Note

Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of

800

-FLOWERS.COM, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's net revenues from international sources were

not

material during fiscal years

2020,

2019

and

2018.

Fiscal Year

The Company's fiscal year is a

- or

-week period ending on the Sunday nearest to

June 30.

Fiscal years

2020,

2019,

and

2018,

which ended on

June 28, 2020,

June 30, 2019,

and

July 1, 2018,

respectively, consisted of

weeks.

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.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits with banks, highly liquid money market funds, United States government securities, overnight repurchase agreements and commercial paper with maturities of

three

months or less when purchased.

Inventories

Inventories are valued at the lower of cost or market using the

first

-in,

first

-out method of accounting.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the assets' estimated useful lives. Amortization of leasehold improvements and capital leases is computed using the straight-line method over the shorter of the estimated useful lives and the initial lease terms. The Company capitalizes certain internal and external costs incurred to acquire or develop internal-use software. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software. Orchards in production, consisting of direct labor and materials, supervision and other items, are capitalized as part of capital projects in progress – orchards until the orchards produce fruit in commercial quantities, at which time they are reclassified to orchards in production. Estimated useful lives are periodically reviewed, and where appropriate, changes are made prospectively.

The Company's property, plant and equipment are depreciated using the following estimated lives:

Building and building improvements (years)	10	-	40
Leasehold improvements (years)	3	-	10
Furniture, fixtures and production equipment (years)	3	-	10
Software (years)	3	-	7
Orchards in production and land improvements (years)	15	-	35

Property, plant and equipment are reviewed for impairment whenever changes in circumstances or events

may

indicate that the carrying amounts are

not

recoverable.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination, with the carrying value of the Company's goodwill allocated to its reporting units, in accordance with the acquisition method of accounting. Goodwill is

not

amortized, but it is subject to an annual assessment for impairment, which the Company performs during the

fourth

quarter, or more frequently if events occur or circumstances change such that it is more likely than

not

that an impairment

may

exist. The Company tests goodwill for impairment at the reporting unit level. The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components.

In applying the goodwill impairment test, the Company has the option to perform a qualitative test (also known as “Step

0”

) or a

two

-step quantitative test (consisting of “Step

1”

and “Step

2”

). Under the Step

test, the Company

first

assesses qualitative factors to determine whether it is more likely than

not

that the fair value of the reporting units is less than its carrying value. Qualitative factors

may

include, but are

not

limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events. If after assessing these qualitative factors, the Company determines it is “more-likely-than-

not”

that the fair value of the reporting unit is less than the carrying value, then performing the

two

-step quantitative test is necessary.

The

first

step (“Step

1”

) of the

two

-step quantitative test requires comparison of the fair value of each of the reporting units to the respective carrying value. If the carrying value of the reporting unit is less than the fair value,

impairment exists and the

second

step (“Step

2”

) is

not

performed. If the carrying value of the reporting unit is higher than the fair value, Step

must be performed to compute the amount of the goodwill impairment, if any. In Step

the impairment is computed by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for the excess.

The Company generally estimates the fair value of a reporting unit using an equal weighting of the income and market approaches. The Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, the Company engages

third

-party valuation specialists. Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, the Company uses the guideline public company method. Under this method the Company utilizes information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. The Company also reconciles the aggregate fair values of its reporting units determined in the

first

step (as described above) to its current market capitalization, allowing for a reasonable control premium.

During fiscal years

2020

and

2018,

the Company performed a Step

analysis and determined that it was

not

“more likely than

not”

that the fair values of its reporting units were less than their carrying amounts. During fiscal year

2019,

the Company performed a Step

analysis, and determined that the estimated fair value of the Company's reporting units significantly exceeded their respective carrying values (including goodwill allocated to each respective reporting unit). Future changes in the estimates and assumptions above could materially affect the results of our reviews for impairment of goodwill.

Other Intangibles, net

Other intangibles consist of definite-lived intangible assets (such as investment in licenses, customer lists, and others) and indefinite-lived intangible assets (such as acquired trade names and trademarks). The cost of definite-lived intangible assets is amortized to reflect the pattern of economic benefits consumed, over the estimated periods benefited, ranging from

years, while indefinite-lived intangible assets are

not

amortized.

Definite-lived intangibles are reviewed for impairment whenever changes in circumstances or events

may

indicate that the carrying amounts are

not

recoverable. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, then an impairment charge would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows.

The Company tests indefinite-lived intangible assets for impairment at least annually, during the

fourth

quarter, or whenever changes in circumstances or events

may

indicate that the carrying amounts are

not

recoverable. In applying the impairment test, the Company has the option to perform a qualitative test (also known as “Step

0”

) or a quantitative test. Under the Step

test, the Company assesses qualitative factors to determine whether it is more likely than

not

that an indefinite-lived intangible asset is impaired. Qualitative factors

may

include, but are

not

limited to economic conditions, industry and market considerations, cost factors, financial performance, legal and other entity and asset specific events. If, after assessing these qualitative factors, the Company determines it is “more-likely-than-

not”

that the indefinite-lived intangible asset is impaired, then performing the quantitative test is necessary. The quantitative impairment test for indefinite-lived intangible assets encompasses calculating a fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the fair value, impairment is recognized for the difference. To determine fair value of other indefinite-lived intangible assets, the Company uses an income approach, the relief-from-royalty method. This method assumes that, in lieu of ownership, a

third

party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. Other 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.

During fiscal years

2020

and

2018,

the Company performed a Step

analysis and determined that it was

not

“more likely than

not”

that the fair values of the indefinite-lived intangibles were less than their carrying amounts. During fiscal year

2019,

the Company performed a quantitative test, which determined that the estimated fair value of the Company's intangibles exceeded their respective carrying value in all material respects. Future changes in the estimates and assumptions above could materially affect the results of our reviews for impairment of intangibles.

Business Combinations

The Company accounts for business combinations in accordance with ASC Topic

805,

which requires, among other things, the acquiring entity in a business combination to recognize the fair value of all the assets acquired and liabilities assumed; the recognition of acquisition-related costs in the consolidated results of operations; the recognition of restructuring costs in the consolidated results of operations for which the acquirer becomes obligated after the acquisition date; and contingent purchase consideration to be recognized at their fair values on the acquisition date with subsequent adjustments recognized in the consolidated results of operations. The fair values assigned to identifiable intangible assets acquired are determined primarily by using an income approach which is based on assumptions and estimates made by management. Significant assumptions utilized in the income approach are based on company specific information and projections which are

not

observable in the market and are therefore considered Level

measurements. The excess of the purchase price over the fair value of the identified assets and liabilities is recorded as goodwill. Operating results of the acquired entity are reflected in the Company's consolidated financial statements from date of acquisition.

Deferred Catalog Costs

The Company capitalizes the costs of producing and distributing its catalogs. Starting in fiscal

2019,

with the adoption of ASU

No.

2014

(see below), these costs are expensed upon mailing, instead of being amortized in direct proportion to actual sales, as was the case in fiscal year

2018.

Included within prepaid and other current assets was

$3.0

million and

$2.8

million at

June 28, 2020

and

June 30, 2019

respectively, relating to prepaid catalog expenses.

Investments

Equity investments without a readily determinable fair value

Investments in non-marketable equity instruments of private companies, where the Company does

not

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 cost method investments was

$2.8

million as of

June 28, 2020

and

$1.6

million as of

June 30, 2019.

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

Note

- Fair Value Measurements

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to accounts receivable is limited due to the Company's large number of customers and their dispersion throughout the United States, and the fact that a substantial portion of receivables are related to balances owed by major credit card companies. Allowances relating to consumer, corporate and franchise accounts receivable (

$5.7

million at

June 28, 2020

and

$2.8

million at

June 30, 2019)

have been recorded based upon previous experience and management's evaluation.

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:

E-commerce revenues - consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

Retail revenues - consumer products sold through our retail stores. Revenue is recognized when control of the goods is transferred to the customer, at the point of sale, at which time payment is received.

Wholesale revenues - products sold to our wholesale customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms are typically

days from the date control over the product is transferred to the customer.

BloomNet Services - membership fees as well as other service offerings to florists. Membership and other subscription-based fees are recognized monthly as earned. Services revenues related to orders sent through the floral network are variable, based on either the number of orders or the value of orders, and are recognized in the period in which the orders are delivered. The contracts within BloomNet Services are typically month-to-month and as a result

consideration allocation is necessary across multiple reporting periods. Payment is typically due less than

days from the date the services were performed.

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, but

not

shipped, prior to the end of the fiscal period, as well as for monthly subscription programs, including our Fruit of the Month Club and Celebrations Passport program.

Our total deferred revenue as of

June 30, 2019

was

$17.3

million (included in “Accrued expenses” on our consolidated balance sheets), of which,

$17.3

million was recognized as revenue during the year ended

June 28, 2020.

The deferred revenue balance as of

June 28, 2020

was

$25.9

million.

Cost of Revenues

Cost of revenues consists primarily of florist fulfillment costs (fees paid directly to florists), the cost of floral and non-floral merchandise sold from inventory or through

third

parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to manufacturing and production operations.

Marketing and Sales

Marketing and sales expense consists primarily of advertising expenses, catalog costs, online portal and search expenses, retail store and fulfillment operations (other than costs included in cost of revenues), and customer service center expenses, as well as the operating expenses of the Company's departments engaged in marketing, selling and merchandising activities.

The Company expenses all advertising costs, with the exception of catalog costs (see

Deferred Catalog Costs

above), at the time the advertisement is

first

shown. Advertising expense was

$171.4

million,

$147.8

million and

$138.2

million for the years ended

June 28, 2020,

June 30, 2019

and

July 1, 2018,

respectively.

Technology and Development

Technology and development expense consists primarily of payroll and operating expenses of the Company's information technology group, costs associated with its websites, including hosting, content development and maintenance and support costs related to the Company's order entry, customer service, fulfillment and database systems. Costs associated with the acquisition or development of software for internal use are capitalized if the software is expected to have a useful life beyond

one

year and amortized over the software's useful life, typically

three

seven

years. Costs associated with repair maintenance or the development of website content are expensed as incurred, as the useful lives of such software modifications are less than

one

year.

Stock-Based Compensation

The Company records compensation expense associated with restricted stock awards and other forms of equity compensation based upon the fair value of stock-based awards as measured at the grant date. The cost associated with share-based awards that are subject solely to time-based vesting requirements is recognized over the awards' service period for the entire award on a straight-line basis. The cost associated with performance-based equity awards is recognized for each tranche over the service period, based on an assessment of the likelihood that the applicable performance goals will be achieved.

Derivatives and Hedging

The Company does

not

enter into derivative transactions for trading purposes, but rather, on occasion to manage its exposure to interest rate fluctuations. When entering into these transactions, the Company has periodically managed 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. The Company did

not

have any open derivative positions at

June 28, 2020

and

June 30, 2019.

Income Taxes

The Company uses the asset and liability method to account for income taxes. The Company has established deferred tax assets and liabilities for temporary differences between the financial reporting bases and the income tax bases of its assets and liabilities at enacted tax rates expected to be in effect when such assets or liabilities are realized or settled. The Company recognizes as a deferred tax asset, the tax benefits associated with losses related to operations. Realization of these deferred tax assets assumes that we will be able to generate sufficient future taxable income so that these assets will be realized. The factors that the Company considers in assessing the likelihood of realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements on a particular tax position are measured based on the largest benefit that has a greater than

50%

likelihood of being realized upon settlement. The amount of unrecognized tax benefits (“UTBs”) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to UTBs in income tax expense. Assumptions, judgment and the use of estimates are required in determining if the “more likely than

not”

standard has been met when developing the provision for income taxes.

Net Income Per Share

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive common equivalent shares (consisting primarily of employee stock options and unvested restricted stock awards) outstanding during the period

Recently Issued Accounting Pronouncements - Adopted

February 2016,

the FASB issued ASU

No.

2016

02,

“Leases (Topic

842

)” (“ASC

842”

). Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted the new standard effective

July 1, 2019

and elected the optional transition method and therefore, we will

not

apply the standard to the comparative periods presented in our financial statements. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients', that did

not

require us to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. Further, we elected a short-term lease exception policy, permitting us to

not

apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of

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 adoption of the new standard had a material impact to the Company's Consolidated Balance Sheets, but

impact to the Consolidated Statements of Income (Operations) or Consolidated Statements of Cash Flows. As such, we recorded operating lease liabilities of

$80.7

million, based on the present value of the remaining minimum rental payments using discount rates as of the effective date, and a corresponding right-of-use assets of

$78.7

million based on the operating lease liabilities adjusted for deferred rent and lease incentives received. See

Note

- Leases

for further information about our transition to ASC

842

and the newly required disclosures.

Recently Issued Accounting Pronouncements –

Not

Yet Adopted

Financial Instruments – Measurement of Credit Losses.

June 2016,

the FASB issued ASU

No.

2016

13,

“Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments.” ASU

2016

introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity's assumptions, models and methods for estimating expected credit losses. ASU

2016

is effective for the Company's fiscal year ending

June 27, 2021,

and the guidance is to be applied using the modified-retrospective approach. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Goodwill – Impairment Test

. In

January 2017,

the FASB issued ASU

No.

2017

04,

"Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment," which eliminates Step

from the goodwill impairment test. Under ASU

2017

04,

an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance is effective for the Company's fiscal year ending

June 27, 2021,

with early adoption permitted, and should be applied prospectively. We do

not

expect the standard to have a material impact on our consolidated financial statements.

COVID-

March 27, 2020,

the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the pandemic of the novel strain of coronavirus (“COVID-

19”

), including tax relief and government loans, grants and investments. The CARES Act did

not

have a material impact on the Company's consolidated financial statements during the fiscal year ended

June 28, 2020.

The Company is closely monitoring the impact of COVID-

on its business, including how it will affect its customers, workforce, suppliers, vendors, franchisees, florists, and production and distribution channels, as well as its financial statements. The extent to which COVID-

impacts the Company's business and financial results will depend on numerous evolving factors, including, but

not

limited to: the magnitude and duration of COVID-

19,

the extent to which it will impact macroeconomic conditions, including interest rates, employment rates and consumer confidence, the speed of the anticipated recovery, and governmental, business and individual consumer reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-

as of

June 28, 2020

and through the date of this report. The accounting matters assessed included, but were

not

limited to, the Company's allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was

not

a material impact to the Company's consolidated financial statements as of and for the year ended

June 28, 2020,

the Company's future assessment of these factors and the evolving factors described above, could result in material impacts to the Company's consolidated financial statements in future reporting periods.

Reclassifications

Certain balances in the prior fiscal years have been reclassified to conform to the presentation in the current fiscal year.