1 800 FLOWERS COM INC

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

Notes to Condensed Consolidated Financial Statements

Note1 – Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by1-800-FLOWERS.COM, Inc. and Subsidiaries (the “Company”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form10-Q and Article10 of Regulation S-X. Accordingly, they donot include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for thethree andsix-month periods ended* December 31, 2023arenot* necessarily indicative of the results that* maybe expected for the fiscal year ending June 30, 2024.These financial statements should be read in conjunction with our Annual Report on Form10*-K for the fiscal year ended* July 2, 2023*, which provides a more complete understanding of our accounting policies, financial position, operating results and other matters.

The Company’s quarterly results* mayexperience seasonal fluctuations. Due to the seasonal nature of the Company’s business, and its continued expansion into non-floral products, the Thanksgiving through Christmas holiday season, which falls within the Company’ssecond* fiscal quarter, is expected to generate over40% of the Company’s annual revenues, and all of its earnings. Due to the number of major floral gifting occasions, including Mother's Day, Valentine’s Day, Easter, and Administrative Professionals Week, revenues also have historically risen during the Company’s fiscalthird andfourth quarters in comparison to its fiscalfirst quarter.

Use of Estimates

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

Revenue Recognition

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

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

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Deferred Revenues

Deferred revenues are recorded when the Company has received consideration (i.e. advance payment) before satisfying its performance obligations. As such, customer orders are recorded as deferred revenue prior to shipment or rendering of product or services. Deferred revenues primarily relate to e-commerce orders placed, butnot shipped, prior to the end of the fiscal period, as well as for subscription programs, including our various food, wine, and plant-of-the-month clubs and our Celebrations Passport® program.

Our total deferred revenue as of* July 2, 2023was $30.8 million (included in “Accrued expenses” on our consolidated balance sheets), of which $10.7 million and $26.8 million was recognized as revenue during thethree* andsix months ended* December 31, 2023.The deferred revenue balance as of December 31, 2023*was $39.9 million.

Impairment Evaluation

The Company performs its annual assessment of goodwill and indefinite-lived intangible impairment during its fiscalfourth quarter, or more frequently if events occur or circumstances change such that it is more likely thannot that an impairment* mayexist. During the quarter ended December 31, 2023,*as a result of a decline in the actual and projected revenue for the Company’s PersonalizationMall tradename (indefinite-lived intangible asset), as well as a higher discount rate resulting from the higher interest rate environment, the Company determined that an impairment assessment was required for this tradename. This assessment resulted in the Company recording a non-cash impairment charge of $19.8 million to reduce the recorded carrying value of the PersonalizationMall tradename.

The Company concluded that goodwill and other indefinite-lived intangible assets, excluding its PersonalizationMall tradename, didnot require an impairment assessment. See Note5 – Goodwill and Intangible Assets, Net for further information.

Recently Issued Accounting Pronouncements

In* November 2023,the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”)2023-07, Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures*. ASU2023-07 requires enhanced disclosures about significant segment expenses, includes enhanced interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The amendments in ASU2023-07 are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024,with early adoption permitted. ASU2023*-07 is to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of ASU2023-07 on its consolidated financial statements and related disclosures.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*. ASU2023-09 requires the disclosure of additional information with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes and requires greater detail about significant reconciling items in the reconciliation. Additionally, the amendment requires disaggregated information pertaining to taxes paid, net of refunds received, for federal, state, and foreign income taxes. The amendments in ASU2023-09 are effective for fiscal years beginning after* December 15, 2024,with early adoption permitted, and allows for either a prospective or retrospective approach on adoption. The Company is currently evaluating the impact of ASU2023*-09 on its consolidated financial statements and related disclosures.

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Note2 – Net Income (Loss) Per Common Share

Basic net income per common share is computed by dividing the net income during the period by the weighted average number of common shares outstanding during the period. Diluted net income per common share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.

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

Note3 – Acquisitions

Acquisition of Things Remembered

On* January 10, 2023,the Company completed its acquisition of certain assets of the Things Remembered brand, a provider of personalized gifts, whose operations are integrated within the PersonalizationMall.com brand, in the Consumer Floral & Gifts segment. The Company used cash on hand to fund the $5.0 million purchase, which included the intellectual property, customer list, certain inventory, and equipment. The acquisition didnot* include Things Remembered retail stores. Things Remembered’s annual revenues from its e-commerce operations, based on its most recently available unaudited financial information was $30.4 million for thetwelve months ended* November 30, 2022.*

The total consideration of $5.0 million was allocated to the identifiable assets acquired and liabilities assumed based on our estimates of their fair values on the acquisition date, including: goodwill of $1.9 million (deductible for income tax purposes), trademarks of $0.8 million (indefinite life), customer lists of $0.8 million (3-year life), inventory of $1.1 million, and equipment of $0.4 million. During the quarter ended* December 31, 2023,*the Company finalized its purchase price allocation, resulting in immaterial adjustments to the preliminary carrying value of the respective recorded assets and the residual amount that was allocated to goodwill.

Operating results of the Things Remembered business are reflected in the Company’s consolidated financial statements from the date of acquisition within the Consumer Floral & Gifts segment. Pro forma results of operations havenot been presented, as the impact on the Company’s consolidated financial results wasnot material.

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Note4 – Inventory, Net

The Company’s inventory, valued at the lower of cost or net realizable value, includes purchased and manufactured finished goods for sale, packaging supplies, crops, raw material ingredients for manufactured products and associated manufacturing labor, and is classified as follows:

Note5 – Goodwill and Intangible Assets, Net

The following table presents goodwill by segment and the related change in the net carrying amount:

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

Future estimated amortization expense is as follows: remainder of fiscal2024 - $2.2 million, fiscal2025 - $1.9 million, fiscal2026 - $1.3 million, fiscal2027 - $0.5 million, fiscal2028 - $0.2 million and thereafter - $0.3 million.

The Company performs its annual assessment of goodwill and indefinite-lived intangible impairment during its fiscalfourth quarter, or more frequently if events occur or circumstances change such that it is more likely thannot that an impairment* may*exist.

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During the quarter ended* December 31, 2023,as a result of a decline in the actual and projected revenue for the Company’s PersonalizationMall tradename (indefinite-lived intangible asset), as well as a higher discount rate resulting from the higher interest rate environment, the Company determined that an impairment assessment was required. The Company’s impairment test for the indefinite-lived intangible asset encompassed calculating a fair value of the indefinite-lived intangible asset and comparing that result to its carrying value. To determine fair value of the indefinite-lived intangible asset, the Company used an income approach, the relief-from-royalty method. This method assumes that, in lieu of ownership, athird* party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. Indefinite-lived intangible assets’ fair values require significant judgments in determining both the assets’ estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Based on the impairment assessment performed for the quarter ending* December 31, 2023,*the Company recorded a non-cash impairment charge of $19.8 million to reduce the recorded carrying value of the PersonalizationMall tradename to its estimated fair value. This impairment charge was recorded in the Company’s Consumer Floral & Gifts reporting unit.

The Company concluded that goodwill and other indefinite-lived intangible assets, excluding its PersonalizationMall tradename, didnot require an impairment assessment.

Note6 – Investments

Equity investments without a readily determinable fair value

Investments in non-marketable equity instruments of private companies, where the Company doesnot possess the ability to exercise significant influence, are accounted for at cost, less impairment (assessed qualitatively at each reporting period), adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. These investments are included within “Other assets” in the Company’s consolidated balance sheets. The aggregate carrying amount of the Company’s equity investments without a readily determinable fair value was $2.6 million as of* December 31, 2023and July 2, 2023,*respectively.

Equity investments with a readily determinable fair value

The Company also holds certain trading securities associated with its Non-Qualified Deferred Compensation Plan (“NQDC Plan”). These investments are measured using quoted market prices at the reporting date and are included within the “Other assets” line item in the consolidated balance sheets (see Note9 - Fair Value Measurements).

**Note7 **–Debt, Net

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

On* June 27, 2023,the Company, certain of its U.S. subsidiaries, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent entered into a Third Amended and Restated Credit Agreement (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement amends and restates the Company’s Second Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended by the First Amendment, dated as of August 20, 2020,the Second Amendment, dated as of November 8, 2021,and the Third Amendment, dated as of August 29, 2022).The Third Amended Credit Agreement, among other modifications: (i) increases the amount of the outstanding term loan (“Term Loan”) from approximately $150 million to $200 million, (ii) decreases the amount of the commitments in respect of the revolving credit facility from $250 million to $225 million subject to a seasonal reduction to an aggregate amount of $125 million for the period from January 1to August 1, (iii) extends the maturity date of the outstanding term loan and the revolving credit facilities by approximately48* months to* June 27, 2028,*and (iv) increases the applicable interest rate margins for SOFR and base rate loans by 25 basis points.

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For each borrowing under the Third Amended Credit Agreement, the Company* may*elect that such borrowing bear interest at an annual rate equal to either: (1) a base rate plus an applicable margin varying based on the Company’s consolidated leverage ratio, where the base rate is the highest of (a) the prime rate, (b) the New York fed bank rate plus 0.5%, and (c) an adjusted SOFR rate plus an applicable margin varying based on the Company’s consolidated leverage ratio. The adjusted SOFR rate includes a credit spread adjustment of 0.1% for all interest periods.

The Third Amended Credit Agreement requires that while any borrowings or commitments are outstanding the Company comply with certain financial covenants and affirmative covenants as well as certain negative covenants that, subject to certain exceptions, limit the Company’s ability to, among other things, incur additional indebtedness, make certain investments and make certain restricted payments. The Company was in compliance with these covenants as of* December 31, 2023.*The Third Amended Credit Agreement is secured by substantially all of the assets of the Company.

The principal of the Term Loan is payable at a rate of $2.5 million for thefirst 8 quarterly installments beginning on* September 29, 2023,increasing to a quarterly payment of $5.0 million, commencing on September 26, 2025,for the remaining11* payments, with the remaining balance of $125.0 million due upon maturity on* June 27, 2028.*

Future principal term loan payments under the Third Amended Credit Agreement are as follows: $5.0 million – remainder of Fiscal2024, $10.0 million – Fiscal2025, $20.0 million – Fiscal2026, $20.0 million – Fiscal2027, and $140.0 million – Fiscal2028.

Note8 - Property, Plant and Equipment, Net

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

Note9 - Fair Value Measurements

Cash and cash equivalents, trade and other receivables, prepaids, accounts payable and accrued expenses are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. Althoughno trading market exists, the Company believes that the carrying amount of its debt approximates fair value due to its variable nature (these are level2 investments). The Company’s investments in non-marketable equity instruments of private companies are carried at cost and are periodically assessed for other-than-temporary impairment when an event or circumstances indicate that an other-than-temporary decline in value* mayhave occurred. The Company’s remaining financial assets and liabilities are measured and recorded at fair value (see table below). The Company’s non-financial assets, such as definite lived intangible assets and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value mayhave occurred. Goodwill and indefinite lived intangibles are tested for impairment annually, or more frequently, if events occur or circumstances change such that it is more likely thannot* that an impairment* may*exist, as required under the accounting standards.

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level1 measurements) and the lowest priority to unobservable inputs (level3 measurements). Thethree levels of the fair value hierarchy under the guidance are described below:

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

Note10 – Income Taxes

The Company computed the interim tax provision using an estimated annual effective rate, adjusted for discrete items. This estimate is used in providing for income taxes on a year-to-date basis and* maychange in subsequent interim periods. The Company’s effective tax rate for thethree* andsix months ended* December 31, 2023was 29.6% and 33.8% respectively, compared to 25.5% and 25.7% in the same periods of the prior year. The Company’s effective tax rate for fiscal2024* and fiscal2023 differed from the U.S. federal statutory rate of 21.0% primarily due to state income taxes and non-deductible executive compensation, partially offset by tax credits and other items. Fiscal2024 was further impacted by the impairment charge, which reduced the amount of income reflected in the Company’s estimated annual effective tax rate.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Company’s fiscal years2020, 2021, and 2022 remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal 2016. The Company's foreign income tax filings from fiscal 2017 are open for examination by its respective foreign tax authorities, mainly Canada and Brazil.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At* December 31, 2023,the Company has an unrecognized tax benefit, including accrued interest and penalties, of approximately $1.6 million. The Company believes that $0.1 million of unrecognized tax positions will be resolved over the nexttwelve* months.

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Note11 – Business Segments

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

Segment performance is measured based on contribution margin, which includes only the direct controllable revenue and operating expenses of the segments. As such, management’s measure of profitability for these segments doesnot include the effect of corporate overhead (see (a) below), nor does it include depreciation and amortization, other (income) expense, net and income taxes, or stock-based compensation, which are included within corporate overhead. Assets and liabilities are reviewed at the consolidated level by management andnot accounted for by segment.

(a) Corporate expenses consist of the Company’s enterprise shared service cost centers, and include, among other items, Information Technology, Human Resources, Accounting and Finance, Legal, Executive and Customer Service Center functions, as well as Stock-based compensation. In order to leverage the Company’s infrastructure, these functions are operated under a centralized management platform, providing support services throughout the organization. The costs of these functions, other than those of the Customer Service Center, which are allocated directly to the above categories based upon usage, are included within corporate expenses as they arenot directly allocable to a specific segment.

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

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Note12 – Leases

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal2036. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements* maycontain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC842.*

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether the Company has the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

At the lease commencement date, the Company determines if a lease should be classified as an operating or a finance lease (the Company currently hasno finance leases) and recognizes a corresponding lease liability and a right-of-use asset on its Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. Further, the Company elected a short-term lease exception policy, permitting it tonot apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.

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

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Additional information related to our leases is as follows:

Maturities of lease liabilities in accordance with ASC842 as of* December 31, 2023*and reconciliation to balance sheet are as follows (in thousands):

Note13 - Accrued Expenses

Accrued expenses consisted of the following:

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