & Co, and
popcorn manufactured by The Popcorn Factory), James F. McCann, as the
Company's chief operating decision maker ("CODM"), focuses his review
of revenue and gross margin on a consolidated basis, and regularly
reviews operating results at a consolidated level only. Mr. McCann
does not review any operating expenses by brand, and they are not
tracked by product category. Rather, Mr. McCann reviews operating
results only on a consolidated basis, and makes his decisions as CODM
on that basis.
Daily Review: Mr. McCann reviews consolidated sales during holiday
periods on a daily basis, and on a weekly basis during non-critical
periods. The Daily Net Revenue Trend Analysis (Exhibit 2) consolidates
daily sales by brand to create the "roll-up" report reviewed by Mr.
McCann. Such reports are designed to forecast consolidated sales for
the month based upon current trends in comparison to budget, and, in
the instance of the Weekly Net Revenue Trend & Projection Report
(Exhibit 3), include a consolidated management projection, which
adjusts trends for known events and variances to budget (ie, changes
in the timing of catalog circulation/e-mail drops). Variances from
consolidated budgeted sales are reviewed on an exception basis by Mr.
McCann with Mr. William E. Shea, Chief Financial Officer.
Monthly Review: On a monthly basis, Mr. William E. Shea, Chief
Financial Officer, meets with Mr. McCann to review Comparative
Consolidated Statements of Operations (Exhibit 4) in comparison to
budget and prior year. Variances are explained on an exception basis.
Quarterly Review: On a quarterly basis, Mr. McCann approves the final
earnings release (Exhibit 6) and the conference call script (Exhibit
7). Earnings releases and conference call scripts, including potential
"Q&A" responses, are drafted by the Company's VP of Investor Relations
and Chief Financial Officer, and are presented to Mr. McCann for
review and approval prior to the Company's earnings release and
analyst conference calls. In preparation for and during his review of
the final conference call script, Mr. Shea discusses the Company's
operating performance with Mr. McCann on a consolidated basis, in
relation to prior year and budget.
3
The Company's external auditors are provided with a copy of our
quarterly Financial Review (Exhibit 5) during their SAS 100 review of
the Company's quarterly results prior to earnings release. A copy of
the Financial Review is then provided to the Company's Audit
Committee, and is verbally summarized by Mr. Shea during the Company's
quarterly pre-earnings release audit committee meeting. The attendees
at this meeting consist of Mr. Shea, certain of his direct reports,
members of the Audit Committee, and the external auditor's audit
partner and certain direct reports.
During the Company's BOD meetings, Mr. Shea reviews the previous
quarter's consolidated operating results. The full BOD, including Mr.
McCann for the first time, receive copies of the same Financial
Review, which includes the above referenced analysis of revenue and
margin by product category and fulfillment method, previously
presented to the Company's external auditors and Audit Committee.
Prior to filing the Company's Quarterly Reports on Form 10-Q (Exhibit
8) and Annual Reports on Form 10-K, Mr. McCann reviews the reports and
discusses their contents with Mr. Shea.
FAS 131 Paragraph 12 - 13:
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Mr. James F. McCann is the Company's CODM. He is the Company's Chief
Executive Officer, Chairman of the Board, founder and majority
shareholder, owning approximately 55% of the outstanding capital stock
of the Company and approximately 91% of the voting power. Mr. McCann
is responsible for the Company's strategic direction and its
operations. All significant operating decisions regarding allocation
of resources, brand image and marketing, product line introduction,
product fulfillment and corporate policy must be approved and
authorized by Mr. McCann.
Mr. McCann has four direct reports: Christopher G. McCann, the
Company's President and a Director, William E. Shea, the Company's
Senior Vice President of Finance and Administration, Treasurer and
Chief Financial Officer, Gerard M. Gallagher, the Company's Senior
Vice President of Business Affairs, General Counsel and Corporate
Secretary, and Mary McCormack, Vice President of Corporate
Development, all of whom, including Mr. McCann, have compensation
aligned to the consolidated operating results of the Company.
Mr. McCann, through briefings by his direct reports and visits to the
Company's locations, reviews consolidated financial results, approves
all significant operating decisions, establishes strategic direction,
and assesses performance at a consolidated level. Refer to attached
organization chart (Exhibit 1).
4
FAS 131 Paragraph 14-15:
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As the Company operates under one segment, as a direct marketer of
gift products, the Company does not have segment managers. As
evidenced by the attached organization chart (Exhibit 1), none of the
Presidents of the Company's subsidiaries report to Mr. James McCann,
our CODM. In addition, not all subsidiaries have Presidents, and those
that have Presidents are not directly accountable to, nor do they
maintain regular contact with Mr. James McCann.
FAS 131 Paragraph 16-21:
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As the Company believes that it operates under one segment, paragraphs
16-21 are not applicable.
Attached to this response, please find copies of our organizational
chart (Exhibit 1), and all reports, financial summaries, schedules, and
information memorandum given to Mr. McCann in his capacity as our chief
operating decision maker and to the board of directors during the
quarter ended January 1, 2006 (Exhibits 2-8):
o Exhibit 1 - Organizational Chart
o Exhibit 2 - Daily Net Revenue Trend Analysis
As of November 13, 2005
o Exhibit 3 - Weekly Net Revenue Trend & Projection Report
As of November 13, 2005
o Exhibit 4 - Comparative Consolidated Statements of Operations
Month ended November 27, 2005
o Exhibit 5 - Financial Review - Quarter ended October 2, 2005
o Exhibit 6 - Earnings release - October 27, 2005 - Fiscal 2006
First Quarter Results
o Exhibit 7 - Earnings conference call script (including Q&A
prep) - October 27, 2005
o Exhibit 8 - Form 10Q - Three months ended October 2, 2005
In summary, Mr. James McCann is the Company's CODM. As Chief Executive
Officer, Chairman of the Board, founder and majority stockholder, he
is responsible for all of the Company's strategic direction and
operating decisions. As CODM, Mr. McCann regularly reviews only
consolidated operating results. As such, the Company concluded that it
operates within one business segment, as a direct marketer of gift
products.
Inventories, page F-6
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3. We note your response to comment 5 in our letter dated February 27,
2006. Please also tell us and disclose in future filings the nature of
the costs capitalized in inventories.
5
The Company provided the following disclosure of the nature of the
costs capitalized in inventories in its Form 10-Q for the quarter ended
April 2, 2006, and will continue to do so in future filings:
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 2, July 3,
2006 2005
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(in thousands)
Finished goods $38,315 $21,094
Raw materials 4,982 7,581
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$43,297 $28,675
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Revenue Recognition, page F-8
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4. We note your response to comment 7 in our letter dated February 27,
2006. Please tell us why you believe it is appropriate to recognize
revenue on orders shipped via common carrier upon shipment. In doing
so, tell us your standard FOB shipping terms.
The Company provides same-day, next day and standard ground delivery
options from which its customers select an appropriate fulfillment
method, based upon their gifting needs. The customer, having already
made a fixed commitment to purchase the goods, determines the
applicable delivery date, and priority of transport method based upon
the timing of their gifting occasion. Once goods are transferred to
the common carrier, the Company will have already completed all of its
specific performance obligations, at which point, risk of product loss
lies with the common carrier. The Company's shipping terms are FOB
shipping point, and the Company maintains appropriate reserves for
refunds and returns, in accordance with its 100% satisfaction
guarantee, determined based upon historical data.
6
Please contact the undersigned at (516) 237-4928 should you require additional
information or have any questions.
Very truly yours,
/s/ William E. Shea
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William E. Shea
Chief Financial Officer
Senior Vice President, Finance and
Administration
cc: William Hartnett: Cahill Gordon & Reindel LLP
Christopher Cox: Cahill Gordon & Reindel LLP