e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
June 30, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-32425
FTD Group, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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87-0719190
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(State or other jurisdiction
of
Incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3113 Woodcreek Drive
Downers Grove, IL 60515
(Address of principal executive
offices)
(630) 719-7800
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of
the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES o NO þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO þ
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 þ NO o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Securities Exchange Act of 1934. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Securities Exchange Act of
1934). YES o NO þ
As of August 31, 2007, there were 29,277,036 outstanding
shares of the Registrants Common Stock, par value $0.01
per share.
Aggregate market value of voting and nonvoting common equity
held by non-affiliates on December 31, 2006 was
approximately $344,567,948.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement (to be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A) for the 2007 Annual Meeting of
Stockholders, (the Proxy Statement) are incorporated
by reference in Items 10, 11, 12, 13 and 14 of
Part III hereof.
PART I
Forward-Looking
Information
Unless the context otherwise indicates, as used in this
Form 10-K,
the term the Company refers to FTD Group, Inc. and
its consolidated subsidiaries, taken as a whole. This annual
report on
Form 10-K
contains various forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward looking statements include statements
regarding the Companys outlook, anticipated revenue growth
and profitability; anticipated benefits of its acquisition of
Interflora Holdings Limited (Interflora),
anticipated benefits of investments in new products, programs
and offerings and opportunities and trends within both the
domestic and international floral businesses, including
opportunities to expand these businesses and capitalize on
growth opportunities or increase penetration of service
offerings. The international business includes the operations of
Interflora. These forward-looking statements are based on
managements current expectations, assumptions, estimates
and projections about the Company and the Companys
industry. Investors are cautioned that actual results could
materially differ from those contained in any forward-looking
statements as a result of: the Companys ability to acquire
and retain FTD and Interflora members and continued recognition
by members of the value of the Companys products and
services; the acceptance by members of new or modified service
offerings recently introduced; the Companys ability to
sell additional products and services to FTD and Interflora
members; the Companys ability to expand existing marketing
partnerships and secure new marketing partners within the
domestic and international consumer businesses; the success of
the Companys marketing campaigns; the ability to retain
customers and maintain average order value within the domestic
and international consumer businesses; the ability to manage
foreign currency exchange rate risk; the Companys
performance during key holiday selling seasons such as
Christmas, Valentines Day and Mothers Day; the
existence of failures in the Companys computer systems;
competition from existing and potential new competitors; levels
of discretionary consumer purchases of flowers and specialty
gifts; the Companys ability to manage or reduce its level
of expenses within both the domestic and international
businesses; actual growth rates for the markets in which the
Company competes compared with forecasted growth rates; the
Companys ability to increase capacity and introduce
enhancements to its Web sites; the Companys ability to
integrate additional partners or acquisitions, if any are
identified; and other factors described in this Annual Report on
Form 10-K,
including under Item 1A Risk
Factors, as well as other potential risks and
uncertainties, which are discussed in the Companys other
reports and documents filed with the Securities and Exchange
Commission. The Company expressly disclaims any obligation to
update its forward-looking statements.
Overview
FTD Group, Inc., formerly Mercury Man Holdings Corporation, is a
Delaware corporation that was formed in 2003 by Green Equity
Investors IV, L.P., a private investment fund affiliated with
Leonard Green & Partners, L.P., solely for the purpose
of acquiring majority ownership of FTD, Inc.
FTD, Inc. is a Delaware corporation that commenced operations in
1994 and includes the operations of its principal operating
subsidiary, Florists Transworld Delivery, Inc., a Michigan
corporation (FTD or the Operating
Company). The operations of FTD include those of its
wholly-owned subsidiaries, FTD.COM INC. (FTD.COM),
FTD Canada, Inc. (formerly known as Florists Transworld
Delivery Association of Canada, Ltd.) and Interflora.
Secondary
Offering
On March 12, 2007, the Company closed its underwritten
secondary public offering of 6,000,000 shares of common
stock. The underwriters exercised in full their over-allotment
option for an additional 900,000 shares of common stock at
the public offering price of $17.50 per share, less underwriting
discounts. Of the shares sold, 6,285,900 shares were sold
by affiliates of Leonard Green & Partners, L.P. and
614,100 shares were sold by members of management. As a
result of the secondary offering, affiliates of
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Leonard Green & Partners, L.P. control less than a
majority of the voting power of the Companys outstanding
common stock. As a result, the Company is no longer a
controlled company within the meaning of the New
York Stock Exchange rules and, thus, is required to have a board
of directors comprised of a majority of independent directors
and nominating and compensation committees composed entirely of
independent directors. The Company will phase in these corporate
governance requirements by March 11, 2008. See Note 12
of the Consolidated Financial Statements included herein for
further detail.
Acquisition
of Interflora
On July 31, 2006, the Company completed the acquisition of
Interflora, a U.K. based provider of floral-related products and
services to consumers and retail floral locations in the U.K and
the Republic of Ireland. Interflora is an internationally
recognized brand and utilizes the same Mercury Man logo as the
Company. Interflora provides various products and services to
its members and also markets flowers directly to consumers in
the U.K. and the Republic of Ireland through both
Interfloras Web site at www.interflora.co.uk and a
toll-free telephone number. Founded in 1923, Interflora was
originally operated as an unincorporated association, which was
incorporated in February 2005. As a result of the Interflora
acquisition, the Company also acquired majority control of
Interflora, Inc., in which the Company previously had a 33.3%
interest. Interflora, Inc. was formed in 1946 and is an
international clearinghouse for
flowers-by-wire
order exchanges between its members. Interflora, Inc. is also
the owner of the Interflora trademark, in respect of
which the Company is the exclusive licensee in a number of
jurisdictions around the world. See Trademarks
below. See Note 2 of the Consolidated Financial Statements
included herein for additional information regarding the
Interflora acquisition.
Sale
of Renaissance Greeting Cards Assets
On December 21, 2005, the Company sold substantially all of
the assets and certain liabilities of Renaissance Greeting
Cards, Inc. (Renaissance). See Note 3 of the
Consolidated Financial Statements included herein for further
detail. Prior to the sale, the operations of Renaissance were
included in the florist segment in the consolidated financial
statements.
2005
Initial Public Offering (IPO)
On February 14, 2005, the Company closed the sale of
13,100,000 shares of Common Stock at a price of $13.00 per
share in a firm commitment underwritten initial public offering.
In addition, on that date, 2,307,693 shares of Common Stock
were sold at the public offering price to Green Equity Investors
IV, L.P., the Companys principal stockholder and an
affiliate. On March 15, 2005, the Company closed the sale
of 435,200 shares of Common Stock at the public offering
price to satisfy the underwriters over-allotment option.
The offering was effected pursuant to a Registration Statement
on
Form S-1
(File
No. 333-120723),
which the Securities and Exchange Commission declared effective
on February 8, 2005. See Note 12 of the Consolidated
Financial Statements included herein for further detail.
On February 7, 2005, the stockholders approved an increase
in the number of authorized shares to 75,000,000, as well as a
1-for-3
reverse stock split. All common share and per share amounts
reflect this reverse stock split.
2004
Going Private Transaction with Nectar Merger Corporation, an
Affiliate of Leonard Green & Partners,
L.P.
On February 24, 2004, the Company completed a going private
transaction with an affiliate of Leonard Green &
Partners, L.P. (the 2004 Going Private Transaction).
In the transaction, Nectar Merger Corporation, which was a
wholly-owned subsidiary of Mercury Man Holdings Corporation,
merged with and into FTD, Inc., with FTD, Inc. continuing as the
surviving corporation. As a result of the 2004 Going Private
Transaction, the Company ceased to have its equity publicly
traded and became a wholly-owned subsidiary of Mercury Man
Holdings Corporation, an affiliate of Green Equity Investors IV,
L.P., a private investment fund affiliated with Leonard
Green & Partners, L.P. The results of operations
presented herein for all periods prior to the
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2004 Going Private Transaction are referred to as the results of
operations of the Predecessor. The financial data of
the Predecessor and the Company has been combined for fiscal
year 2004 and is presented for comparative purposes. The
Predecessor ceased operations as of the date of the 2004 Going
Private Transaction.
Business
FTD Group, Inc. is a leading provider of floral and specialty
gift products and services to consumers and retail florists, as
well as other retail locations offering floral products, in the
U.S., Canada, the U.K. and the Republic of Ireland. The business
utilizes the highly recognized FTD and Interflora brands, both
supported by the Mercury Man logo, which is displayed in
approximately 45,000 floral shops worldwide. The Company
conducts its business through three operating segments: the
consumer segment, the florist segment and the international
segment.
The consumer segment operates primarily through the
www.ftd.com Web site in the U.S. and Canada. As a
result of the Companys
same-day
delivery capability and broad product selection, the
Companys consumer segment is one of the largest direct
marketers of floral arrangements and specialty gifts in the
U.S., generating 4.6 million orders from consumers in the
fiscal year ended June 30, 2007.
The florist segment provides a comprehensive suite of products
and services that enable FTD members to send and deliver floral
orders. This suite of products and services is also designed to
promote revenue growth and enhance the operating efficiencies of
FTD members in the U.S. and Canada.
The international segment was added as a result of the
acquisition of Interflora on July 31, 2006. Interflora
generated 1.8 million orders from consumers in the fiscal
year ended June 30, 2007. Interflora also provides products
and services to its network of members in the U.K. and the
Republic of Ireland.
The Companys consumer and florist businesses are highly
complementary, as floral orders generated by the consumer
businesses are delivered by the network of members. Management
believes that the Companys strong brand name recognition,
complementary florist and consumer businesses, extensive
customer database of floral and specialty gift consumers,
network of FTD and Interflora members and international
footprint provide the Company with competitive advantages.
Consumer
Segment
The consumer segment is an Internet and telephone marketer of
flowers and specialty gift items to consumers, operating in the
U.S. and Canada, primarily through the www.ftd.com
Web site, in addition to the
1-800-SEND-FTD
toll-free telephone number. The Company offers floral
arrangements for florist delivery as well as specialty gift
items which are delivered via common carrier, including boxed
flowers, plants, gourmet food gifts, holiday gifts, bath and
beauty products, jewelry, wine and gift baskets, dried flowers
and stuffed animals.
Consumers place orders at the www.ftd.com Web site or
over the telephone, which are then transmitted to florists or
third-party specialty gift providers for processing and
delivery. The Internet is the primary channel for orders,
representing 90.3% of total order volume during the year ended
June 30, 2007. Through its network of FTD members, the
Company is able to offer
same-day
delivery to nearly 100% of U.S. and Canadian populations.
Additionally, the consumer segment routes floral orders through
an international network of floral retailers enabling
next-day
delivery in over 150 countries. Through third-party
manufacturers and distributors, the Company offers
next-day
delivery of direct ship orders throughout the United States. The
consumer segment has very low working capital requirements
because FTD members and specialty gift providers generally
maintain physical inventory and bear the cost of warehousing and
distribution facilities. In addition, consumers generally pay
for floral and specialty gift orders before the Company pays
florists and specialty gift providers to deliver them. The
consumer segment does not own or operate any retail locations.
For the year ended June 30, 2007, the consumer segment
generated revenues of $287.6 million, representing 46.9% of
the Companys total revenues for this period.
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Florist
Segment
The florist segment provides a comprehensive suite of products
and services that enable FTD members to send and deliver floral
orders. This suite of products and services is also designed to
promote revenue growth and enhance the operating efficiencies of
FTD members. The Company provides these services to its network
of independent members located primarily in the U.S. and
Canada, which includes traditional retail florists as well as
other retailers offering floral products.
The Company provides FTD members with access to the FTD brand
and the Mercury Man logo, supported by various advertising
campaigns, order clearinghouse services (which eliminate
counterparty credit risks between sending and receiving FTD
members), a quarterly directory publication of FTD members,
credit card processing services,
e-commerce
Web site development and maintenance, online advertising tools
and a
24-hour
telephone answering and order-taking service. In addition, the
Company provides the Floral Selections Guide, a counter display
published by FTD, featuring FTD products for all occasions. The
Companys members pay for these services through monthly
dues and activity-based fees, such as per order charges. Through
the Companys proprietary Mercury Network, members
electronically transmit orders and send messages to other FTD
members, for which the Company receives monthly fees in addition
to per-order and per-message fees.
The Company sells basic software and hardware for transmitting
and receiving orders, as well as software and hardware that
provide full back-end systems to manage a members
business. The Company also acts as a national wholesaler to FTD
members, providing FTD-branded and non-branded hard goods and
cut flowers as well as packaging, promotional products and a
wide variety of other floral-related supplies. During holiday
seasons such as Valentines Day, Mothers Day and
Christmas, the Company designs specialized floral bouquets with
exclusive FTD containers and features these exclusive FTD
products in advertising and on the heavily trafficked
www.ftd.com Web site.
Revenues in the florist segment are driven by the strength of
the Companys brand, the comprehensive suite of products
and services and the Companys strong relationships with
its FTD members. Approximately 75% of florist segment revenues
in fiscal 2007 were derived from membership, service and other
monthly fees. Florist segment revenues are derived primarily
from the top half of the Companys membership base. As a
result and because the mix of membership is changing as the
Company adds more supermarket members and seeks to add mass
merchants, the Company no longer considers the absolute number
of members to necessarily be indicative of segment performance.
The Company focuses primarily on the penetration of goods and
services sold to FTD members. For the year ended June 30,
2007, the florist segment generated revenues of
$182.0 million, representing 29.7% of the Companys
total revenues for this period.
International
Segment
The international segment is primarily comprised of Interflora,
which has both a florist and a consumer business. Interflora is
an internationally recognized brand and utilizes the same
Mercury Man logo as FTD. Similar to FTD, Interflora previously
operated as an unincorporated association until its
incorporation and conversion to a for-profit
organization in February 2005. Interflora markets floral
products and specialty gifts direct to consumers in the U.K. and
the Republic of Ireland through both the www.interflora.co.uk
Web site and a toll-free telephone number and provides
various products and services to its members. For the eleven
months that it was owned by the Company during the year ended
June 30, 2007, the international segment generated revenues
of $143.4 million, representing 23.4% of the Companys
total revenues for the fiscal year.
Seasonality
In view of seasonal variations in the revenues and operating
results of the Companys consumer, florist and
international segments, the Company believes that comparisons of
its revenues and operating results for any period with those of
the immediately preceding period, or in some instances, the same
period of the preceding fiscal year may be of limited relevance
in evaluating the Companys historical performance and
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predicting the Companys future financial performance. The
Companys working capital, cash and short-term borrowings
also fluctuate during the year as a result of the factors set
forth below.
The Company generated 18%, 25%, 30% and 27% of its total revenue
in the quarters ended September 30, December 31, March
31 and June 30 of fiscal year 2007, respectively. The
Companys quarterly revenue and operating results typically
exhibit seasonality. For example, revenue and operating results
tend to be lower for the quarter ending September 30 because
none of the most popular floral and gift holidays, which include
Valentines Day, Easter, Mothers Day, Thanksgiving,
and Christmas, fall within that quarter. In addition, depending
on the year, Easter and the U.K. Mothers Day sometimes
fall within the quarter ending March 31 and sometimes fall
within the quarter ending June 30.
Trademarks
The Companys intellectual property portfolio includes
service marks, trademarks and collective trademarks that
distinguish the services and products offered by the Company or
its members from those offered by other companies.
The FTD word mark and the Mercury Man
logo are registered in the United States, Canada and other
jurisdictions throughout the world for various products and
services. These marks are used directly by the Company or under
license by FTD members.
Other registered trademarks and service marks of the Company
include Florists Transworld Delivery,
Mercury and Mercury Network. The Company
also has registered collective trademarks, which are used under
license by its members for floral products and related items.
These collective trademarks include Autumn Splendor,
Big Hug, Birthday Party, Chicken
Soup, Sweet Dreams, and Thanks A
Bunch. In addition, the Company has applied to register
certain other trademarks, service marks and collective
trademarks in the United States and other countries, and likely
will seek to register additional marks, as appropriate. It is
possible that some of these applications to register additional
marks will not result in registrations.
The Company also uses various marks under license, including the
Interflora mark, owned by Interflora, Inc., a
corporation in which the Company owns a controlling interest as
a result of its acquisition of Interflora. The Company is the
exclusive licensee to use this mark in North America and South
America, as well as Japan, South Korea, the Philippine Islands
and Taiwan. In addition, as a result of the Interflora
acquisition, a wholly-owned subsidiary of the Company is the
exclusive licensee to use the Interflora mark in
Australia, China, Great Britain, Hong Kong, India, Indonesia,
Ireland, New Zealand, Pakistan, South Africa and a number of
other countries. However, because of the intellectual property
laws of certain of these jurisdictions, there may be impediments
to exploiting this license.
Competition
The Company competes in the extremely fragmented floral services
industry with a large number of wholesalers, service providers
and direct marketers of flowers and specialty gifts. The
principal competitors of the Companys consumer segment are
1-800-FLOWERS.COM, Inc. and ProFlowers.com, owned by Liberty
Media Corporation, which offer some similar floral and specialty
gift items to consumers through their Web sites and toll-free
telephone numbers. Additionally, Teleflora LLC
(Teleflora) has a presence in the floral direct
marketing portion of the consumer segment market.
The principal competitors of the Companys florist segment
are Teleflora and 1-800-FLOWERS.COM, Inc. FTD, Teleflora and
1-800-FLOWERS.COM, Inc. are the largest floral service providers
in the United States based on membership. Teleflora and
1-800-FLOWERS.COM, Inc. offer some products and services that
are similar to those offered by the Company, and florists may
subscribe to all of these competing services.
The principal competitors of the international segments
florist business are Teleflorist and Flowers Direct. Teleflorist
and Flowers Direct offer some products and services that are
comparable to those offered by the Company; however florists may
subscribe to only one of these competing wire-service providers.
The
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principal competitors for the international segments
consumer business include Marks & Spencer, Tesco and
John Lewis.
Employees
At June 30, 2007, the Company employed approximately
984 full-time employees. The Company considers its
relations with its employees to be good. None of the
Companys employees are currently covered by a collective
bargaining agreement.
Financial
Information about Segments
Financial and other information by segment relating to the
Companys operations for the fiscal years ended
June 30, 2007, 2006 and 2005 is set forth in Note 16
of the Consolidated Financial Statements included herein.
Available
Information
The Company files annual reports, quarterly reports, current
reports and other information with the Securities and Exchange
Commission (the SEC). The public can obtain copies
of these materials by visiting the SECs Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549,
by calling the SEC at
1-800-SEC-0330,
or by accessing the SECs Web site at www.sec.gov.
In addition, as soon as reasonably practicable after these
materials are filed with or furnished to the SEC, the Company
will make copies available to the public, free of charge, on or
through the investor relations section of its Web site,
www.ftd.com. The Web site also includes the
Companys Code of Business Conduct and Ethics, corporate
governance guidelines and charters for the audit, compensation
and nominating and corporate governance committees of the Board
of Directors. The information on the Companys Web site is
not incorporated into, and is not part of, this annual report.
Our business, operating results, financial condition, results of
operations and cash flows may be impacted by a number of factors
including, but not limited to those set forth below. Any one of
these factors could cause our actual results to vary materially
from recent results or future anticipated results. Additional
risks and uncertainties not currently known to the Company or
that the Company currently deems to be immaterial may also
materially and adversely affect our future anticipated results.
Market
competition among the Companys existing and potential
competitors could have a material adverse effect on the
Companys business, financial condition, results of
operations and cash flows.
The consumer markets for flowers and specialty gifts are highly
competitive and fragmented, and the products the Company offers
can be purchased from numerous sources. In the Companys
consumer and international segments, the Company competes with
traditional florists and gift retailers, as consumers choose
whether to give their business to a traditional florist,
specialty gift retailer or a direct marketer. After a consumer
has chosen a direct marketer, the Company further competes with
other floral and specialty gift direct marketers, including
those that use Web sites, toll free telephone numbers and
catalogs. The competitors for the consumer segment include
direct marketers, such as 1-800-FLOWERS.COM, Inc. and
Proflowers.com, owned by Liberty Media Corporation.
Additionally, Teleflora has also established a direct marketing
service for floral items on its www.teleflora.com Web
site. The competitors for the consumer portion of the
international segment include Marks & Spencer, Tesco
and John Lewis.
Although less fragmented, within the market that provides
services and goods to retail floral locations, the
Companys florist segment and international segment also
face competition. Management believes that the florist segment,
Teleflora and 1-800-FLOWERS.COM, Inc. are the largest floral
wire-service providers in the U.S. based on membership.
Teleflora and 1-800-FLOWERS.COM, Inc. offer some products and
services that are similar to those offered by the Company, and
florists may subscribe to all of these competing services.
Management also believes that the international segment,
Teleflorist and Flowers Direct are the largest floral
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wire-service providers in the U.K. based on membership.
Teleflorist and Flowers Direct offer some products and services
that are comparable to those offered by the Company; however
florists may subscribe to only one of these competing services.
Competition in the Internet commerce channel of distribution may
intensify, as the nature of the Internet as a marketplace
facilitates competitive entry and comparative shopping. Some of
the Companys existing and potential competitors may have
significant competitive advantages over the Company, including
larger customer bases and greater technical expertise, brand
recognition or Internet commerce experience. In addition, some
of the Companys existing and potential competitors may be
able to devote significantly greater resources to marketing
campaigns, attracting traffic to their Web sites, call centers
and system development. They also may be able to respond more
quickly and effectively than the Company can to new or changing
opportunities, technological developments or customer
requirements. In addition, the Company expects competition to
continue to increase, particularly in the consumer segment and
the consumer portion of the international segment, because there
are few barriers to entry into the floral and specialty gift
businesses and because of the relative ease with which new Web
sites can be developed. Moreover, traditional retailers and
other companies engaged in Internet commerce, including Internet
portal companies, may seek to become direct marketers of floral
products. Increased competition may result in lower revenues due
to price reductions, reduced gross margins and loss of market
share. The Company cannot provide assurance that it will be able
to compete successfully or that competitive pressures will not
have a material adverse effect on the Companys business,
financial condition, results of operations and cash flows.
The
Companys revenues and operating results fluctuate on a
seasonal basis and may suffer if revenues during peak seasons do
not meet the Companys expectations.
The Companys business is seasonal and the Companys
quarterly revenue and operating results typically exhibit
seasonality. For example, revenue and operating results tend to
be lower for the quarter ending September 30 because none of the
most popular floral and gift holidays, which include
Valentines Day, Easter, Mothers Day, Thanksgiving,
and Christmas, fall within that quarter. In addition, depending
on the year, Easter and the U.K. Mothers Day sometimes
fall within the quarter ending March 31 and sometimes fall
within the quarter ending June 30.
The Companys operating results may suffer if revenues
during its peak seasons do not meet expectations, as the Company
may not generate sufficient revenue to offset increased costs
incurred in preparation for peak seasons. The Companys
working capital, cash and short-term borrowings also fluctuate
during the year as a result of the factors set forth above.
Moreover, the operational risks described elsewhere in these
risk factors may be significantly exacerbated if the events
described therein were to occur during a peak season.
The
Company is dependent on its strategic relationships to help
promote the Companys consumer Web sites; failure to
establish, maintain or enhance these relationships could have a
material adverse effect on the Companys business,
financial condition, results of operations and cash
flows.
The Company believes that its strategic relationships with
leading Internet portal companies, other online retailers and
direct marketers are critical to attract customers, facilitate
broad market acceptance of the Companys products and
brands and enhance its sales and marketing capabilities. A
failure to maintain existing strategic relationships or to
establish additional relationships that generate a significant
amount of traffic from other Web sites could limit the growth of
the Companys business. Establishing and maintaining
relationships with leading Internet portal companies, other
online retailers and direct marketers is competitive and
expensive. The Company may not successfully enter into
additional strategic relationships. In addition, the Company may
not be able to renew existing strategic relationships beyond
their current terms or may be required to pay significant fees
to maintain and expand these strategic relationships. Further,
many Internet portal companies, other online retailers and
direct marketers that the Company may approach to establish an
advertising presence or with whom it already has an existing
relationship may also provide advertising services for the
Companys competitors. As a result, these companies may be
reluctant to enter into, maintain or expand a strategic
relationship with the Company. The Companys business,
financial condition, results of operations and cash flows may
suffer if it fails to enter into new strategic relationships, or
maintain or expand
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existing strategic relationships, or if these strategic
relationships do not result in traffic on the Companys Web
sites sufficient to justify their costs.
In addition, the Company is subject to many risks beyond its
control that influence the success or failure of its strategic
relationships. For example, traffic to the Companys
consumer Web sites could decrease if the traffic to the Web site
of an Internet portal company on which the Company advertises
decreases or if the Internet portal companies become direct
marketers of floral products. If any of the Internet portal
companies, other online retailers or direct marketers with whom
the Company has strategic relationships experience financial or
operational difficulties that materially and adversely effect
their ability to satisfy their obligations under their
agreements with the Company, the Companys business,
financial condition, results of operations and cash flows could
be materially and adversely affected.
The
Company is dependent on third parties who fulfill orders and
deliver goods and services to its customers and their failure to
provide the Companys customers with high quality products
and customer service may harm the Companys brand and could
have a material adverse effect on the Companys business,
financial condition, results of operations and cash
flows.
The Company believes that its success in promoting and enhancing
its brand depends on the Companys success in providing its
customers high quality products and a high level of customer
service. The Companys business depends, in part, on the
ability of its network of independent FTD and Interflora members
and third-party suppliers who fulfill the Companys orders
to do so at high quality levels. The Company works with FTD and
Interflora members and third-party suppliers to develop best
practices for quality assurance; however, the Company does not
directly control or continuously monitor any FTD or Interflora
member or third-party supplier. Since the Company does not have
constant, direct control over these FTD or Interflora members
and third-party suppliers, issues regarding the quality of
flowers, as well as interruptions or delays in product
fulfillment may be difficult or impossible to remedy in a timely
fashion. The failure of the Companys network of FTD and
Interflora members or third-party suppliers to fulfill orders to
the Companys customers satisfaction, at an
acceptable quality level and within the required timeframe,
could cause the Company to lose customers, which could have a
material adverse effect on the Companys business,
financial condition, results of operations and cash flows.
Additionally, as the Company depends upon third parties for
delivery of goods to its customers, strikes or other service
interruptions affecting these shippers could have an adverse
effect on the Companys ability to deliver merchandise on a
timely basis. A disruption in any of the Companys
shippers ability to deliver its products could cause the
Company to lose customers, which could have a material adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
The
Companys success is dependent on the intellectual property
that it uses.
The Company regards the FTD trademark, the
Mercury Man logo, the FTD.COM and the
Interflora.co.uk Internet domain names and the other
service marks, trademarks, and other intellectual property that
it uses in its business as being critical to the Companys
success. Since 1994, the Company and its subsidiaries have
applied for the registration of and have been issued trademark
registrations for more than 120 trademarks and service marks
used in the Companys business in the U.S. and various
foreign countries; however, in some other countries, there are
certain pre-existing and potentially conflicting trademark
registrations held by third parties. The Company relies on a
combination of copyright, trademark and trade secret laws,
confidentiality procedures, contractual provisions and license
and other agreements with employees, customers and others to
protect the Companys intellectual property rights. In
addition, the Company may also rely on the third-party owners of
the intellectual property rights it licenses to protect those
rights. The Company licenses some of its intellectual property
rights, including the Mercury Man logo, to third parties. The
steps taken by the Company and those third parties to protect
the Companys intellectual property rights may not be
adequate, and other third parties may infringe or misappropriate
its intellectual property rights. This could have a material
adverse effect on the Companys business, financial
condition, results of operations and cash flows. Furthermore,
the validity, enforceability and scope of protection of
intellectual property in Internet-related industries are
uncertain and still evolving.
9
The Company is also subject to the risk of claims alleging that
its business practices infringe on the intellectual property
rights of others. These claims could result in lengthy and
costly litigation. Moreover, resolution of any such claim
against the Company may require the Company or one of its
subsidiaries to obtain a license to use the intellectual
property rights at issue or possibly to cease using those rights
altogether. Any of those events could have a material adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
Computer
systems or telephone services failures could have a material
adverse effect on the Companys business, financial
condition, results of operations and cash flows.
The Company currently depends on third parties to develop, host
and maintain its consumer Web sites and to provide telephone
services for its toll-free telephone numbers. If these third
parties experience system failures as a result of failing to
adequately maintain their systems or otherwise, the Company
would experience interruptions and its customers might not
continue to utilize the Companys services. There can be no
assurance that the Companys resources to maintain the
systems that support its consumer Web sites or its toll-free
telephone numbers will be sufficient. In addition, the Company
owns systems, including the order fulfillment networks, the
order processing and customer service systems, which provide
communication to the Companys fulfilling florists and
third party suppliers and consumer order services. The Company
may experience interruptions in service due to failures by these
systems. The continued and uninterrupted performance of the
Companys computer systems is critical to the success of
its business strategy. Unanticipated problems affecting those
systems could cause interruptions in the Companys
services. Any damage or failure that interrupts or delays
operations may dissatisfy customers and could have a material
adverse effect on the Companys business, financial
condition, results of operations and cash flows.
Significant
loss of FTD or Interflora members or a decrease in average
revenue per member could have a material adverse effect on the
Companys business, financial condition, results of
operations and cash flows.
The Company currently provides a suite of products and services
to FTD and Interflora members. If the Company suffers a
significant loss of members
and/or is
not able to maintain or increase the average revenue per member,
the Companys business, financial condition, results of
operations and cash flows may be materially and adversely
affected.
The
Company may be unable to increase capacity or introduce
enhancements to its consumer Web sites or its toll-free
telephone numbers in a timely manner or without service
interruptions.
A key element of the Companys strategy is to generate a
high volume of traffic on its consumer Web sites and its
toll-free telephone numbers. However, the Company may not be
able to accommodate all of the growth in user demand through its
consumer Web sites or through its toll-free telephone numbers.
The Companys inability to add additional hardware and
software to upgrade its existing technology or network
infrastructure to accommodate in a timely manner increased
traffic to its consumer Web sites or increased volume through
its toll-free telephone numbers, may cause decreased levels of
customer service and satisfaction. Failure to implement new
systems effectively or within a reasonable period of time could
have a material adverse affect on the Companys business,
financial condition, results of operations and cash flows.
The Company also regularly introduces additional or enhanced
features and services to retain current customers and attract
new customers to its consumer Web sites. If the Company
introduces a feature or a service that is not favorably
received, the Companys current customers may not use its
consumer Web sites as frequently, or the Company may not be
successful in attracting new customers. The Company may also
experience difficulties that could delay or prevent it from
introducing new services and features. Furthermore, these new
services or features may contain errors that are discovered only
after they are introduced. The Company may need to significantly
modify the design of these services or features to correct
errors. If customers encounter difficulty with or do not accept
new services or features, this could have a material adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
10
Failure
to comply with governmental privacy regulations, governmental
enforcement of privacy policy statements and security breaches
could harm the Companys Internet business.
The Federal Trade Commission, or FTC, has proposed regulations
regarding the collection and use of personal information
obtained from individuals when accessing Web sites, with
particular emphasis on access by minors. In addition, other
governmental authorities have proposed regulations to govern the
collection and use of personal information that may be obtained
from customers or visitors to Web sites. These regulations may
include requirements that procedures be established to disclose
and notify users of the Companys www.ftd.com Web
site of the Companys privacy and security policies, obtain
consent from users for collection and use of personal
information and provide users with the ability to access,
correct or delete personal information stored by the Company. In
addition, the FTC has made inquiries and investigations of
companies practices with respect to their users
personal information collection and dissemination practices to
confirm these are consistent with stated privacy policies and to
determine whether precautions are taken to secure
consumers personal information. The FTC has made
inquiries, and in a number of situations, brought actions
against companies to enforce the privacy policies of these
companies, including policies relating to security of
consumers personal information.
Becoming subject to the FTCs regulatory and enforcement
efforts or to those of another governmental authority could have
a material adverse effect on the Companys ability to
collect demographic and personal information from users, which,
in turn, could have a material adverse effect on its marketing
efforts, business, financial condition, results of operations
and cash flows. In addition, the adverse publicity regarding the
existence or results of an investigation could have an adverse
impact on customers willingness to use the Companys
Web site and thus could adversely impact the Companys
future revenues.
The Company must also comply with data protection and privacy
laws in the United Kingdom, including the Data Protection Act
1998. If the Company or any of the third party services on which
it relies fails to transmit customer information and payment
details in a secure manner, if they otherwise fail to protect
customer privacy in online transactions or if they transfer
personal information outside the European Economic Area without
complying with certain required conditions, then the Company
risks being exposed to civil and criminal liability in the
United Kingdom, usually in the form of fines, as well as claims
from individuals alleging damages as a result of the alleged
non-compliance. The Company may also be required to alter its
data practices. Any of the foregoing could have a material
adverse effect on its business, financial condition, results of
operations and cash flows.
Security on the Internet requires having in place reasonable
measures to protect against foreseeable risks and keeping
technology and procedures up to date. While the Companys
www.ftd.com Web site uses licensed encryption and
authentication technology to effect secure transmission of
confidential information, including credit card and debit card
numbers, it cannot guarantee that its security measures and
procedures will prevent security breaches. It is possible that
advances in computer capabilities, new discoveries or other
developments could result in a compromise or breach of the
technology the Company uses to protect customer transaction
data. Since secure transmission of confidential information over
the Internet is essential in maintaining consumer confidence in
its www.ftd.com Web site, substantial or ongoing security
breaches of the Companys system or other Internet-based
systems could significantly harm the Companys Internet
business. While the Companys www.ftd.com Web site
has not experienced any material security breaches, any
penetration of network security or other misappropriation of the
Companys users personal information could subject
the Company to liability. The Company could be held liable for
claims based on unauthorized purchases with credit card or debit
card information, impersonation or other similar fraud claims.
Claims could also be based on other misuses of personal
information, such as unauthorized marketing activities. These
claims could result in litigation and financial liability.
Security breaches could also damage the Companys
reputation and expose the Company to a risk of loss or
litigation and possible liability.
The Company may also incur substantial expense to protect
against and remedy security breaches and their consequences. A
party that is able to circumvent the Companys security
systems could misappropriate proprietary information or cause
interruptions in operations. The Companys insurance
policies limits may not be adequate to reimburse the
Company for losses caused by security breaches.
11
The
Company may be unable to effectively market its international
fulfillment capabilities to consumers and a decline in the
quality of orders sent abroad could have a material adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
As part of its business strategy, the Company intends to
continue to market to consumers who may be interested in sending
flowers to a recipient abroad. This international aspect of the
Companys business is subject to the risk of inconsistent
quality of merchandise and disruptions or delays in delivery
because these foreign florists may not necessarily adhere to the
same quality control standards as FTD and Interflora members who
fulfill orders. If consumers choose not to place subsequent
orders with the Company because they were not satisfied with the
results of an order they sent abroad, this could have a material
adverse effect on the Companys business, financial
condition, results of operations and cash flows.
The
Companys business could be injured by significant credit
card or debit card fraud.
Orders placed through the Companys consumer Web sites or
toll-free telephone numbers typically are paid for using a
credit card or debit card. The Companys revenues and gross
margins could decrease if it experienced significant credit card
or debit card fraud. Failure to adequately detect and avoid
fraudulent credit card or debit card transactions could cause
the Company to lose its ability to accept credit cards or debit
cards as forms of payment and result in charge-backs of the
fraudulently charged amounts. Furthermore, widespread credit
card or debit card fraud may lessen the Companys
customers willingness to purchase products through the
Companys consumer Web sites or toll-free telephone
numbers. As a result, such failure could have a material adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
The
Company is exposed to the credit risk of FTD and Interflora
members.
When an FTD or Interflora member fulfills an order from an
originating member, the Company becomes liable to the fulfilling
member for payment on the order, even if the Company does not
receive payment from the originating member. Accordingly, the
Company is exposed to the credit risk of FTD and Interflora
members. Although it reserves for this exposure, the Company
cannot be sure that the exposure will not be greater than it
anticipates. An increase in the exposure, coupled with material
instances of default, in the aggregate, could have an adverse
effect on the Companys business, financial condition,
results of operations and cash flows.
Slowdowns
in general economic activity may detrimentally impact consumer
spending on flowers and other products the Company sells which
would have an adverse effect on the Companys business,
financial condition, results of operations and cash
flows.
The Companys business may be sensitive to the business
cycle of the national economy. Consumer spending on flowers and
specialty gifts may be influenced by general economic conditions
and the availability of discretionary income. A decline in
general economic conditions may have a material adverse effect
on demand for the Companys products, which could cause
sales of the Companys products to decrease, or result in a
shift to lower margin products. There can be no assurances that
future economic conditions will be favorable to the floral and
specialty gifts markets. A decline in the demand for the
Companys products due to deteriorating economic conditions
could have a material adverse effect on the Companys
business, financial condition, results of operations and cash
flows.
If the
supply of flowers, or any other perishable product the Company
offers for sale, becomes limited, the price of these products
could rise or these products may become unavailable, which could
result in the Company not being able to meet consumer demand,
which could cause an adverse effect on the Companys
business, financial condition, results of operations and cash
flows.
Many factors, such as weather conditions, agricultural
limitations and restrictions relating to the management of pests
and disease, affect the supply of flowers and the price of the
Companys floral products. If the supply of flowers
available for sale is limited, prices of flowers could rise,
which could cause customer demand for the Companys floral
products to be reduced and its revenues and gross margins to
decline.
12
Alternatively, the Company may not be able to obtain high
quality flowers in an amount sufficient to meet customer demand.
Even if available, flowers from alternative sources may be of
lesser quality
and/or may
be more expensive than those currently offered by the Company. A
large portion of the supply of flowers is sourced from countries
such as Colombia, Ecuador and Holland.
The availability and price of these products could be affected
by a number of other factors affecting suppliers, including:
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severe weather;
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import duties and quotas;
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time-consuming import regulations or controls at airports;
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changes in trading status;
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economic uncertainties and currency fluctuations;
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foreign government regulations and political unrest;
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governmental bans or quarantines; or
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trade restrictions, including U.S. retaliation against
foreign trade practices.
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The
operating and financial success of the Companys business
is dependent on the financial performance of the retail floral
industry.
The operating and financial success of the Companys
business has been and is expected to continue to be dependent on
the financial performance of the retail floral industry. There
can be no assurance that the retail floral industry will not
decline, that consumer preferences for, and purchases of, floral
products will not decline, or that retail florist revenues or
inter-city floral delivery transactions will not decline in
absolute terms. A sustained decline in the sales volume of the
retail floral industry could have a material adverse effect on
the Companys business, financial condition, results of
operations and cash flows.
Future
governmental regulation could have a material adverse effect on
the Companys business, financial condition, results of
operations and cash flows.
The Company purchases perishable products from suppliers in
foreign countries, which subjects it to various federal, state
and local government regulations, including regulations imposed
by the U.S. Food & Drug Administration, the
U.S. Department of Labor, Occupational Safety and Health
Administration, the U.S. Department of Agriculture, and
Animal and Plant Health Inspection Service. These agencies,
other federal, state or local food regulatory authorities or
authorities in jurisdictions outside the United States in which
the Company operates may require the Company to make changes to
its importation procedures and sales and handling operations.
These changes may increase the Companys cost of operations
or the Company may not be able to make the requested
governmental changes or obtain any required permits, licenses or
approvals in a timely manner, or at all. Failure to make
requested changes or to obtain or maintain a required permit,
license or approval could cause the Company to incur substantial
compliance costs and delay the availability of, or cancel,
certain product offerings. In addition, any inquiry or
investigation from a regulatory authority could have a negative
impact on the Companys reputation. The occurrence of any
of these events could harm the Companys business and have
a material adverse effect on the Companys business,
financial condition, results of operations and cash flows.
Government
regulations and legal uncertainties relating to the Internet and
online commerce could negatively impact the Companys
Internet business.
Regulations in the jurisdictions in which the Company operates
relating to the Internet and online commerce are rapidly
evolving. Currently, there are few laws or regulations directly
applicable to the Internet or online commerce on the Internet,
and the laws governing the Internet that exist remain largely
unsettled. New laws and regulations governing the Internet could
dampen growth in use of the Internet for commerce. In
13
addition, applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and
other intellectual property issues, libel, obscenity and
personal privacy is uncertain. The vast majority of those laws
were adopted prior to the advent of the Internet and related
technologies and, as a result, do not expressly contemplate or
address the unique issues presented by the Internet and related
technologies. Further, growth and development of online commerce
have prompted calls for more stringent consumer protection laws.
The adoption or modification of laws or regulations applicable
to the Internet could have a material adverse effect on the
Companys Internet operations. The Company is also subject
to regulations not specifically related to the Internet,
including laws affecting direct marketers and advertisers.
In addition, in the U.S., several telecommunications carriers
have requested that the Federal Communications Commission, or
FCC, regulate telecommunications over the Internet. Due to the
increasing use of the Internet and the burden it has placed on
the current telecommunications infrastructure, telephone
carriers have requested the FCC to regulate Internet service
providers and impose access fees on those providers. If the FCC
imposes access fees, the costs of using the Internet could
increase dramatically, which could have a material adverse
effect on the Companys Internet operations.
International,
federal, state and local governments may attempt to impose
additional sales and use taxes, value added taxes or other taxes
on the business activities conducted by the Company, including
its past sales, which could decrease the Companys ability
to compete with traditional retailers, reduce its sales and have
a material adverse effect on the Companys business,
financial condition, results of operations and cash
flows.
In accordance with current industry practice by domestic floral
and specialty gift direct marketers and the Companys
interpretation of applicable law, the Company collects and
remits U.S. sales taxes only with respect to deliveries
made in a limited number of states where it has a physical
presence. If U.S. states successfully challenge this
practice and impose sales and use taxes on orders delivered in
states where the Company does not have physical presence, it
could incur substantial tax liabilities for past sales and lose
sales in the future. In addition, future changes in the
operation of the Companys online and telephonic sales
channels could result in the imposition of additional sales and
use tax obligations. Moreover, a number of states, as well as
the U.S. Congress, have been considering various
legislative initiatives that could result in the imposition of
additional sales and use taxes on sales over the Internet, which
if enacted could require the Company to collect additional sales
and use taxes. The imposition of sales or use tax liability for
past or future sales could decrease the Companys ability
to compete with traditional retailers and have a material
adverse effect on the Companys business, financial
condition, results of operations and cash flow.
In 1998, the Internet Tax Freedom Act was enacted, which
generally placed a three-year moratorium on state and local
taxes on Internet access and on multiple or discriminatory state
and local taxes on electronic commerce. This moratorium was
extended until November 1, 2007. The Company cannot predict
whether this moratorium will be extended in the future or
whether future legislation will alter the nature of the
moratorium. If this moratorium is not extended in its current
form, state and local governments could impose additional taxes
on Internet-based transactions, and these taxes could decrease
the Companys ability to compete with traditional retailers
which could have a material adverse effect on the Companys
business, financial condition, results of operations and cash
flows. Further, if the moratorium is not extended in its current
form, state and local governments could impose additional taxes
on Internet access. This could result in the reduced use of the
Internet as a medium for commerce, which could have a material
adverse affect on the Companys Internet business
operations.
In accordance with current industry practice by international
floral and specialty gift direct marketers and the
Companys interpretation of applicable law, the Company
collects and remits value added taxes on consumer orders placed
through Interflora. Future changes in the operation of the
Companys international segment could result in the
imposition of additional tax obligations. Moreover, if an
international taxing authority challenges the current practice
or implements new legislative initiatives, additional taxes on
sales over the Internet could be due by the Company. The
imposition of an additional tax liability for past or future
sales could decrease the Companys ability to compete with
traditional retailers which could have a material adverse effect
on the Companys business, financial condition, results of
operations and cash flow.
14
The
Company may not successfully integrate future acquisitions,
which could have a material adverse effect on its business,
financial condition, results of operations and cash
flows.
The Company may seek to expand its business through, among other
things, acquisitions of other assets
and/or
businesses. However, the Company cannot assure you that it will
succeed in:
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completing future acquisitions;
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integrating acquired operations into its existing
operations; or
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expanding into new markets.
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In addition, any acquisition by the Company may have a material
and adverse effect on the Companys operating results,
particularly in the fiscal quarters immediately following the
completion of these acquisitions as the Company works to
integrate its operations with those of the acquired business.
Further, once integrated, acquired companies may not achieve
levels of revenues, profitability or productivity comparable
with those achieved by the Companys existing operations,
or otherwise perform as expected.
During
peak periods, the Company utilizes temporary employees and
outsourced staff, who may not be as well-trained or committed to
its customers as its permanent employees, and their failure to
provide the Companys customers with high quality customer
service may cause the Companys customers not to return,
which could have a material adverse effect on the Companys
business, financial condition, results of operations and cash
flows.
The Company depends on its customer service department to
respond to its customers should they have questions or problems
with their orders. During peak periods, the Company relies on
its permanent employees, as well as temporary employees and
outsourced staff to respond to customer inquiries. These
temporary employees and outsourced staff may not have the same
level of commitment to the Companys customers or be as
well trained as its permanent employees. If the Companys
customers are dissatisfied with the quality of the customer
service they receive, they may not shop with the Company again,
which could have a material adverse effect on its business,
financial condition, results of operations and cash flows.
The
Company has substantial indebtedness and may incur additional
indebtedness, which may restrict its operations and impair the
Companys ability to meet its obligations.
The Company has indebtedness that is substantial in relation to
its stockholders equity. As of June 30, 2007, the
Company and its subsidiaries had $313.7 million of
outstanding indebtedness, including notes payable of
$1.7 million related to the Interflora acquisition, and
$261.8 million of stockholders equity. For the fiscal
year ended June 30, 2007, interest expense totaled
$28.2 million. In addition, subject to restrictions in the
indenture governing the Companys 7.75% Senior
Subordinated Notes (the Notes), and restrictions
contained in the agreements governing FTD, Inc.s senior
credit facility, the Company and its subsidiaries may incur
additional indebtedness.
The degree to which the Company and its subsidiaries are
leveraged and have high interest expense may have important
consequences, including the following:
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the Companys ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions,
business development efforts and general corporate or other
purposes may be impaired;
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a substantial portion of the Companys cash flows from
operations will be dedicated to the payment of interest and
principal on its indebtedness, thereby reducing funds available
for other purposes, including working capital, capital
expenditures, acquisitions, business development efforts and
general corporate or other purposes;
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the Companys operations are restricted by its debt
instruments, which contain material financial and operating
covenants, and those restrictions may limit, among other things,
the Companys ability to
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borrow money in the future for working capital, capital
expenditures, acquisitions, business development efforts and
general corporate or other purposes;
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the Companys leverage may place it at a competitive
disadvantage as compared with its less leveraged competitors;
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the Companys substantial degree of leverage will make it
more vulnerable in the event of a downturn in general economic
conditions or its business; and
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the Companys flexibility in planning for, or reacting to,
changes in its business and the industry in which it operates
may be limited.
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The
Companys ability to service its indebtedness and other
obligations depends on the Companys operating performance,
which, in turn, is affected by prevailing economic conditions
and financial, business and other factors, many of which are
beyond its control.
The Companys ability to service its indebtedness and other
obligations depends on its operating performance, which, in
turn, is affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond
its control. The Companys business may not generate
sufficient cash flows, and future financings may not be
available to provide sufficient funds, in order to meet these
obligations or to successfully execute the Companys
business strategies. As a result, there could be an event of
default under the Companys indebtedness and other
obligations, which, in turn, would have a material adverse
effect on the Companys business and financial condition.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
A
portion of the Companys debt obligations bear interest at
variable rates, which makes it vulnerable to increases in
interest rates.
Approximately 45.2% (or $141.9 million aggregate principal
amount) of the Companys $313.7 million aggregate
principal amount of indebtedness as of June 30, 2007 bore
interest at variable rates. If interest rates increase
materially, then the Company may experience material increases
in its level of interest expense which, in turn, could adversely
affect its results of operations.
Restrictions
in FTD, Inc.s debt instruments limit FTD, Inc.s
ability to take certain actions and breaches thereof could
impair the Companys liquidity.
FTD, Inc.s senior credit facility and the indenture
governing the Notes contain covenants that restrict FTD,
Inc.s ability to, among other things:
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redeem or repurchase capital stock;
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incur additional indebtedness and grant liens;
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make acquisitions and joint venture investments;
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pay dividends;
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sell assets; and
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make capital expenditures.
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FTD, Inc.s senior credit facility also requires FTD, Inc.
to comply with financial covenants relating to, among other
things, fixed charge coverage and leverage. FTD, Inc. may not be
able to satisfy these covenants in the future and the Company
may not be able to pursue its strategies within the constraints
of these covenants.
FTD, Inc.s senior credit facility is fully and
unconditionally guaranteed on a joint and several basis by the
Company and FTD, Inc.s existing and future, direct and
indirect domestic subsidiaries. FTD, Inc.s senior credit
facility and guarantees are secured by first priority security
interests in, and mortgages on, substantially all of FTD,
Inc.s and FTD, Inc.s direct and indirect domestic
subsidiaries tangible and intangible assets and
16
first priority pledges of all the equity interests owned by the
Company in FTD, Inc. and owned by FTD, Inc. in its existing and
future direct and indirect domestic subsidiaries and 66% of the
equity interests owned by FTD, Inc. in its existing and future
non-domestic subsidiaries, including Interflora.
A breach of a covenant contained in the agreements governing the
Notes or FTD, Inc.s senior credit facility could result in
an event of default under one or more of these agreements. Such
breaches could permit the lenders under FTD, Inc.s senior
credit facility to declare all amounts borrowed thereunder to be
due and payable, and the commitments of such lenders to make
further extensions of credit could be terminated. In addition,
the maturity date of FTD, Inc.s outstanding Senior
Subordinated Notes could be accelerated and all amounts due and
owing under such Notes could become due and payable. Either of
these actions would materially and adversely impair the
Companys liquidity. In addition, the lenders under the
senior credit facility could foreclose on the collateral
securing this facility.
The
Companys profitability is subject to foreign currency
exchange rate risk.
The Company participates in transactions which are denominated
in currencies other than the U.S. dollar. The Company is
exposed to foreign currency exchange rate risk with respect to
the British Pound, the Canadian dollar and the Euro.
Accordingly, the Companys profitability is subject to
foreign currency exchange rate risk. For more information, see
Item 7A, Quantitative and Qualitative Disclosures
About Market Risk.
Green
Equity Investors IV, L.P. has significant voting power and may
take actions that may not be in the best interest of the
Companys other stockholders.
As of June 30, 2007, Green Equity Investors IV, L.P., and
an affiliate, both of which are affiliates of Leonard
Green & Partners, L.P., beneficially owned
approximately 32.0% of the Companys outstanding common
stock. As a result, Green Equity Investors IV, L.P. and its
affiliate may exert substantial influence over FTDs
corporate and management policies and may limit other FTD
stockholders ability to influence FTDs corporate and
management policies.
The
Company is a holding company and its access to the cash flows of
its subsidiaries is subject to restrictions and the satisfaction
of certain financial conditions, some of which are beyond the
Companys control.
The Company is a holding company for its wholly-owned
subsidiary, FTD, Inc., and it does not have and may not in the
future have any material assets other than the common stock of
FTD, Inc. The Company conducts its operations through FTD, Inc.
The Companys available cash will depend upon the cash
flows of FTD, Inc. and the ability of FTD, Inc. to make funds
available to the Company in the form of loans, dividends or
otherwise. The indenture governing the Notes and FTD,
Inc.s senior credit facility each impose substantial
restrictions on FTD, Inc.s ability to pay dividends to the
Company and any payment of dividends is subject to the
satisfaction of certain financial conditions. However, the
ability of FTD, Inc. and its subsidiaries to comply with these
conditions may be affected by events that are beyond the
Companys control. The Company expects any future
borrowings by FTD, Inc. to contain similar restrictions or
prohibitions on the payment of dividends by FTD, Inc. and its
subsidiaries to the Company.
|
|
Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
We have received no written comments regarding our periodic or
current reports from the staff of the SEC that were issued
180 days or more preceding the end of our fiscal year 2007
that remain unresolved.
The Companys principal executive offices, consisting of
approximately 120,000 square feet of office space, are
owned by the Company and are located in Downers Grove, Illinois.
In addition, the Company leases office space in Saint-Sauveur,
Quebec, and call center facilities in Centerbrook, Connecticut;
Medford, Oregon; and Sherwood, Arkansas. The Company also leases
warehouse space in a distribution center in Cincinnati,
17
Ohio. Subsequent to the sale of Renaissance in December 2005,
the Company remained the lessee of the Sanford, Maine location,
but currently subleases the space to the current Renaissance
owner.
In addition, in connection with the Companys July 2006
acquisition of Interflora, the Company acquired
Interfloras corporate office in Sleaford, England and
assumed Interfloras lease of a call center facility in
Nottingham, England.
The Companys management believes that its facilities are
adequate for its current operations.
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
The Company is involved in various claims and lawsuits and other
matters arising in the normal course of business. In the opinion
of management of the Company, although the outcome of these
claims and suits are uncertain, they should not have a material
adverse effect on the Companys financial condition,
liquidity or results of operations.
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of the Companys
security holders during the fourth quarter of fiscal year 2007.
PART II
|
|
Item 5.
|
MARKET
FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND PURCHASES OF EQUITY SECURITIES
|
Market
for Common Stock
The Companys Common Stock is quoted on the New York Stock
Exchange (NYSE) under the symbol FTD.
The following table sets forth, for the periods indicated, the
high and low sale prices of the Companys Common Stock as
reported by the NYSE, without retail
mark-up,
mark-down or commissions and may not necessarily represent
actual transactions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ended June 30,
2007
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
19.08
|
|
|
$
|
16.01
|
|
Third Quarter
|
|
$
|
20.93
|
|
|
$
|
16.01
|
|
Second Quarter
|
|
$
|
18.49
|
|
|
$
|
14.92
|
|
First Quarter
|
|
$
|
16.70
|
|
|
$
|
13.46
|
|
Fiscal Year Ended June 30,
2006
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
13.93
|
|
|
$
|
9.53
|
|
Third Quarter
|
|
$
|
10.45
|
|
|
$
|
9.02
|
|
Second Quarter
|
|
$
|
11.34
|
|
|
$
|
10.20
|
|
First Quarter
|
|
$
|
12.11
|
|
|
$
|
9.95
|
|
As of June 30, 2007, there were 18 holders of record of
Common Stock, although the Company believes that there is a
significantly larger number of beneficial owners. The holders of
the Common Stock are entitled to one vote per share.
18
On February 20, 2007, the Companys Board of Directors
declared a quarterly cash dividend of $0.1625 per share. The
dividend was paid on April 2, 2007 to stockholders of
record as of the close of business on March 19, 2007.
Additionally, on April 24, 2007, the Companys Board
of Directors declared a quarterly cash dividend of $0.1625 per
share. The dividend was paid on July 6, 2007 to
stockholders of record as of the close of business on
June 22, 2007. The continued payment of cash dividends in
the future is at the discretion of the Companys Board of
Directors and depends on numerous factors, including without
limitation, the Companys net earnings, financial
condition, availability of capital, continued compliance with
the requirements of the Companys 2006 Credit Agreement and
the indenture governing the 7.75% Senior Subordinated Notes
and other business needs.
Equity
Compensation Plan Information
The information required by this item will be set forth under
the caption Equity Compensation Plan Information in
the Proxy Statement related to the Companys 2007 annual
meeting of stockholders (the Proxy Statement) and is
incorporated herein by reference.
Issuer
Purchases of Equity Securities
On October 25, 2005, the Companys Board of Directors
authorized a share repurchase program totaling $30 million,
effective through September 30, 2007. These purchases may
be made from time to time in both open market and private
transactions, dependent upon market and other conditions. The
Company may repurchase shares pursuant to a 10b5-1 plan, which
would generally permit the Company to repurchase shares at times
when it might otherwise be prevented from doing so under
U.S. federal securities laws.
In fiscal year 2006, the Company repurchased a total of
1.5 million shares of common stock for $15.0 million.
There were no purchases made by, or on behalf of, the Company,
of shares of the Companys common stock during the fiscal
year ended June 30, 2007.
19
Stockholder
Return Comparison
The following performance chart provides a comparison of
cumulative total stockholder return for the period from
February 9, 2005 (the date on which the Common Stock began
publicly trading) through June 30, 2007, for an investment
in the Company, the Russell 2000 Index and a peer group, which
consists of 1-800-Flowers.com, Inc. (the Peer
Group). The chart assumes an investment of $100.00 in
each of the Company and the two indices, and the reinvestment of
any dividends. The historical information set forth below is not
necessarily indicative of future performance. Data for the
Company, the Russell 2000 Index and the Peer Group were provided
to the Company by Research Data Group, Inc. The data shown is
based on the closing share prices or index values, as
applicable, at the end of the last day of each quarter shown
(except for the initial date, February 9, 2005).
COMPARISON
OF CUMULATIVE TOTAL RETURN*
AMONG
FTD GROUP, INC., THE RUSSELL 2000 INDEX
AND A PEER GROUP
* $100 invested on
2/9/05 in
stock or index-including reinvestment of dividends. Fiscal year
ending June 30.
20
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth the Predecessors selected
historical data for the 2003 fiscal year and the period from
July 1, 2003 through February 23, 2004 and the
Companys selected historical data for the period from
February 24, 2004 through June 30, 2004 and the 2005,
2006 and 2007 fiscal years. The selected historical statement of
operations data for the 2003 fiscal year, the periods from
July 1, 2003 through February 23, 2004 and from
February 24, 2004 through June 30, 2004 and for the
2005, 2006 and 2007 fiscal years and balance sheet data for the
2003 through 2007 fiscal years was derived from the
Predecessors and the Companys audited consolidated
financial statements. The financial data is qualified by
reference to, and should be read in conjunction with, the
Companys consolidated financial statements and the notes
to those statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations
appearing elsewhere in this
Form 10-K.
Amounts below are presented in thousands, except for per share
information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Predecessor Basis of Accounting(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24,
|
|
|
Period from
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
2004
|
|
|
July 1, 2003
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
through
|
|
|
through
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
February 23,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
2003
|
|
|
Statements of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
613,012
|
|
|
$
|
465,133
|
|
|
$
|
437,795
|
|
|
$
|
151,381
|
|
|
$
|
245,679
|
|
|
$
|
363,343
|
|
Income from operations
|
|
|
78,120
|
|
|
|
61,056
|
|
|
|
39,646
|
(2)
|
|
|
13,018
|
(3)
|
|
|
701
|
(4)
|
|
|
36,799
|
|
Net income (loss)
|
|
|
31,912
|
|
|
|
25,543
|
|
|
|
(22,600
|
)
|
|
|
(4,497
|
)
|
|
|
(1,602
|
)(5)
|
|
|
9,289
|
(6)
|
Net income (loss) per
share basic
|
|
$
|
1.12
|
|
|
$
|
0.89
|
|
|
$
|
(1.15
|
)
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per
share diluted
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
(1.15
|
)
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
|
|
|
Cash dividends declared per common
share
|
|
$
|
0.3250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment orders
|
|
|
4,590
|
|
|
|
4,508
|
|
|
|
4,073
|
|
|
|
1,517
|
|
|
|
2,063
|
|
|
|
3,166
|
|
Consumer segment revenues
|
|
$
|
287,621
|
|
|
$
|
275,773
|
|
|
$
|
247,108
|
|
|
$
|
88,296
|
|
|
$
|
128,507
|
|
|
$
|
190,958
|
|
Florist segment revenues
|
|
$
|
181,995
|
|
|
$
|
189,360
|
|
|
$
|
190,687
|
|
|
$
|
63,085
|
|
|
$
|
117,172
|
|
|
$
|
172,385
|
|
International segment consumer
orders
|
|
|
1,785
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International segment revenues
|
|
$
|
143,396
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(1)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficit)(7)
|
|
$
|
(39,617
|
)
|
|
$
|
(33,785
|
)
|
|
$
|
(23,096
|
)
|
|
$
|
(13,195
|
)
|
|
$
|
(24,113
|
)
|
Total assets
|
|
$
|
748,900
|
|
|
$
|
570,737
|
|
|
$
|
571,314
|
|
|
$
|
579,888
|
|
|
$
|
204,371
|
|
Long-term debt, including current
portion
|
|
$
|
313,748
|
|
|
$
|
220,117
|
|
|
$
|
239,080
|
|
|
$
|
259,788
|
|
|
$
|
6,500
|
|
Preferred stock subject to
mandatory redemption
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,079
|
|
|
$
|
|
|
Total equity
|
|
$
|
261,778
|
|
|
$
|
217,736
|
|
|
$
|
205,747
|
|
|
$
|
35,462
|
|
|
$
|
122,323
|
|
|
|
|
(1) |
|
The financial data for periods prior to February 24, 2004
are presented for comparative purposes and consist of the
financial data of the Predecessor (Predecessor Basis of
Accounting). |
|
(2) |
|
During the year ended June 30, 2005, the Company recorded
costs of $13.9 million related to the management services
agreement with Leonard Green & Partners, L.P., which
included $12.5 million related to the termination of the
management services agreement as a component of selling, general
and administrative expenses. |
21
|
|
|
(3) |
|
During the period from February 24, 2004 through
June 30, 2004, the Company recorded severance costs of
$3.3 million as a component of selling, general and
administrative expenses associated with the departure of certain
of the Companys senior executives shortly following the
consummation of the 2004 Going Private Transaction. |
|
(4) |
|
During the period from July 1, 2003 through
February 23, 2004, the Predecessor recorded merger related
expenses of $23.4 million related to the 2004 Going Private
Transaction as a component of selling, general and
administrative expenses. |
|
(5) |
|
During the period from July 1, 2003 through
February 23, 2004, the Predecessor recorded as a component
of other expense, net, a gain of $1.5 million as a result
of a settlement with the insurance carrier that maintained a
policy covering FTD and its directors and officers. In addition,
the Company entered into a Senior Secured Credit Facility (the
2004 Credit Agreement). As a result of entering into
the 2004 Credit Agreement, unamortized deferred financing costs
associated with the then existing debt were expensed by the
Predecessor, resulting in a net loss on extinguishment of debt
of $0.4 million, which was included in other expense, net. |
|
(6) |
|
In fiscal year 2003, the Predecessor recorded as a component of
other expense, net, a charge of $11.0 million related to
the recording of a liability associated with the settlement of
the consolidated shareholder class action litigation related to
the Predecessors 2002 Merger, including administrative
costs. |
|
(7) |
|
Working capital (deficit) represents total current assets
(excluding cash and cash equivalents) less current liabilities
(excluding the current portion of long term debt). |
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion should be read in conjunction with the
consolidated financial statements and notes to those statements
that appear elsewhere in this
Form 10-K.
The following discussion contains forward-looking statements
that reflect the Companys plans, estimates and beliefs.
The Companys actual results could differ materially from
those discussed 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 under
Item 1A Risk Factors.
Overview
FTD Group, Inc. is a leading provider of floral-related products
and services to consumers and retail florists, as well as other
retail locations offering floral products, in the U.S., Canada,
the U.K. and the Republic of Ireland. The business utilizes the
highly recognized FTD and Interflora brands, both supported by
the Mercury Man logo, which is displayed in approximately 45,000
floral shops worldwide. The Company conducts its business
through three operating segments: the consumer segment, the
florist segment and the international segment.
Consumer Segment. The consumer segment is an
Internet and telephone marketer of flowers and specialty gift
items to consumers, operating in the U.S. and Canada
primarily through the www.ftd.com Web site, in addition
to the 1-800-SEND-FTD toll-free telephone number. The Company
offers floral arrangements for florist delivery as well as
specialty gift items which are delivered via common carrier,
including boxed flowers, plants, gourmet food gifts, holiday
gifts, bath and beauty products, jewelry, wine and gift baskets,
dried flowers and stuffed animals.
Consumers place orders at the www.ftd.com Web site or
over the telephone, which are then transmitted to florists or
third-party specialty gift providers for processing and
delivery. The Internet is the primary channel for orders,
representing 90.3% of total order volume during the year ended
June 30, 2007. Through its network of FTD members, the
Company is able to offer
same-day
delivery to nearly 100% of U.S. and Canadian populations.
Additionally, the consumer segment routes floral orders through
an international network of floral retailers enabling
next-day
delivery in over 150 countries. Through third-party
manufacturers and distributors, the Company offers
next-day
delivery of direct ship orders throughout the United States. The
consumer segment has very low working capital requirements
because FTD members and specialty gift providers
22
generally maintain physical inventory and bear the cost of
warehousing and distribution facilities. In addition, consumers
generally pay for floral and specialty gift orders before the
Company pays florists and specialty gift providers to deliver
them. The consumer segment does not own or operate any retail
locations.
For the year ended June 30, 2007, the consumer segment
generated revenues of $287.6 million, representing 46.9% of
the Companys total revenues for this period.
Florist Segment. The florist segment provides
a comprehensive suite of products and services that enable FTD
members to send and deliver floral orders. This suite of
products and services is also designed to promote revenue growth
and enhance the operating efficiencies of FTD members. The
Company provides these services to its network of independent
members located primarily in the U.S. and Canada, which
includes traditional retail florists as well as other retailers
offering floral products.
The Company provides FTD members with access to the FTD brand
and the Mercury Man logo, supported by various advertising
campaigns, order clearinghouse services (which eliminate
counterparty credit risks between sending and receiving FTD
members), a quarterly directory publication of FTD members,
credit card processing services,
e-commerce
Web site development and maintenance, online advertising tools
and a
24-hour
telephone answering and order-taking service. In addition, the
Company provides the Floral Selections Guide, a counter display
published by FTD, featuring FTD products for all occasions. The
Companys members pay for these services through monthly
dues and activity-based fees, such as per order charges. Through
the Companys proprietary Mercury Network, members
electronically transmit orders and send messages to other FTD
members, for which the Company receives monthly fees in addition
to per-order and per-message fees.
The Company sells basic software and hardware for transmitting
and receiving orders, as well as software and hardware that
provide full back-end systems to manage a members
business. The Company also acts as a national wholesaler to FTD
members, providing FTD-branded and non-branded hard goods and
cut flowers as well as packaging, promotional products and a
wide variety of other floral-related supplies. During holiday
seasons such as Valentines Day, Mothers Day and
Christmas, the Company designs specialized floral bouquets with
exclusive FTD containers and feature these exclusive FTD
products in advertising and on the heavily trafficked
www.ftd.com Web site.
Revenues in the florist segment are driven by the strength of
the Companys brand, the comprehensive suite of products
and services and the Companys strong relationships with
its FTD members. Approximately 75% of florist segment revenues
in fiscal 2007 were derived from membership, service and other
monthly fees. Florist segment revenues are derived primarily
from the top half of the Companys membership base. As a
result and because the mix of membership is changing as the
Company adds more supermarket members and seeks to add mass
merchants, the Company no longer considers the absolute number
of members to necessarily be indicative of segment performance.
The Company focuses primarily on the penetration of goods and
services sold to FTD members. For the year ended June 30,
2007, the florist segment generated revenues of
$182.0 million, representing 29.7% of the Companys
total revenues for this period.
International Segment. The international
segment is primarily comprised of Interflora, which has both a
florist and a consumer business. Interflora is an
internationally recognized brand and utilizes the same Mercury
Man logo as FTD. Similar to FTD, Interflora previously operated
as an unincorporated association until its incorporation and
conversion to a for-profit organization in February
2005. Interflora markets floral products and specialty gifts
direct to consumers in the U.K. and the Republic of Ireland
through both the www.interflora.co.uk Web site and a
toll-free telephone number and provides various products and
services to its members. For the eleven months that it was owned
by the Company during the year ended June 30, 2007, the
international segment generated revenues of $143.4 million,
representing 23.4% of the Companys total revenues for the
fiscal year.
Key Industry Trends. The Company believes key
trends in the floral retail market include the increasing role
of floral direct marketers, particularly those marketing floral
products over the Internet, which has resulted in increased
orders for delivery placed through floral direct marketers
versus traditional retail florists, consumer purchasing of
cash and carry flowers continuing to shift away from
traditional retail florists to
23
supermarket and mass merchant retail locations, the increasing
dependence of traditional retail florists on wire-services to
provide incoming order volume lost to Internet, supermarket and
mass merchant retailers and the expansion of product offerings
by traditional retail florists and direct marketers to include
specialty gift items. The principal trends are addressed through
the consumer segment, the florist segment and the international
segment business strategies.
Business Strategy. The Company plans to
continue to direct consumers to the Companys
www.ftd.com and www.interflora.co.uk Web sites for
their floral and specialty gift purchasing needs, as processing
orders over the Internet is a profitable order generating
vehicle for the Company and an efficient and convenient ordering
method for the consumer. The Company plans to add new consumers
by continuing to expand existing marketing efforts, focusing on
highly trafficked Internet sites as well as continued growth and
focus on numerous customer affinity programs. The Company also
plans to pursue growth in additional specialty gift categories
and expansion of its existing categories, as management believes
that the Companys marketing expertise and brand strength
allows the business to attract a wide range of quality specialty
gift manufacturers. Additionally, management believes that
lower-priced floral products are a significant portion of the
market and, accordingly, the Company plans to continue refining
its offerings in this area to meet consumer demand.
The Company plans to continue to drive product and service
offering penetration and continue to attract florists to its FTD
and Interflora networks through continued improvements in
product and service offerings that increase revenue and reduce
costs for members. The Company is currently pursuing
opportunities to expand its presence in a number of channels
that have not historically represented a meaningful portion of
the Companys revenues, such as the supermarket channel and
other mass market channels.
In addition to funding working capital needs and capital
expenditures, the Company plans to use available cash generated
from operations to service and reduce its indebtedness, pay
dividends to shareholders and may repurchase shares of its
Common Stock pursuant to its share repurchase program, which
expires on September 30, 2007. The Company believes that
its current capital resources, including cash and cash
equivalents, cash generated from operations and funds available
from its revolving credit facility will be sufficient to finance
its operations and capital expenditures for the foreseeable
future. See Liquidity and Capital Resources.
Year
ended June 30, 2007 compared to year ended June 30,
2006
Total
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
287,621
|
|
|
$
|
275,773
|
|
|
|
4.3
|
%
|
Florist segment
|
|
|
181,995
|
|
|
|
189,360
|
|
|
|
(3.9
|
)%
|
International segment
|
|
|
143,396
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
613,012
|
|
|
$
|
465,133
|
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased by $147.9 million, or 31.8%, to
$613.0 million for the year ended June 30, 2007,
compared to revenues for the year ended June 30, 2006 of
$465.1 million. The Company acquired Interflora on
July 31, 2006 and reports its results within the
Companys international segment. The international segment
accounted for $143.4 million of the increase in revenue for
the year ended June 30, 2007. Growth in the Companys
domestic consumer segment of $11.8 million, partially
offset by a decline in the Companys domestic florist
segment of $7.4 million, contributed to the remaining
increase.
The consumer segment achieved revenues of $287.6 million
for the year ended June 30, 2007, compared to revenues for
the year ended June 30, 2006 of $275.8 million,
representing a 4.3% increase. Growth was driven by a 1.8%
increase in order volume which totaled 4.6 million orders
for the year ended June 30, 2007, up from 4.5 million
orders for the year ended June 30, 2006 and a 1.5% increase
in average order value in fiscal year 2007 which was $61.31
compared to $60.38 in fiscal year 2006. Internet orders were
90.3% of
24
total orders for the year ended June 30, 2007, compared to
90.1% for the year ended June 30, 2006. Advertising revenue
contributed $6.2 million of revenue in fiscal 2007, an
increase of $2.6 million versus fiscal 2006.
Revenues for the florist segment decreased by $7.4 million,
or 3.9% to $182.0 million for the year ended June 30,
2007, compared to revenues for the year ended June 30, 2006
of $189.4 million. The decline in revenues was primarily
due to the December 2005 sale of Renaissance, which contributed
$3.9 million of revenues in fiscal year 2006, and the
elimination of certain customers.
The international segment achieved revenues of
$143.4 million for the eleven months ended June 30,
2007. Consumer orders in the international segment totaled
1.8 million during the period, with an average order value
of $64.78. Internet orders comprised 71.0% of the total consumer
order volume for the period.
Total
costs of goods sold and services provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
203,487
|
|
|
$
|
200,549
|
|
|
|
1.5
|
%
|
Florist segment
|
|
|
57,498
|
|
|
|
59,990
|
|
|
|
(4.2
|
)%
|
International segment
|
|
|
98,390
|
|
|
|
|
|
|
|
N/A
|
|
Corporate
|
|
|
1,996
|
|
|
|
2,235
|
|
|
|
(10.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of goods sold and
services provided
|
|
$
|
361,371
|
|
|
$
|
262,774
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold and services provided increased by
$98.6 million, or 37.5%, to $361.4 million for the
year ended June 30, 2007, from $262.8 million for the
year ended June 30, 2006. Total gross margin for the year
ended June 30, 2007 was 41.0%, compared to 43.5% for the
year ended June 30, 2006.
Costs of goods sold and services provided associated with the
consumer segment increased by $3.0 million, or 1.5%, to
$203.5 million for the year ended June 30, 2007,
compared to $200.5 million for the year ended June 30,
2006. Gross margin for the consumer segment increased to 29.3%
for the year ended June 30, 2007, compared to 27.3% for the
year ended June 30, 2006, primarily due to an increase in
average order values and advertising revenue. Savings in product
guarantee expense due to process improvements also contributed
to the increase.
Costs of goods sold and services provided associated with the
florist segment decreased by $2.5 million, or 4.2%, to
$57.5 million for the year ended June 30, 2007,
compared to $60.0 million for the year ended June 30,
2006. Gross margin for the florist segment remained relatively
consistent with the prior year at 68.4% for the year ended
June 30, 2007, compared to 68.3% for the year ended
June 30, 2006.
Costs of goods sold and services provided associated with the
international segment were $98.4 million for the eleven
months ended June 30, 2007. Gross margin for the
international segment was 31.4%.
Costs of goods sold and services provided related to corporate
activities remained relatively consistent at $2.0 million
for the year ended June 30, 2007, compared to
$2.2 million for year ended June 30, 2006. These costs
were related to the development and maintenance of internal
corporate technology platforms supporting both the florist and
consumer segments.
25
Advertising
and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
36,100
|
|
|
$
|
35,921
|
|
|
|
0.5
|
%
|
Florist segment
|
|
|
47,699
|
|
|
|
53,200
|
|
|
|
(10.3
|
)%
|
International segment
|
|
|
10,626
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs
|
|
$
|
94,425
|
|
|
$
|
89,121
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and selling costs increased by $5.3 million, or
6.0%, to $94.4 million for the year ended June 30,
2007, compared to advertising and selling costs for the year
ended June 30, 2006 of $89.1 million. As a percentage
of revenue, advertising and selling costs decreased to 15.4% for
the year ended June 30, 2007 compared to 19.2% for the year
ended June 30, 2007. This decrease is primarily related to
the addition of the international segment which has lower
advertising spending than the domestic businesses.
Advertising and selling costs associated with the consumer
segment increased slightly to $36.1 million for the year
ended June 30, 2007 compared to $35.9 million for the
year ended June 30, 2006. Advertising and selling costs as
a percentage of revenue associated with the consumer segment for
the year ended June 30, 2007 were 12.6% compared to 13.0%
for the year ended June 30, 2006.
Advertising and selling costs associated with the florist
segment decreased by $5.5 million, or 10.3%, to
$47.7 million for the year ended June 30, 2007,
compared to $53.2 million for the year ended June 30,
2006. This decrease was primarily due to a decrease in rebates
which are earned by FTD members under a customer incentive
program, the sale of Renaissance during the second quarter of
fiscal year 2006, planned cost reductions and a shift to more
efficient member marketing programs.
Advertising and selling costs associated with the international
segment totaled $10.6 million, or 7.4% of international
segment revenue, for the eleven months ended June 30, 2007.
General
and administrative costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
22,702
|
|
|
$
|
19,917
|
|
|
|
14.0
|
%
|
Florist segment
|
|
|
8,357
|
|
|
|
6,591
|
|
|
|
26.8
|
%
|
International segment
|
|
|
21,352
|
|
|
|
|
|
|
|
N/A
|
|
Corporate
|
|
|
26,685
|
|
|
|
25,674
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
costs
|
|
$
|
79,096
|
|
|
$
|
52,182
|
|
|
|
51.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative costs increased by
$26.9 million, or 51.6%, to $79.1 million for the year
ended June 30, 2007, compared to $52.2 million for the
year ended June 30, 2006.
General and administrative costs associated with the consumer
segment increased by $2.8 million, or 14.0%, to
$22.7 million for the year ended June 30, 2007,
compared to $19.9 million for the year ended June 30,
2006. The increase in general and administrative costs for the
consumer segment was primarily due to investment spending in the
consumer segments technology infrastructure, including
increased headcount and an increase in amortization expense
associated with technology improvements put in service over the
last year. Also contributing to the increase in general and
administrative expense was an increase in salaries and headcount
in other administrative areas. As a percentage of revenue,
general and administrative costs increased to 7.9% from 7.2% in
the prior fiscal year.
General and administrative costs associated with the florist
segment increased by $1.8 million, or 26.8%, to
$8.4 million for the year ended June 30, 2007,
compared to $6.6 million for the year ended June 30,
2006.
26
As a percentage of revenue, general and administrative costs
increased to 4.6% from 3.5% in the prior fiscal year. General
and administrative costs for the florist segment for the fiscal
year ended June 30, 2006 were reduced by a
$1.0 million gain related to the sale of Renaissance in the
second quarter of fiscal year 2006 and a $1.6 million gain
related to the settlement of the class action lawsuit entitled
In Re: Visacheck/Mastermoney Antitrust Litigation in the
fourth quarter of fiscal year 2006. Additionally, general and
administrative costs were lower in the year ended June 30,
2007 as a result of the sale of Renaissance.
General and administrative costs associated with the
international segment were $21.4 million, or 14.9% of
revenue for the eleven months ended June 30, 2007.
Corporate general and administrative costs increased by
$1.0 million, or 3.9%, to $26.7 million for the year
ended June 30, 2007, compared to $25.7 million for the
year ended June 30, 2007. The increase in corporate general
and administrative costs is primarily related to an increase in
salaries and stock-based compensation expense, partially offset
by a decrease in legal and insurance costs in the current year
period.
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(1,883
|
)
|
|
$
|
(924
|
)
|
|
|
103.8
|
%
|
Interest expense
|
|
|
28,227
|
|
|
|
19,449
|
|
|
|
45.1
|
%
|
Other income, net
|
|
|
(929
|
)
|
|
|
(398
|
)
|
|
|
133.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
$
|
25,415
|
|
|
$
|
18,127
|
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income increased $1.0 million, to
$1.9 million for the year ended June 30, 2007,
compared to $0.9 million for the year ended June 30,
2006. The increase was primarily due to increased cash balances
during the year ended June 30, 2007 and an increase in
interest rates in fiscal year 2007.
Interest expense increased $8.8 million, to
$28.2 million for the year ended June 30, 2007,
compared to $19.4 million for the year ended June 30,
2006. The increase is due to an increase in outstanding
indebtedness during the current year period resulting from the
purchase of Interflora as well as a $1.8 million write-off
of unamortized deferred financing costs associated with the
repayment of the Companys previous credit facility.
Other income, net was $0.9 million for the year ended
June 30, 2007 compared to $0.4 million for the year
ended June 30, 2006. The current year income was primarily
due to foreign currency exchange gains, partially offset by the
costs related to the March 2007 secondary stock offering.
Year
ended June 30, 2006 compared to year ended June 30,
2005
Total
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
275,773
|
|
|
$
|
247,108
|
|
|
|
11.6
|
%
|
Florist segment
|
|
|
189,360
|
|
|
|
190,687
|
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
465,133
|
|
|
$
|
437,795
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased by $27.3 million, or 6.2%, to
$465.1 million for the year ended June 30, 2006,
compared to revenues for the year ended June 30, 2005 of
$437.8 million. There were no revenues related to corporate
activities.
The growth in order volume was the primary factor for the
$28.7 million, or 11.6% increase in revenues for the
consumer segment to $275.8 million for the year ended
June 30, 2006 compared to $247.1 million for the year
ended June 30, 2005. Order volume increased 10.7% to
4.5 million orders for the year ended June 30,
27
2006, from 4.1 million orders for the year ended
June 30, 2005. Internet orders were 90.1% of total orders
for the year ended June 30, 2006, compared to 87.2% for the
year ended June 30, 2005. Average order value in fiscal
year 2006 was $60.38 compared to $60.67 in fiscal year 2005.
Additionally, the Company began a new initiative in the second
quarter of fiscal year 2006, which generated $3.6 million
of advertising revenue for the fiscal year.
Revenues for the florist segment decreased by $1.3 million,
or 0.7% to $189.4 million for the year ended June 30,
2006, compared to revenues for the year ended June 30, 2005
of $190.7 million. The decline in revenues was primarily
due to the December 2005 sale of Renaissance, which contributed
$5.5 million of revenues in the last half of fiscal year
2005, in addition to lower sales resulting from the elimination
of certain unprofitable specialty wholesaling products. This
decrease was partially offset by an increase in Florists
Online revenues, fresh flower sales and technology system sales.
Total
costs of goods sold and services provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
200,549
|
|
|
$
|
183,692
|
|
|
|
9.2
|
%
|
Florist segment
|
|
|
59,990
|
|
|
|
62,025
|
|
|
|
(3.3
|
)%
|
Corporate
|
|
|
2,235
|
|
|
|
2,300
|
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of goods sold and
services provided
|
|
$
|
262,774
|
|
|
$
|
248,017
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold and services provided increased by
$14.8 million, or 5.9%, to $262.8 million for the year
ended June 30, 2006, compared to cost of goods sold and
services provided for the year ended June 30, 2005 of
$248.0 million. Total gross margin for the year ended
June 30, 2006 was 43.5%, compared to 43.4% for the year
ended June 30, 2005.
Costs of goods sold and services provided associated with the
consumer segment increased by $16.9 million, or 9.2%, to
$200.5 million for the year ended June 30, 2006,
compared to $183.7 million for the year ended June 30,
2005. Gross margin for the consumer segment increased to 27.3%
for the year ended June 30, 2006, compared to 25.7% for the
year ended June 30, 2005, primarily due to an increase in
specialty gift orders and the addition of advertising revenue.
Costs of goods sold and services provided associated with the
florist segment decreased by $2.0 million, or 3.3%, to
$60.0 million for the year ended June 30, 2006,
compared to $62.0 million for the year ended June 30,
2005. Gross margin for the florist segment increased to 68.3%
for the year ended June 30, 2006, compared to 67.5% for the
year ended June 30, 2005, partially due to the elimination
of certain unprofitable specialty wholesaling products.
Costs of goods sold and services provided related to corporate
activities remained relatively consistent at $2.2 million
for the year ended June 30, 2006, compared to
$2.3 million for year ended June 30, 2005. These costs
were related to the development and maintenance of internal
corporate technology platforms supporting both the florist and
consumer segments.
Advertising
and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
35,921
|
|
|
$
|
29,080
|
|
|
|
23.5
|
%
|
Florist segment
|
|
|
53,200
|
|
|
|
56,319
|
|
|
|
(5.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs
|
|
$
|
89,121
|
|
|
$
|
85,399
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Advertising and selling costs increased by $3.7 million, or
4.4%, to $89.1 million for the year ended June 30,
2006, compared to advertising and selling costs for the year
ended June 30, 2005 of $85.4 million. There were no
advertising and selling costs related to corporate activities.
Advertising and selling costs associated with the consumer
segment increased by $6.8 million, or 23.5%, to
$35.9 million for the year ended June 30, 2006,
compared to $29.1 million for the year ended June 30,
2005. This increase in advertising and selling costs was
primarily related to higher online advertising costs due to an
increase in average cost per order as well as greater order
volumes. Contributing to the increase in cost per order was
increased competition for key words in search-oriented
advertising.
Advertising and selling costs associated with the florist
segment decreased by $3.1 million, or 5.5%, to
$53.2 million for the year ended June 30, 2006,
compared to $56.3 million for the year ended June 30,
2005. This decrease was primarily due to the sale of Renaissance
during the second quarter of fiscal year 2006, a decrease in
national advertising expense and a decrease in rebates, which
are earned by FTD members under a customer incentive program,
partially offset by an increase in technology selling expenses
due to the increase in headcount of the Companys
technology sales force.
General
and administrative costs and management fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
19,917
|
|
|
$
|
17,081
|
|
|
|
16.6
|
%
|
Florist segment
|
|
|
6,591
|
|
|
|
10,161
|
|
|
|
(35.1
|
)%
|
Corporate
|
|
|
25,674
|
|
|
|
37,491
|
|
|
|
(31.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
costs and management fees
|
|
$
|
52,182
|
|
|
$
|
64,733
|
|
|
|
(19.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative costs and management fees decreased
by $12.6 million, or 19.4%, to $52.2 million for the
year ended June 30, 2006, compared to $64.7 million
for the year ended June 30, 2005.
General and administrative costs associated with the consumer
segment increased by $2.8 million, or 16.6%, to
$19.9 million for the year ended June 30, 2006,
compared to $17.1 million for the year ended June 30,
2005. The increase in general and administrative costs for the
consumer segment was primarily due to increased customer service
costs, primarily related to an increase in order volume, an
increase in technology costs, primarily related to an increase
in amortization expense and an increase in merchandising costs
primarily related to an increase in headcount.
General and administrative costs associated with the florist
segment decreased by $3.6 million, or 35.1%, to
$6.6 million for the year ended June 30, 2006,
compared to $10.2 million for the year ended June 30,
2005. The decrease in general and administrative costs for the
florist segment was primarily due to the $1.0 million gain
and lower general and administrative costs, both related to the
sale of Renaissance in the second quarter of fiscal year 2006, a
reduction in depreciation expense as certain assets of the
florist business have become fully depreciated, and the
$1.6 million gain related to the settlement of the class
action lawsuit entitled In Re: Visacheck/Mastermoney
Antitrust Litigation in the fourth quarter of fiscal year
2006.
Corporate general and administrative costs and management fees
decreased by $11.8 million, or 31.5%, to $25.7 million
for the year ended June 30, 2006, compared to
$37.5 million for the year ended June 30, 2005. There
were no management fees payable during the year ended
June 30, 2006. The decrease in corporate general and
administrative costs and management fees is primarily related to
a decrease in expense related to a management services agreement
with Leonard Green & Partners, L.P. of
$13.9 million, which included a $12.5 million fee for
the termination of the management services agreement which
occurred during the quarter ended March 31, 2005. This was
partially offset by a gain recorded in fiscal year 2005 related
to the reimbursement of defense costs from the Companys
insurance carrier related to the lawsuit with Teleflora LLC, an
increase in public company costs since the IPO and an increase
in compensation costs due to the implementation of Statement of
Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment.
29
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(924
|
)
|
|
$
|
(649
|
)
|
|
|
42.4
|
%
|
Interest expense
|
|
|
19,449
|
|
|
|
20,466
|
|
|
|
(5.0
|
)%
|
Interest expense and prepayment
fees on shares subject to mandatory redemption
|
|
|
|
|
|
|
34,732
|
|
|
|
(100.0
|
)%
|
Other income, net
|
|
|
(398
|
)
|
|
|
(390
|
)
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
$
|
18,127
|
|
|
$
|
54,159
|
|
|
|
(66.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income increased $0.3 million, to
$0.9 million for the year ended June 30, 2006,
compared to $0.6 million for the year ended June 30,
2005. The increase was primarily due to increased cash balances
during the year ended June 30, 2006.
Interest expense decreased $1.1 million, to
$19.4 million for the year ended June 30, 2006,
compared to $20.5 million for the year ended June 30,
2005. The decrease was due to a lower amount of outstanding
indebtedness during 2006 and a prepayment penalty which was
incurred during the quarter ended March 31, 2005 in
connection with the redemption of FTDs 7.75% Senior
Subordinated Notes due 2014. This reduction in interest expense
was partially offset by higher interest rates.
Interest expense and prepayment fees related to the preferred
stock was $34.7 million for the year ended June 30,
2005. The Companys preferred stock was redeemed in full
using the proceeds from the IPO and as such, there is no
interest expense or prepayment fees on shares subject to
mandatory redemption for the year ended June 30, 2006.
Other income, net was $0.4 million for the years ended
June 30, 2006 and 2005 and was primarily related to foreign
currency exchange gains.
Liquidity
and Capital Resources
Cash and cash equivalents increased by $14.5 million to
$25.5 million at June 30, 2007 from $11.0 million
at June 30, 2006.
Net cash provided by operating activities was $48.4 million
for the year ended June 30, 2007 and $40.6 million for
the year ended June 30, 2006. The increase was primarily
driven by increased net income, which includes the results of
Interflora for the year ended June 30, 2007. Net cash
provided by operating activities continues to be a primary
source of funds to finance operating needs and capital
expenditures, repay indebtedness, pay dividends and make other
strategic investments, such as share repurchases.
Net cash used in investing activities was $103.2 million
for the year ended June 30, 2007, which included
$96.7 million of net cash outlay for the Interflora
acquisition and $7.8 million of capital expenditures,
primarily related to continued technology developments and
improvements.
Net cash used in investing activities was $5.3 million for
the year ended June 30, 2006, which consisted of
$8.8 million related to capital expenditures for
depreciable fixed assets, such as furniture and equipment, of
$3.9 million and capital expenditures for amortizable
intangibles, such as costs related to the development and
implementation of internal use software and other technology
costs, of $4.9 million, offset by $3.5 million of
proceeds received from the sale of Renaissance.
Net cash provided by financing activities was $68.8 million
for the year ended June 30, 2007, which primarily consisted
of $148.5 million of net proceeds received from FTD,
Inc.s senior secured credit facility (the 2006
Credit Agreement), offset by $50.0 million of
repayments under the 2004 Credit Agreement and $8.1 million
of repayments under the 2006 Credit Agreement. Net cash proceeds
from the 2006 Credit Agreement were used to fund the acquisition
of Interflora and repay the outstanding balance under the 2004
Credit Agreement. Additionally, during the fourth quarter of
fiscal year 2007, the Company repaid
30
$23.1 million of notes payable related to the acquisition
of Interflora. The Company also paid $4.7 million in
dividends during the fiscal year ended June 30, 2007.
Net cash used in financing activities was $33.6 million for
the year ended June 30, 2006, which consisted principally
of $19.0 million of long-term debt repayments made during
the period, consisting of $1.3 million in scheduled
principal repayments and $17.7 million of voluntary
repayments, and $15.0 million used for the purchase of the
Companys common stock pursuant to the Companys stock
repurchase program.
The Companys principal sources of liquidity are cash from
operations and funds available for borrowing under the 2006
Credit Agreement which replaced the 2004 Credit Agreement and
provides for aggregate borrowings of up to $225.0 million,
consisting of a seven-year $150.0 million term loan and a
six-year $75.0 million revolving credit facility. The 2004
Credit Agreement originally provided for aggregate borrowings of
up to $135.0 million which consisted of a five-year
$50.0 million revolving credit facility and a seven-year
$85.0 million term loan, which was used in connection with
the 2004 Going Private Transaction. As of June 30, 2007,
the balance of the term loan under the 2006 Credit Agreement was
$141.9 million. The Company also had notes payable related
to the acquisition of Interflora of $1.7 million and an
additional $1.1 million in outstanding letters of credit.
Borrowings under the revolving credit facility are used to
finance working capital, capital expenditures, acquisitions and
letter of credit needs. At June 30, 2007,
$72.2 million of the revolving credit facility was
available.
The 2006 Credit Agreement includes covenants which, among other
things, required that as of June 30, 2007, FTD, Inc.
maintain a certain ratio of consolidated total debt to
consolidated earnings before interest, taxes, depreciation and
amortization (subject to certain adjustments), as well as a
fixed charge coverage ratio. FTD, Inc. was in compliance with
all debt covenants as of June 30, 2007.
In addition to its debt service obligations, the Companys
remaining liquidity requirements are primarily for working
capital needs and capital expenditures. The Company believes,
based on current circumstances, that its existing and future
cash flows from operations, together with borrowings under the
2006 Credit Agreement, will be sufficient to fund its working
capital needs, capital expenditures and to make interest and
principal payments as they become due under the terms of the
long-term debt indebtedness for the foreseeable future.
On February 20, 2007, the Companys Board of Directors
declared a quarterly cash dividend of $0.1625 per share. The
dividend was paid on April 2, 2007 to stockholders of
record as of the close of business on March 19, 2007.
Additionally, on April 24, 2007, the Companys Board
of Directors declared a quarterly cash dividend of $0.1625 per
share. The dividend was paid on July 6, 2007 to
stockholders of record as of the close of business on
June 22, 2007. The continued payment of cash dividends in
the future is at the discretion of the Companys Board of
Directors and depends on numerous factors, including without
limitation, the Companys net earnings, financial
condition, availability of capital, continued compliance with
the requirements of the Companys 2006 Credit Agreement and
the indenture governing the 7.75% Senior Subordinated Notes
and other business needs.
On October 25, 2005, the Companys Board of Directors
authorized a share repurchase program totaling $30 million,
effective through September 30, 2007. These purchases may
be made from time to time in both open market and private
transactions, dependent upon market and other conditions. The
Company may repurchase shares pursuant to a 10b5-1 plan, which
would generally permit the Company to repurchase shares at times
when it might otherwise be prevented from doing so under
U.S. federal securities laws. In fiscal year 2006, the
Company repurchased a total of 1.5 million shares of common
stock under this plan for $15.0 million. No shares were
repurchased under this program during the year ended
June 30, 2007. The Company currently does not anticipate
repurchasing additional shares under this plan.
Summary
Disclosures About Contractual Obligations and Commercial
Commitments and Off-Balance Sheet Arrangements
The Company leases various office facilities, warehouse space in
a distribution center and equipment under non-cancelable
operating leases. In addition, the Company has entered into
agreements for services
31
related to credit card processing, advertising and technology.
The following tables reflect a summary of the Companys
contractual cash obligations and other commercial commitments at
June 30, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1 to 3
|
|
|
4 to 5
|
|
|
After 5
|
|
Contractual Cash Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Long-term debt and related
interest(1)
|
|
$
|
459,222
|
|
|
$
|
32,070
|
|
|
$
|
51,330
|
|
|
$
|
49,166
|
|
|
$
|
326,656
|
|
Operating leases
|
|
|
6,111
|
|
|
|
2,424
|
|
|
|
2,061
|
|
|
|
1,465
|
|
|
|
161
|
|
Estimated future benefit
payments retiree medical plan
|
|
|
1,270
|
|
|
|
140
|
|
|
|
250
|
|
|
|
250
|
|
|
|
630
|
|
Estimated pension contribution
|
|
|
305
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and promotional contracts
|
|
|
15,492
|
|
|
|
8,597
|
|
|
|
5,998
|
|
|
|
897
|
|
|
|
|
|
Purchase obligations(2)
|
|
|
4,670
|
|
|
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,300
|
|
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
488,370
|
|
|
$
|
48,206
|
|
|
$
|
60,939
|
|
|
$
|
51,778
|
|
|
$
|
327,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under the 2006 Credit Agreement and the Notes, the maturity of
outstanding debt could be accelerated if FTD, Inc. does not
maintain certain financial and operating covenants. |
|
(2) |
|
Purchase obligations include inventory items, assuming
transactions are carried to contractual term and do not reflect
cancellations within the Companys control; such
cancellations could result in amounts owed being less than those
reflected above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration per Period
|
|
|
|
Total Amounts
|
|
|
Less Than
|
|
|
1 to 3
|
|
|
4 to 5
|
|
|
After 5
|
|
Other Commercial Commitments:
|
|
Committed
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Letters of credit
|
|
$
|
1,087
|
|
|
$
|
1,087
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The Company has no material exposures to off-balance sheet
arrangements, no special purpose entities, and no activities
that include non-exchange-traded contracts accounted for at fair
value.
Critical
Accounting Policies and Estimates
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of
these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period.
Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions. Management
believes the following critical accounting policies, among
others, include its more significant judgments and estimates
used in preparation of its consolidated financial statements.
See Note 1 of the Consolidated Financial Statements
included herein for a detailed discussion of these and other
accounting policies.
Revenue
Recognition
The Companys consumer businesses generally recognize 100%
of the order value as revenue and recognize the associated costs
of goods sold and services provided when the order is delivered.
The Companys consumer businesses recognize revenue on a
gross basis, as opposed to a net basis similar to a commission
arrangement, because the Company bears the risks and benefits
associated with the revenue-generating activities by:
(1) acting as a principal in the transaction;
(2) establishing prices; (3) being responsible for
32
fulfillment of the order; (4) taking the risk of loss for
collection, delivery and returns; and (5) marketing the
products, among other things. If the relative amounts of risks
and rewards borne by the Company associated with processing
orders were to change in the future, the Companys
reporting policy related to revenue recognition and costs of
goods sold and services provided could change. Shipping and
service fees charged to customers are recognized at the time the
products are delivered to the customer and are included in total
revenues. Shipping costs are included cost of goods sold and
services provided.
Revenues generated by the florist businesses of the Company for
processing orders through the clearinghouse are recorded in the
month in which the orders are delivered. Revenues for other
services related to the processing of such orders, including
equipment rentals and transmission charges, are recorded in the
period in which the service is provided. Sales of floral-related
hard goods are recorded when the products are shipped. Revenues
relating to publications are recognized ratably over the period
for which the publications are effective. Revenues associated
with FTD Florists Online Web site hosting and advertising
services, and Flowers All Hours are recorded in the period in
which the service is provided.
The Company also sells computer equipment and software to FTD
members. The Company follows the provisions of Statement of
Position (SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-9,
Modification of
SOP 97-2,
Software Revenue Recognition, With Respect to
Certain Transactions.
SOP 97-2
requires revenue earned on software arrangements involving
multiple elements (e.g., software products,
upgrades/enhancements, post-contract customer support,
installation and training) to be allocated to each element based
on the relative fair values of the elements. The Company
recognizes revenue from hardware products which are sold without
a software component at the time of shipment. For sales
including software products, the related hardware on which the
software is loaded, installation and training revenues are
recognized when all required elements have been delivered
and/or
customer acceptance has occurred. For systems that are being
leased, the Company recognizes hardware and software revenue
ratably over the period of the lease agreement. Support revenue
is recognized over the period in which the support services are
provided.
Allowance
for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers
and adjusts credit limits based upon payment history and the
customers creditworthiness, as determined by the
Companys review of current credit information. In certain
circumstances the Company may require deposits from its
customers. The Company regularly monitors collections and
payments from its customers and maintains a provision for
estimated losses based upon historical experience and specific
customer collection issues that it has identified. The
Companys policy for determining past due balances is based
on when the original billing was incurred. Trade receivables are
written off when all reasonable collection efforts have been
exhausted, including, but not limited to, external third party
collection efforts and litigation. While such credit losses have
historically been within managements expectations and the
provisions established, there can be no assurance that the
Company will continue to experience the same credit loss rates
as in the past. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances for
doubtful accounts may be required. In fiscal years 2007 and
2006, no individual customer comprised 10% or more of the
Companys consolidated revenues. The allowance for doubtful
accounts was $5.4 million and $4.4 million at
June 30, 2007 and 2006, respectively.
Goodwill
and Intangibles
The Company reviews goodwill and indefinite-lived intangibles
for impairment on an annual basis or whenever events or changes
in circumstances indicate the carrying amount of goodwill or
indefinite-lived intangibles may not be recoverable. The
evaluation is based upon the estimated fair value of the
Companys reporting units compared to the sum of the
carrying value of the Companys assets and liabilities. The
estimated fair value is determined based on market
capitalization, discounted cash flow analysis or a combination
of both methodologies. The assumptions used in the valuations
include expectations regarding future operating performance,
discount rates, control premiums and other factors which are
subjective in nature. Actual cash flows from operations could
differ from managements estimates due to changes in
33
business conditions, operating performance and economic
conditions. Should estimates differ materially from actual
results, the Company may be required to record impairment
charges in the future.
Deferred
Income Taxes
The Company recognizes deferred tax assets and liabilities based
on the differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. The Company
regularly reviews its deferred tax assets for recoverability and
establishes a valuation allowance based on historical taxable
income, projected future taxable income and the expected timing
of the reversals of existing temporary differences to reduce its
deferred tax assets to the amount that it believes is more
likely than not to be realized. While the Company has considered
future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for a valuation
allowance, in the event the Company were to determine that it
would not be able to realize all or part of its deferred tax
assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination was
made.
Recently
Issued Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an
amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159
provides a company with the option to measure selected financial
instruments and certain other items at fair value at specified
election dates. The election may be applied on an item by item
basis, with disclosure regarding reasons for partial election
and additional information about items selected for fair value
option. SFAS No. 159 is effective for the
Companys fiscal year ending June 30, 2009. The
Company is currently evaluating the impact the adoption of
SFAS 159 will have on the Companys consolidated
financial statements and notes thereto.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy.
SFAS No. 157 is effective for the Companys
fiscal year ending June 30, 2009. The Company is currently
evaluating the impact the adoption of SFAS No. 157
will have on the Companys consolidated financial
statements and notes thereto.
In June 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
No. 109 (SFAS 109). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition threshold and
measurement of a tax position taken or expected to be taken in
an enterprises tax return. In addition, FIN 48
provides guidance on derecognition, classification, interest,
penalties, accounting in interim periods and disclosure related
to uncertain income tax positions. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company
will adopt FIN 48 as of July 1, 2007, as required. The
Company is currently evaluating the impact the adoption of
FIN 48 will have on the Companys consolidated
financial statements and notes thereto.
Related
Party Transactions
In connection with the 2004 Going Private Transaction, FTD, Inc.
entered into a management services agreement with Leonard
Green & Partners, L.P., whereby Leonard
Green & Partners, L.P. provided management, consulting
and financial planning services in exchange for an annual
management fee of $2.0 million, payable in equal monthly
installments commencing in March 2004. This agreement was
terminated in February 2005 in connection with the IPO, in
consideration of a lump sum payment of $12.5 million by
FTD, Inc. to Leonard Green & Partners L.P., in
accordance with the management services agreement. For the year
ended June 30, 2005, the Company incurred expenses,
including the termination fee, of $13.9 million, related to
the management services agreement.
34
There were no related party transactions during the years ended
June 30, 2007 and 2006.
Quarterly
Financial Information (Unaudited)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
Fiscal Year Ended June 30, 2007
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Total revenues
|
|
$
|
108,771
|
|
|
$
|
151,540
|
|
|
$
|
182,899
|
|
|
|
169,802
|
|
|
$
|
613,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
48,348
|
|
|
|
62,222
|
|
|
|
71,296
|
|
|
|
69,775
|
|
|
|
251,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
15,374
|
|
|
|
17,013
|
|
|
|
22,450
|
|
|
|
23,283
|
|
|
|
78,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,443
|
|
|
$
|
6,107
|
|
|
$
|
9,615
|
|
|
$
|
10,747
|
|
|
$
|
31,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share basic
|
|
$
|
0.19
|
|
|
$
|
0.22
|
|
|
$
|
0.34
|
|
|
$
|
0.37
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share diluted
|
|
$
|
0.18
|
|
|
$
|
0.21
|
|
|
$
|
0.32
|
|
|
$
|
0.36
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
Fiscal Year Ended June 30, 2006
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
Total revenues
|
|
$
|
85,869
|
|
|
$
|
109,185
|
|
|
$
|
128,585
|
|
|
|
141,494
|
|
|
$
|
465,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40,011
|
|
|
|
48,063
|
|
|
|
54,622
|
|
|
|
59,663
|
|
|
|
202,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,431
|
|
|
|
14,706
|
|
|
|
16,831
|
|
|
|
19,088
|
|
|
|
61,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,427
|
|
|
$
|
5,901
|
|
|
$
|
7,421
|
|
|
$
|
8,794
|
|
|
$
|
25,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share basic
|
|
$
|
0.12
|
|
|
$
|
0.20
|
|
|
$
|
0.26
|
|
|
$
|
0.31
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share diluted
|
|
$
|
0.11
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.30
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Companys exposure to interest rate risk is primarily
the result of borrowings under its bank credit facilities. At
June 30, 2007, $141.9 million of debt was outstanding
under the 2006 Credit Agreement and is subject to variable
interest rates. Borrowings under the 2006 Credit Agreement are
secured by first priority security interests in, and mortgages
on, substantially all of the Companys tangible and
intangible assets. The Companys results of operations are
affected by changes in market interest rates on these
borrowings. The variable interest rate borrowings comprised
45.2% of the Companys $313.7 million aggregate
principal amount of indebtedness as of June 30, 2007. A one
percent (1%) increase in the variable interest rate would result
in additional annual interest expense of $1.4 million.
The Company is exposed to foreign currency exchange rate risk
with respect to the British pound, the Canadian dollar and the
Euro. Currency exposures include third-party trade payables and
receivables and intercompany loans where the asset or liability
is denominated in a currency other than the functional currency
of the entity. In addition, currency exposures exist for certain
subsidiaries for anticipated transactions expected to be
denominated in a foreign currency due to changes in foreign
exchange rates.
In conjunction with the acquisition of Interflora, the Company
entered into forward exchange contracts totaling
£61.8 million to hedge the acquisition price. A
contract in the amount of £51.0 million was settled on
July 28, 2006 and resulted in a gain of $1.4 million,
which has been recorded in other income, net within the
Consolidated Statements of Operations and Comprehensive Income
(Loss). A contract in the amount of £10.0 million was
settled on May 1, 2007 and resulted in a gain of
$1.4 million, which offset the foreign currency loss on the
notes in the same amount. Both the gain on the contract and the
related loss on the notes have been recorded in other income,
net within the Consolidated Statements of Operations and
Comprehensive Income (Loss). The remaining forward contract for
£0.8 million is expected to be settled during the
first
35
quarter of fiscal year 2009. The settlement of this contract
coincides with the due date of the remaining note payable
related to the acquisition of Interflora.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The consolidated financial statements of the Company required by
this item are set forth on pages F-1 through F-31 of this
Form 10-K
and the related schedules are set forth on pages F-32 through
F-36 of this
Form 10-K.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by
this Annual Report on
Form 10-K,
the Chief Executive Officer and the Chief Financial Officer of
FTD Group, Inc. have concluded that FTD Group, Inc.s
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) are effective to ensure that information
required to be disclosed by FTD Group, Inc. in the reports that
it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in SECs rules and forms.
Managements
Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting to provide reasonable assurance regarding the
reliability of the Companys financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the
United States. Internal control over financial reporting
includes those policies and procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
of the Company and dispositions of the Companys assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that the Companys receipts and
expenditures are being made only in accordance with the
authorization of management
and/or the
Companys board of directors;
(iii) provide reasonable assurance regarding the prevention
or timely detection of any unauthorized acquisition, use or
disposition of Company assets that could have a material effect
on the Companys financial statements.
36
Due to its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a
misstatement of the Companys financial statements would be
prevented or detected. Rather, the Companys internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate due to changes in conditions, or
that the degree of compliance with the policies or procedures
may deteriorate.
Under the supervision and with the participation of the
Companys management, including the Chief Executive Officer
and Chief Financial Officer, the Company conducted an evaluation
of the effectiveness of its internal control over financial
reporting using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal
Control Integrated Framework. Based on its
evaluation, the Companys management concluded that its
internal control over financial reporting was effective as of
the end of the period covered by this Annual Report on
Form 10-K.
Ernst & Young, an independent registered public
accounting firm, has audited the Consolidated Financial
Statements included in this Annual Report on
Form 10-K
and, as part of their audit, has issued its report, included
herein on the effectiveness of the Companys internal
control over financial reporting. See Report of
Independent Registered Public Accounting Firm on
page 38.
37
Report of
Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of FTD Group, Inc.
We have audited FTD Group, Inc.s internal control over
financial reporting as of June 30, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). FTD Group, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, FTD Group, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of June 30, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of June 30, 2007 and 2006,
and the related consolidated statements of operations and
comprehensive income (loss), stockholders equity, and cash
flows for each of the three years in the period ended
June 30, 2007 of FTD Group, Inc. and our report dated
September 4, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
September 4, 2007
38
|
|
Item 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
Item 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The Companys Chief Executive Officer made the annual
certification and Written Affirmation required by
Section 303A.12 of the NYSE Listed Company Manual on
December 14, 2006. The Company has filed with the SEC as
exhibits to this
Form 10-K
the Sarbanes-Oxley Act Section 302 Certifications of its
Chief Executive Officer and Chief Financial Officer relating to
the quality of its public disclosure.
The information regarding directors required by this item will
be set forth under the caption Election of Directors
in the Proxy Statement and is incorporated herein by reference.
Information regarding executive officers of the Company will be
set forth under the caption Executive Officers in
the Proxy Statement and is incorporated herein by reference.
Information required by Item 405 of
Regulation S-K
will be set forth under the caption Section 16(a)
Beneficial Ownership Reporting Compliance in the Proxy
Statement and is incorporated herein by reference. Information
required by Item 406 of
Regulation S-K
will be set forth under the caption Does the Company have
a Code of Ethics? in the Proxy Statement and is
incorporated herein by reference. Information required by
Item 407(c)(3), (d)(4) and (d)(5) of
Regulation S-K
will be set forth under the caption Governance of the
Company in the Proxy Statement and is incorporated herein
by reference.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
The information regarding executive compensation required by
this item will be set forth under the caption Executive
Compensation in the Proxy Statement and is incorporated
herein by reference. Information required by Item 407(e)(4)
and (e)(5) of
Regulation S-K
will be set forth under the captions Compensation
Committee and Insider Participation and Compensation
Committee Report and is incorporated herein by reference.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item will be set forth under
the caption Security Ownership of Certain Beneficial
Owners and Management in the Proxy Statement and is
incorporated herein by reference.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required by Item 404 of
Regulation S-K
will be set forth under the caption Certain Relationships
and Related Transactions in the Proxy Statement and is
incorporated herein by reference. Information regarding director
independence required by Item 407(a) of
Regulation S-K
will be set forth under the caption Governance of the
Company in the Proxy Statement and is incorporated herein
by reference.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item will be set forth under
the caption Principal Accountant Fees and Services
in the Proxy Statement and is incorporated herein by reference.
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
Financial
Statements, Financial Statement Schedules and Exhibits
|
(1) & (2) The consolidated financial statements
and schedules which are filed as part of this
Form 10-K
are set forth in the Index to Consolidated Financial Statements
and Schedules on
Page F-1.
(3) See accompanying Index to Exhibits beginning on
Page E-1.
Management contracts or compensatory plans or arrangements are
marked with an asterisk on such Index to Exhibits.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FTD Group, Inc.
|
|
|
|
By:
|
/s/ MICHAEL
J. SOENEN
|
Name: Michael J. Soenen
|
|
|
|
Title:
|
President and Chief Executive Officer
|
Date: September 4, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ MICHAEL
J. SOENEN
Michael
J. Soenen
|
|
President and Chief Executive
Officer, Director (principal executive officer)
|
|
September 4, 2007
|
|
|
|
|
|
/s/ PETER
J. NOLAN
Peter
J. Nolan
|
|
Director, Chairman of the Board of
Directors
|
|
September 4, 2007
|
|
|
|
|
|
/s/ ROBERT
S. APATOFF
Robert
S. Apatoff
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ ADAM
M. ARON
Adam
M. Aron
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ JOHN
M. BAUMER
John
M. Baumer
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ WILLIAM
J.
CHARDAVOYNE
William
J. Chardavoyne
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ TIMOTHY
J. FLYNN
Timothy
J. Flynn
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ TED
C. NARK
Ted
C. Nark
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ THOMAS
M. WHITE
Thomas
M. White
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ CARRIE
A. WOLFE
Carrie
A. Wolfe
|
|
Director
|
|
September 4, 2007
|
|
|
|
|
|
/s/ BECKY
A. SHEEHAN
Becky
A. Sheehan
|
|
Chief Financial Officer
(principal financial officer)
|
|
September 4, 2007
|
40
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
F-1
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of FTD Group, Inc.
We have audited the accompanying consolidated balance sheets of
FTD Group, Inc. and subsidiaries (the Company) as of
June 30, 2007 and 2006, and the related consolidated
statements of operations and comprehensive income (loss),
stockholders equity, and cash flows of the Company for
each of the three years in the period ended June 30, 2007.
Our audits also included the financial statement schedules
listed in Item 15(a). These financial statements and
schedules are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at June 30, 2007 and
2006, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
June 30, 2007 in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.
As discussed in Notes 9 and 10 to the consolidated
financial statements, effective for the fiscal year ended
June 30, 2007, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of FTD Group, Inc.s internal control over
financial reporting as of June 30, 2007, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated September 4, 2007 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
September 4, 2007
F-2
FTD
GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,462
|
|
|
$
|
10,954
|
|
Accounts receivable, less allowance
for doubtful accounts of $5,431 at June 30, 2007
and $4,437 at June 30, 2006
|
|
|
32,416
|
|
|
|
26,044
|
|
Inventories, net
|
|
|
3,694
|
|
|
|
3,542
|
|
Deferred income taxes
|
|
|
4,300
|
|
|
|
2,695
|
|
Prepaid expenses and other current
assets
|
|
|
5,200
|
|
|
|
3,290
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
71,072
|
|
|
|
46,525
|
|
Property and
equipment:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
1,681
|
|
|
|
1,380
|
|
Building and improvements
|
|
|
19,636
|
|
|
|
15,611
|
|
Computer equipment
|
|
|
10,765
|
|
|
|
4,931
|
|
Furniture and equipment
|
|
|
3,709
|
|
|
|
3,343
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,791
|
|
|
|
25,265
|
|
Less accumulated depreciation
|
|
|
11,018
|
|
|
|
6,051
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
24,773
|
|
|
|
19,214
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Deferred financing fees, net
|
|
|
5,537
|
|
|
|
6,848
|
|
Computer software, net
|
|
|
12,699
|
|
|
|
10,577
|
|
Other noncurrent assets
|
|
|
15,548
|
|
|
|
14,557
|
|
Other intangible assets, less
accumulated amortization of $9,154 at June 30, 2007
and $5,993 at June 30, 2006
|
|
|
13,454
|
|
|
|
14,780
|
|
Trademark
|
|
|
187,816
|
|
|
|
121,577
|
|
Goodwill
|
|
|
418,001
|
|
|
|
336,659
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
653,055
|
|
|
|
504,998
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
748,900
|
|
|
$
|
570,737
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
52,009
|
|
|
$
|
45,273
|
|
Customer deposits
|
|
|
4,105
|
|
|
|
4,519
|
|
Unearned income
|
|
|
2,294
|
|
|
|
1,909
|
|
Accrued interest
|
|
|
5,989
|
|
|
|
4,924
|
|
Accrued compensation
|
|
|
7,905
|
|
|
|
4,521
|
|
Other accrued liabilities
|
|
|
8,218
|
|
|
|
8,210
|
|
Current maturities of long-term debt
|
|
|
8,475
|
|
|
|
1,125
|
|
Dividends payable
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
93,702
|
|
|
|
70,481
|
|
Other liabilities
|
|
|
3,038
|
|
|
|
|
|
Senior secured credit facility
|
|
|
133,418
|
|
|
|
48,875
|
|
Senior subordinated notes
|
|
|
170,117
|
|
|
|
170,117
|
|
Post-retirement benefits and
accrued pension obligations
|
|
|
1,497
|
|
|
|
2,368
|
|
Deferred income taxes
|
|
|
85,350
|
|
|
|
61,160
|
|
Stockholders
equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value,
75,000 shares authorized; 29,482 shares issued and
outstanding as of June 30, 2007 and 2006
|
|
|
295
|
|
|
|
295
|
|
Additional paid-in capital
|
|
|
235,589
|
|
|
|
233,362
|
|
Retained earnings (accumulated
deficit)
|
|
|
20,952
|
|
|
|
(1,554
|
)
|
Accumulated other comprehensive
income
|
|
|
9,933
|
|
|
|
200
|
|
Treasury stock, at cost, 519 and
1,504 shares as of June 30, 2007 and 2006, respectively
|
|
|
(4,991
|
)
|
|
|
(14,567
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity
|
|
|
261,778
|
|
|
|
217,736
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
748,900
|
|
|
$
|
570,737
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
FTD
GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
464,455
|
|
|
$
|
341,244
|
|
|
$
|
321,151
|
|
Services
|
|
|
148,557
|
|
|
|
123,889
|
|
|
|
116,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
613,012
|
|
|
|
465,133
|
|
|
|
437,795
|
|
Costs of Goods Sold and
Services Provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
344,799
|
|
|
|
244,840
|
|
|
|
231,048
|
|
Services
|
|
|
16,572
|
|
|
|
17,934
|
|
|
|
16,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of goods sold and
services provided
|
|
|
361,371
|
|
|
|
262,774
|
|
|
|
248,017
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
119,656
|
|
|
|
96,404
|
|
|
|
90,103
|
|
Services
|
|
|
131,985
|
|
|
|
105,955
|
|
|
|
99,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
251,641
|
|
|
|
202,359
|
|
|
|
189,778
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and selling
|
|
|
94,425
|
|
|
|
89,121
|
|
|
|
85,399
|
|
General and administrative
|
|
|
79,096
|
|
|
|
52,182
|
|
|
|
50,836
|
|
Management fees
|
|
|
|
|
|
|
|
|
|
|
13,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
173,521
|
|
|
|
141,303
|
|
|
|
150,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
78,120
|
|
|
|
61,056
|
|
|
|
39,646
|
|
Other Income and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,883
|
)
|
|
|
(924
|
)
|
|
|
(649
|
)
|
Interest expense
|
|
|
28,227
|
|
|
|
19,449
|
|
|
|
20,466
|
|
Interest expense and prepayment
fees on shares subject to mandatory redemption
|
|
|
|
|
|
|
|
|
|
|
34,732
|
|
Other income, net
|
|
|
(929
|
)
|
|
|
(398
|
)
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
25,415
|
|
|
|
18,127
|
|
|
|
54,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
52,705
|
|
|
|
42,929
|
|
|
|
(14,513
|
)
|
Income tax expense
|
|
|
20,793
|
|
|
|
17,386
|
|
|
|
8,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,912
|
|
|
$
|
25,543
|
|
|
$
|
(22,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
9,507
|
|
|
|
223
|
|
|
|
156
|
|
Minimum pension liability
adjustment, net of income tax expense (benefit) of $48, $124 and
($217) for years ended June 30, 2007, 2006 and 2005,
respectively
|
|
|
72
|
|
|
|
187
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
41,491
|
|
|
$
|
25,953
|
|
|
$
|
(22,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per Common
Share basic
|
|
$
|
1.12
|
|
|
$
|
0.89
|
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per Common
Share diluted
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,496
|
|
|
|
28,736
|
|
|
|
19,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
29,577
|
|
|
|
29,779
|
|
|
|
19,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per
common share
|
|
$
|
0.3250
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Balance at June 30, 2004
|
|
|
13,333
|
|
|
$
|
133
|
|
|
$
|
39,867
|
|
|
$
|
(4,497
|
)
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
$
|
35,462
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,600
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
Management share purchase
|
|
|
276
|
|
|
|
3
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
827
|
|
Initial Public Offering
|
|
|
15,408
|
|
|
|
154
|
|
|
|
186,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,951
|
|
Exercise of overallotment
|
|
|
435
|
|
|
|
5
|
|
|
|
5,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005
|
|
|
29,452
|
|
|
|
295
|
|
|
|
232,759
|
|
|
|
(27,097
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
205,747
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,543
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
Repurchase of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,545
|
)
|
|
|
(14,999
|
)
|
|
|
(14,999
|
)
|
Adjustment to Initial Public
Offering
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
Exercise of stock options,
including tax benefit of $220
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
432
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
|
29,482
|
|
|
|
295
|
|
|
|
233,362
|
|
|
|
(1,554
|
)
|
|
|
200
|
|
|
|
(1,504
|
)
|
|
|
(14,567
|
)
|
|
|
217,736
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,912
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,579
|
|
|
|
|
|
|
|
|
|
|
|
9,579
|
|
Adjustment to initially apply FASB
Statement No. 158, net of tax of $104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,965
|
|
Exercise of stock options,
including tax benefit of $4,122
|
|
|
|
|
|
|
|
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
769
|
|
|
|
7,299
|
|
|
|
6,632
|
|
Shares issued in connection with
acquisition
|
|
|
|
|
|
|
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
2,277
|
|
|
|
3,206
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
29,482
|
|
|
$
|
295
|
|
|
$
|
235,589
|
|
|
$
|
20,952
|
|
|
$
|
9,933
|
|
|
|
(519
|
)
|
|
$
|
(4,991
|
)
|
|
$
|
261,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,912
|
|
|
$
|
25,543
|
|
|
$
|
(22,600
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,335
|
|
|
|
10,461
|
|
|
|
10,499
|
|
Interest expense and prepayment
fees on mandatorily redeemable shares
|
|
|
|
|
|
|
|
|
|
|
34,732
|
|
Gain from sale of business and
related transaction
|
|
|
|
|
|
|
(961
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,965
|
|
|
|
625
|
|
|
|
|
|
Amortization and write off of
deferred financing costs
|
|
|
2,775
|
|
|
|
1,679
|
|
|
|
1,934
|
|
Provision for doubtful accounts
|
|
|
3,260
|
|
|
|
3,436
|
|
|
|
4,250
|
|
Deferred income taxes
|
|
|
1,925
|
|
|
|
726
|
|
|
|
4,438
|
|
Increase (decrease) in cash due to
changes in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,208
|
|
|
|
(7,430
|
)
|
|
|
(2,953
|
)
|
Inventories
|
|
|
(31
|
)
|
|
|
581
|
|
|
|
2,897
|
|
Prepaid expenses and other
|
|
|
2,305
|
|
|
|
4,083
|
|
|
|
3,400
|
|
Other noncurrent assets
|
|
|
(214
|
)
|
|
|
(4,129
|
)
|
|
|
258
|
|
Accounts payable
|
|
|
(14,733
|
)
|
|
|
4,225
|
|
|
|
187
|
|
Other accrued liabilities, unearned
income, and customer deposits
|
|
|
(317
|
)
|
|
|
1,808
|
|
|
|
(2,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
48,390
|
|
|
|
40,647
|
|
|
|
35,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of
cash acquired
|
|
|
(96,702
|
)
|
|
|
|
|
|
|
(8,472
|
)
|
Capital expenditures
|
|
|
(7,835
|
)
|
|
|
(8,754
|
)
|
|
|
(5,604
|
)
|
Settlement of foreign exchange
contract
|
|
|
1,386
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(103,151
|
)
|
|
|
(5,254
|
)
|
|
|
(14,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of
long-term debt, net of financing costs
|
|
|
148,536
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(58,107
|
)
|
|
|
(18,963
|
)
|
|
|
(20,708
|
)
|
Repayment of notes payable and
capital lease obligations
|
|
|
(23,572
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,699
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based
compensation
|
|
|
4,122
|
|
|
|
220
|
|
|
|
|
|
Proceeds from exercise of stock
options
|
|
|
2,510
|
|
|
|
212
|
|
|
|
|
|
Purchase of company stock
|
|
|
|
|
|
|
(14,999
|
)
|
|
|
|
|
Net proceeds from the issuance of
common stock
|
|
|
|
|
|
|
(22
|
)
|
|
|
192,227
|
|
Repurchase of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(186,811
|
)
|
Capital contribution
common stock
|
|
|
|
|
|
|
|
|
|
|
827
|
|
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
68,790
|
|
|
|
(33,552
|
)
|
|
|
(14,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate
changes on cash
|
|
|
479
|
|
|
|
223
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
14,508
|
|
|
|
2,064
|
|
|
|
6,399
|
|
Cash and cash equivalents at
beginning of period
|
|
|
10,954
|
|
|
|
8,890
|
|
|
|
2,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
25,462
|
|
|
$
|
10,954
|
|
|
$
|
8,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
24,638
|
|
|
$
|
17,838
|
|
|
$
|
18,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
17,319
|
|
|
$
|
10,610
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of notes payable
associated with the purchase of Interflora Holdings Limited
|
|
$
|
23,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of treasury stock
associated with the purchase of Interflora Holdings Limited
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable associated with
the sale of Renaissance
|
|
|
|
|
|
$
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Description
of the Business
FTD Group, Inc. is a leading provider of floral products and
services to consumers and retail florists, as well as other
retail locations offering floral products, in the U.S., Canada,
the U.K. and the Republic of Ireland. The business utilizes the
highly recognized FTD and Interflora brands, both supported by
the Mercury Man logo, which is displayed in approximately 45,000
floral shops worldwide. The Company conducts its business
through three operating segments: the consumer segment, the
florist segment and the international segment. The consumer
segment, primarily through the www.ftd.com Web site, in
addition to the 1-800-SEND-FTD toll-free telephone number,
offers
same-day
delivery of floral orders to nearly 100% of the U.S. and
Canadian populations. The florist segment provides a
comprehensive suite of products and services that enable the
Companys network of FTD members in the U.S. and Canada to
send and deliver floral orders. The international segment was
added as a result of the acquisition of Interflora Holdings
Limited (Interflora) on July 31, 2006.
Interflora provides similar products and services to its members
and also markets flowers and specialty gifts directly to
consumers in the U.K. and the Republic of Ireland through both
Interfloras website at www.interflora.co.uk and a
toll-free telephone number.
Principles
of Consolidation
FTD Group, Inc., formerly Mercury Man Holdings Corporation, is a
Delaware corporation that was formed in 2003 by Green Equity
Investors IV, L.P., a private investment fund affiliated with
Leonard Green & Partners, L.P., solely for the purpose
of acquiring majority ownership of FTD, Inc. FTD, Inc. is a
Delaware corporation that commenced operations in 1994 and
includes the operations of its principal operating subsidiary,
Florists Transworld Delivery, Inc., a Michigan corporation
(FTD or the Operating Company). The
operations of FTD include those of its wholly-owned
subsidiaries, FTD.COM INC. (FTD.COM), FTD Canada,
Inc. (formerly known as Florists Transworld Delivery
Association of Canada, Ltd.) and Interflora. Substantially all
of the Companys operations are conducted through FTD and
its subsidiaries. As used in this
Form 10-K,
the term the Company refers to FTD Group, Inc.,
including its wholly-owned subsidiary, FTD, Inc.
On July 31, 2006, the Company completed its acquisition of
Interflora, a U.K. based provider of floral-related products and
services to consumers and retail floral locations in the U.K.
and the Republic of Ireland. Refer to Note 2 below. As a
result of the Interflora acquisition, the Company also acquired
majority control of Interflora, Inc. Interflora, Inc. is an
international clearinghouse for
flowers-by-wire
order exchanges between its members. The results of operations
associated with Interflora and Interflora, Inc. are included in
the international segment.
On December 21, 2005, the Company sold substantially all of
the assets and certain liabilities of Renaissance Greeting
Cards, Inc. (Renaissance). See Note 3 for
further detail. Prior to the sale, the operations of Renaissance
were included in the florist segment.
On February 7, 2005, the stockholders approved an increase
in the number of authorized shares to 75,000,000, as well as a
1-for-3
reverse stock split. All common share and per share amounts
reflect this reverse stock split.
All intercompany accounts and transactions have been eliminated
in consolidation.
Certain amounts reported within total revenues and costs of
products sold and services provided have been reclassified
between products and services in the fiscal year 2006 and 2005
financial statements to conform to current year presentation.
Such reclassifications primarily related to service fees in the
consumer segment and did not affect reported total revenues,
costs of goods sold and services provided, net income or
stockholders equity.
F-7
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Use
of Estimates
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States
and necessarily include amounts based on estimates and
assumptions by management. Actual results could differ from
those estimates. Significant estimates include, but are not
limited to, the allowance for doubtful accounts, income tax
liabilities and loss contingencies.
Cash
and Cash Equivalents
The Company considers all investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair
Value of Financial Instruments
The carrying amounts of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, customer deposits, unearned income
and other accrued liabilities approximate fair value due to the
short-term maturities of these financial instruments. At
June 30, 2007, the carrying amount of long-term debt,
including the current portion, was $313.7 million, which
was comprised of the $170.1 million of 7.75% Senior
Subordinated Notes (the Notes), $141.9 million
in borrowings under the Senior Secured Credit Facility (the
2006 Credit Agreement) and $1.7 million in
notes payable related to the acquisition of Interflora. The
estimated fair value at June 30, 2007 of the long-term
debt, including the current portion was $313.9 million,
which was comprised of $170.3 million related to the Notes,
$141.9 million in borrowings under the 2006 Credit
Agreement and $1.7 million in notes payable. The estimated
fair value of the Notes is based on quoted market prices for
such Notes as of June 30, 2007.
Allowance
for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers
and adjusts credit limits based upon payment history and the
customers creditworthiness, as determined by the
Companys review of current credit information. In certain
circumstances the Company may require deposits from its
customers. The Company regularly monitors collections and
payments from its customers and maintains a provision for
estimated losses based upon historical experience and specific
customer collection issues that it has identified. The
Companys policy for determining past due balances is based
on when the original billing was incurred. Trade receivables are
written off when all reasonable collection efforts have been
exhausted, including, but not limited to, external third party
collection efforts and litigation. While such credit losses have
historically been within managements expectations and the
provisions established, there can be no assurance that the
Company will continue to experience the same credit loss rates
as in the past. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances for
doubtful accounts may be required. The allowance for doubtful
accounts was $5.4 million and $4.4 million at
June 30, 2007 and 2006, respectively.
Inventories
The Companys inventory consists of finished goods and is
stated at the lower of cost or market value. Inventory is valued
using the weighted average cost method. The Companys
management regularly reviews inventory quantities on hand and,
if necessary, records a provision for excess and obsolete
inventory based primarily on the age of the inventory and
forecasts of product demand. Product demand is impacted by
promotional incentives offered by the Company and customer
preferences, among other things. The reserves for excess and
obsolete inventory were $0.7 million and $0.9 million
as of June 30, 2007 and 2006, respectively.
F-8
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are recorded at cost and are depreciated
over their estimated useful lives using the straight-line
method. The useful lives range from five to forty years for
building and improvements, three to five years for computer
equipment and two to ten years for furniture and equipment.
Software
to be Sold, Leased, or Marketed
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed. SFAS No. 86
requires that all costs relating to the purchase or internal
development and production of computer software products to be
sold, leased or otherwise marketed be expensed in the period
incurred unless the requirements for technological feasibility
have been established. The Company capitalizes all eligible
computer software costs incurred once technological feasibility
is established. The Company amortizes these costs using the
greater of the straight-line method over a period of three to
five years or the revenue method prescribed by
SFAS No. 86.
The costs are recorded as computer software on the Consolidated
Balance Sheets as of June 30, 2007 and 2006. At
June 30, 2007 and 2006, the net book value of capitalized
computer software costs related to the purchase or internal
development and production of computer software product to be
sold, leased or otherwise marketed was $2.1 million and
$3.0 million, respectively, including projects in process.
During the years ended June 30, 2007, 2006 and 2005,
$2.9 million, $2.8 million and $2.0 million,
respectively, was charged to expense related to the amortization
of these capitalized computer software costs.
Internal
Use Software
The Company has adopted the provisions of AICPA Statement of
Position (SOP)
98-1,
Accounting for the Costs of Software Developed or Obtained
for Internal Use and Emerging Issues Task Force
(EITF) Consensus
No. 00-02,
Accounting for Web Site Development Costs. Accordingly,
certain costs incurred in the planning and evaluation stage of
internal-use computer software, including Web site development
costs, are expensed as incurred. Costs incurred during the
application development stage are capitalized. Capitalized
internal use software costs generally are amortized over the
expected economic life of three to five years using the
straight-line method. At June 30, 2007 and 2006, the net
book value of capitalized internal use software costs of
$10.6 million and $7.6 million, respectively, was
included in computer software on the Consolidated Balance
Sheets, including projects in process. During the years ended
June 30, 2007, 2006 and 2005, amortization expense related
to internal use software was $3.4 million,
$3.5 million and $2.2 million, respectively.
Goodwill
and Other Intangibles
The Company reviews goodwill and indefinite-lived intangibles
for impairment on an annual basis or whenever events or changes
in circumstances indicate the carrying amount of goodwill or
indefinite-lived intangibles may not be recoverable. The
evaluation is based upon the estimated fair value of the
Companys reporting units compared to the sum of the
carrying value of the Companys assets and liabilities. The
estimated fair value is determined based on market
capitalization, discounted cash flow analysis or a combination
of both methodologies. The assumptions used in the valuations
include expectations regarding future operating performance,
discount rates, control premiums and other factors which are
subjective in nature. Actual cash flows from operations could
differ from managements estimates due to changes in
business conditions, operating performance and economic
conditions. Should estimates differ materially from actual
results, the Company may be required to record impairment
charges in the future. The Company defines its reporting units
as its reportable operating segments.
F-9
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Indefinite-lived intangibles consist primarily of trademarks and
a uniform resource locator (URL). The Company also
has other intangibles, consisting of customer lists and a
non-compete agreement, which are amortized over three to five
years using the straight-line method.
Income
Taxes
Deferred tax assets and liabilities are recognized based on the
differences between financial statement carrying amounts and the
tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Foreign
Currency Translation
The financial position and results of operations of the
Companys foreign subsidiary are measured using the
subsidiarys local currency as the functional currency.
Balance sheet accounts of the Companys foreign operations
are translated from foreign currency into U.S. dollars at
the year-end rate of exchange. Income and expenses of the
Companys foreign operations are translated at the weighted
average rates of exchange for the year. Translation gains or
losses are included in stockholders equity. Gains and
losses resulting from foreign currency transactions are included
in net income (loss).
Revenue
Recognition
The Companys consumer businesses generally recognize 100%
of the order value as revenue and recognize the associated costs
of goods sold and services provided when the order is delivered.
The Companys consumer businesses recognize revenue on a
gross basis, as opposed to a net basis similar to a commission
arrangement, because the Company bears the risks and benefits
associated with the revenue-generating activities by:
(1) acting as a principal in the transaction;
(2) establishing prices; (3) being responsible for
fulfillment of the order; (4) taking the risk of loss for
collection, delivery and returns; and (5) marketing the
products, among other things. If the relative amounts of risks
and rewards borne by the Company associated with processing
orders were to change in the future, the Companys
reporting policy related to revenue recognition and costs of
goods sold and services provided could change. Shipping and
service fees charged to customers are recognized at the time the
products are delivered to the customer and are included in total
revenues. Shipping costs are included cost of goods sold and
services provided.
Revenues generated by the florist businesses of the Company for
processing orders through the clearinghouse are recorded in the
month in which the orders are delivered. Revenues for other
services related to the processing of such orders (including
equipment rentals and transmission charges) are recorded in the
period in which the service is provided. Sales of floral-related
hard goods are recorded when the products are shipped. Revenues
relating to publications are recognized ratably over the period
for which the publications are effective. Revenues associated
with FTD Florists Online Web site hosting and advertising
services, and Flowers All Hours are recorded in the period in
which the service is provided.
The Company also sells computer equipment and software to FTD
members. The Company follows the provisions of
SOP 97-2,
Software Revenue Recognition, as amended by
SOP 98-9,
Modification of
SOP 97-2,
Software Revenue Recognition, With Respect to
Certain Transactions.
SOP 97-2
requires revenue earned on software arrangements involving
multiple elements (e.g., software products,
upgrades/enhancements, post-contract customer support,
installation and training) to be allocated to each element based
on the relative fair values of the elements. The Company
recognizes revenue from hardware products which are sold without
a software component at the time of shipment. For sales
including software products, the related hardware on which the
software is loaded, installation and training revenues are
recognized when all required elements have been delivered
and/or
customer acceptance has occurred. For systems that are being
leased, the Company
F-10
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognizes hardware and software revenue ratably over the period
of the lease agreement. Support revenue is recognized over the
period in which the support services are provided.
Advertising
and Sales Promotion Costs
The Company expenses production, advertising time and space
costs and related residual rights and contracts at the time the
advertising is first broadcast or displayed. Promotion costs,
including costs associated with affinity and other marketing
programs are charged to expense when incurred.
Also, in accordance with the requirements of EITF Issue
No. 01-9,
the Company records advertising and selling expenses that relate
to the granting of mileage and reward points to customers in
connection with an order in costs of goods sold and services
provided. The amounts related to the granting of mileage and
reward points for the years ended June 30, 2007, 2006 and
2005 were $8.6 million, $7.9 million and
$7.2 million, respectively.
Stock-Based
Compensation
The Company adopted SFAS No. 123(R)
(SFAS No. 123(R)), Share-Based Payment
on July 1, 2005 using the modified prospective method
and Black-Scholes as the option valuation model. See
Note 14 for further detail. The option valuation model
includes various assumptions, including the expected volatility
and the expected life of the awards. The assumptions reflect the
Companys best estimates, but they involve inherent
uncertainties based on market conditions generally outside of
the Companys control. As a result, if other assumptions
had been used, stock compensation expense could have been
materially impacted. Had the Company adopted
SFAS No. 123(R) in prior periods, the impact of this
standard would have approximated the impact of
SFAS No. 123 (SFAS No. 123), Accounting
for Stock-Based Compensation as described in the following
disclosure of pro forma net income (loss) and net loss per share.
Prior to July 1, 2005, the Company followed the provisions
of SFAS No. 123 which allows entities to continue to
apply the provisions of Accounting Principles Board Opinion
No. 25 (APB Opinion No. 25), Accounting
for Stock Issued to Employees, and provide pro forma net
income disclosures for employee stock option grants as if the
fair value-based method defined in SFAS No. 123 had
been applied. The Company had elected to continue to apply the
intrinsic value method prescribed by APB Opinion No. 25.
F-11
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For periods prior to adoption of SFAS No. 123(R), the
Companys pro forma information is as follows (in
thousands, except per share amounts):
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
June 30, 2005
|
|
|
Net loss, as reported
|
|
$
|
(22,600
|
)
|
Add: stock-based employee
compensation expense included in net loss, as reported, net of
related tax effects
|
|
|
|
|
Less: total stock-based
employee compensation expense determined under fair value based
method for all awards, net of related tax effects
|
|
|
(314
|
)
|
|
|
|
|
|
Pro forma loss
|
|
$
|
(22,914
|
)
|
|
|
|
|
|
Net loss per share of Common Stock:
|
|
|
|
|
Basic as reported
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
Basic pro forma
|
|
$
|
(1.16
|
)
|
|
|
|
|
|
Diluted as reported
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
(1.16
|
)
|
|
|
|
|
|
Weighted average
shares
|
|
|
|
|
Basic
|
|
|
19,722
|
|
|
|
|
|
|
Diluted
|
|
|
19,722
|
|
|
|
|
|
|
Recently
Issued Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an
amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159
provides a company with the option to measure selected financial
instruments and certain other items at fair value at specified
election dates. The election may be applied on an item by item
basis, with disclosure regarding reasons for partial election
and additional information about items selected for fair value
option. SFAS No. 159 is effective for the
Companys fiscal year ending June 30, 2009. The
Company is currently evaluating the impact the adoption of
SFAS 159 will have on the Companys consolidated
financial statements and notes thereto.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
Under the standard, fair value measurements would be separately
disclosed by level within the fair value hierarchy.
SFAS No. 157 is effective for the Companys
fiscal year ending June 30, 2009. The Company is currently
evaluating the impact the adoption of SFAS No. 157
will have on the Companys consolidated financial
statements and notes thereto.
In June 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
No. 109 (SFAS 109). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition threshold and
measurement of a tax position taken or expected to be taken in
an enterprises tax return. In addition, FIN 48
provides guidance on derecognition, classification, interest,
penalties, accounting in interim periods and disclosure related
to uncertain income tax positions. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The
F-12
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company will adopt FIN 48 as of July 1, 2007, as
required. The Company is currently evaluating the impact the
adoption of FIN 48 will have on the Companys
consolidated financial statements and notes thereto.
|
|
(2)
|
Acquisition
of Interflora Holdings Limited
|
On July 31, 2006, the Company completed the acquisition of
Interflora for a purchase price of approximately
$122.8 million (£66 million) plus transaction
related costs totaling $2.3 million. Approximately
$98.6 million of the acquisition price was paid in cash at
closing and $1.9 million of cash was acquired in connection
with the purchase. The consideration included approximately
$23.3 million (£12.5 million) of notes payable,
of which $21.6 million (£11.6 million) were paid
in May 2007 and the remainder, $1.7 million
(£0.9 million), is expected be paid in the first half
of fiscal 2009. The remainder of the purchase price
($3.2 million) was funded through the issuance of
216,374 shares of common stock (consisting of treasury
shares) to certain senior managers of Interflora. The Company
financed the acquisition with a new senior secured credit
facility (the 2006 Credit Agreement) consisting of a
$150.0 million term loan and a $75.0 million revolving
credit facility. The proceeds from the 2006 Credit Agreement
were also used to repay the Companys existing term loan.
In addition, the Company entered into foreign currency forward
exchange contracts totaling £61.8 million to hedge the
acquisition cost. A contract in the amount of
£51.0 million was settled on July 28, 2006 and
resulted in a gain of $1.4 million, which has been recorded
in other income, net within the Consolidated Statements of
Operations and Comprehensive Income (Loss). A contract in the
amount of £10.0 million was settled on May 1,
2007 and resulted in a gain of $1.4 million, which offset
the foreign currency loss on the notes in the same amount. Both
the gain on the contract and the related loss on the notes have
been recorded in other income, net within the Consolidated
Statements of Operations and Comprehensive Income (Loss). The
remaining forward contract for £0.8 million is
expected to be settled during the first quarter of fiscal year
2009. The settlement of this contract coincides with the due
date of the remaining note payable related to the acquisition of
Interflora. For the year ended June 30, 2007, other income,
net included $1.4 million of income related to the
mark-to-market adjustments on these forward contracts and the
related notes payable.
Financial results for Interflora are included herein beginning
August 1, 2006. The pro forma information below presents
the results of operations as if the acquisition occurred on
July 1, 2005 (in thousands, except per share amounts). Pro
forma financial information related to Interflora, Inc. has not
been included herein, as the operating results of Interflora,
Inc. are not considered material to the Companys operating
results.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Proforma revenues
|
|
$
|
623,665
|
|
|
$
|
585,009
|
|
|
|
|
|
|
|
|
|
|
Proforma income from operations
|
|
$
|
78,995
|
|
|
$
|
70,030
|
|
|
|
|
|
|
|
|
|
|
Proforma net income
|
|
$
|
32,082
|
|
|
$
|
28,716
|
|
|
|
|
|
|
|
|
|
|
Proforma net income per
share basic
|
|
$
|
1.12
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
Proforma net income per
share diluted
|
|
$
|
1.08
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
F-13
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The allocation of the acquisition cost is shown in the table
below (in thousands).
|
|
|
|
|
Goodwill
|
|
$
|
75,855
|
|
Trademark
|
|
|
61,764
|
|
Computer software
|
|
|
4,372
|
|
Land and building
|
|
|
2,942
|
|
Other intangible assets (customer
list)
|
|
|
1,711
|
|
Deferred tax liability
|
|
|
(21,284
|
)
|
Other assets acquired and
liabilities assumed, net
|
|
|
(222
|
)
|
|
|
|
|
|
Total allocation of acquisition
cost
|
|
$
|
125,138
|
|
|
|
|
|
|
Goodwill and trademark assets are considered indefinite lived
and therefore are not subject to amortization. The goodwill is
not deductible for tax purposes. The amortization periods for
computer software and the customer list are 5 and 3 years,
respectively.
The Company implemented a deferred compensation plan for certain
members of Interflora management. Under the terms of the plan,
participants will be paid a cash bonus upon achieving a
specified annual earnings target if such target is achieved in
any annual period within the seven years following the
acquisition. The maximum payout under such plan is
£2.6 million. During the year ended June 30,
2007, the Company recorded $1.1 million of expense related
to this deferred compensation plan.
On December 21, 2005, the Company sold substantially all of
the assets and certain liabilities of Renaissance for cash
proceeds of $3.5 million, a $1.7 million promissory
note, due on December 21, 2007 and a $0.1 million note
which was paid in fiscal 2007, both of which are non-interest
bearing. The Company also entered into an agreement with the
purchaser making the purchaser the Companys sole provider
of greeting cards for a period of ten years and a sublease of
the building to the new owner through October 15, 2007, the
end of the Companys existing lease.
The carrying amounts of the assets and liabilities sold were as
follows (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
4,316
|
|
Property and equipment
|
|
|
153
|
|
Other assets
|
|
|
297
|
|
Current liabilities
|
|
|
(1,251
|
)
|
|
|
|
|
|
Net assets sold
|
|
$
|
3,515
|
|
|
|
|
|
|
In the fiscal year ended June 30, 2006, the Company
recognized a gain of $1.0 million as a result of the sale
of Renaissance and related transactions, net of legal and
severance costs of $0.4 million. Prior to the sale, the
operations of Renaissance, including the gain on the sale, were
included within the florist segment.
|
|
(4)
|
Acquisition
of The Flower Concierge, Inc.
|
On December 19, 2004, FTD.COM completed the acquisition of
certain assets of The Flower Concierge, Inc. (doing business as
Florist.com) (Flower Concierge), pursuant to an
asset purchase agreement by and among FTD.COM, Flower Concierge
and Aron and Celina Benon (the Flower Concierge
Agreement). Flower Concierge was acquired to gain new
customers and increase order volume in the consumer segment,
among other reasons. Flower Concierge was a direct marketer of
flowers and specialty gifts and was an FTD member prior to this
acquisition.
F-14
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to the terms of the Flower Concierge Agreement, the
purchase price for the assets acquired was $8.5 million,
including $0.2 million of acquisition costs. The purchase
price was funded through a $5.3 million promissory note,
which accrued interest at 6.0% and was paid in full on
January 3, 2005, with the remainder funded from existing
cash balances. The assets acquired primarily consisted of Flower
Concierges Web site, www.florist.com, valued at
$7.8 million, a customer list, non-compete agreements and
$0.2 million of goodwill. The allocation of the total
purchase price to the net intangible assets acquired was based
on their respective fair values using the purchase method of
accounting. Pro forma financial information related to this
acquisition has not been included herein as the operating
results of Flower Concierge are not considered material to the
Companys operating results.
|
|
(5)
|
Goodwill
and Other Intangibles
|
The following tables provide the carrying amount of amortizable
intangible assets and the related accumulated amortization at
June 30, 2007 and 2006 and the estimated amortization
expense for each of the next three fiscal years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
$
|
14,671
|
|
|
$
|
9,068
|
|
|
$
|
5,603
|
|
|
$
|
12,836
|
|
|
$
|
5,940
|
|
|
$
|
6,896
|
|
Non-compete agreements
|
|
|
100
|
|
|
|
86
|
|
|
|
14
|
|
|
|
100
|
|
|
|
53
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,771
|
|
|
$
|
9,154
|
|
|
$
|
5,617
|
|
|
$
|
12,936
|
|
|
$
|
5,993
|
|
|
$
|
6,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
For the year ending June 30,
2008
|
|
$
|
3,193
|
|
For the year ending June 30,
2009
|
|
$
|
2,345
|
|
For the year ending June 30,
2010
|
|
$
|
79
|
|
Amortization expense related to intangibles for the year ended
June 30, 2007 was $3.2 million and $2.6 million
for each of the years ended June 30, 2006 and 2005.
The Company reviews goodwill and intangibles for impairment at
least annually. As of the latest assessment, no impairment was
indicated. The URL assets, which total $7.8 million, are
classified within other intangible assets in the consolidated
balance sheets. There was no accumulated amortization related to
goodwill or indefinite-lived intangibles as of June 30,
2007 or June 30, 2006 in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. The URL and trademarks are indefinite lived
intangibles. The goodwill is not deductible for tax purposes.
F-15
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill resulting from the Interflora acquisition is reported
as part of the international segment.
The changes in the carrying amount of goodwill, by segment, for
the years ended June 30, 2007 and 2006 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
Consumer
|
|
|
Florist
|
|
|
International
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
Balance as of June 30, 2006
and 2005
|
|
$
|
178,141
|
|
|
$
|
158,518
|
|
|
$
|
|
|
|
$
|
336,659
|
|
Goodwill related to the purchase
of Interflora
|
|
|
|
|
|
|
|
|
|
|
75,855
|
|
|
|
75,855
|
|
Impact of foreign exchange
|
|
|
|
|
|
|
|
|
|
|
5,487
|
|
|
|
5,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007
|
|
$
|
178,141
|
|
|
$
|
158,518
|
|
|
$
|
81,342
|
|
|
$
|
418,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in the carrying amount of trademarks, by segment for
the years ended June 30, 2007 and 2006 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
|
|
Consumer
|
|
|
Florist
|
|
|
International
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
Balance as of June 30, 2006
and 2005
|
|
$
|
|
|
|
$
|
121,577
|
|
|
$
|
|
|
|
$
|
121,577
|
|
Trademark related to the purchase
of Interflora
|
|
|
|
|
|
|
|
|
|
|
61,764
|
|
|
|
61,764
|
|
Impact of foreign exchange
|
|
|
|
|
|
|
|
|
|
|
4,475
|
|
|
|
4,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007
|
|
$
|
|
|
|
$
|
121,577
|
|
|
$
|
66,239
|
|
|
$
|
187,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Financing
Arrangements
|
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
7.75% senior subordinated
notes
|
|
$
|
170,117
|
|
|
$
|
170,117
|
|
Senior secured credit facility
|
|
|
141,893
|
|
|
|
50,000
|
|
Notes payable in connection with
acquisition
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
313,748
|
|
|
|
220,117
|
|
Less: current portion
|
|
|
(8,475
|
)
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
305,273
|
|
|
$
|
218,992
|
|
|
|
|
|
|
|
|
|
|
Interest expense incurred related to the Companys debt
during fiscal years 2007, 2006 and 2005 was $28.2 million,
$19.4 million and $20.5 million, respectively.
Interest expense and prepayment fees incurred related to the
preferred stock subject to mandatory redemption during fiscal
year 2005 was $34.7 million.
2006
Credit Agreement
On July 28, 2006, in connection with the Interflora
acquisition, FTD, Inc. entered into a new senior secured credit
facility consisting of a $150.0 million term loan and a
$75.0 million revolving credit facility. Borrowings under
the 2006 Credit Agreement (the Agreement) bear
interest based on a margin over, at FTD, Inc.s option,
either the base rate or the London Interbank Offered Rate
(LIBOR). The applicable margin for borrowings varies
based on the Companys consolidated leverage ratio, as
defined in the
F-16
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Agreement. The weighted average interest rate at June 30,
2007 on the term loan was 7.34%. The Agreement also requires the
Company to pay commitment fees on the unused portion of the
revolving credit facility. Commitment fees totaled
$0.3 million for the year ended June 30, 2007. The
Agreement also includes covenants that, among other things,
require that FTD, Inc. maintain a certain ratio of consolidated
total debt to consolidated earnings before interest, taxes,
depreciation and amortization (subject to certain adjustments),
as well as a certain fixed charge ratio. Such ratios adjust
quarterly in accordance with the terms of the Agreement. FTD,
Inc. was in compliance with all debt covenants as of
June 30, 2007.
Borrowings under the Agreement are secured by first priority
security interests in, and mortgages on, substantially all of
FTD, Inc.s tangible and intangible assets, including a
pledge of all of the capital stock of its domestic subsidiaries
and 66% of the capital stock of its first-tier foreign
subsidiaries. All of the Companys consolidated net assets
are owned, and all of the Companys consolidated net sales
are earned, by its direct and indirect subsidiaries. As of
June 30, 2007, the Companys subsidiaries had
$748.9 million of restricted assets.
At June 30, 2007, the Company had $141.9 million
outstanding under the Agreement, $1.7 million of notes
payable from the acquisition of Interflora and an additional
$1.1 million in outstanding letters of credit and, as a
result, approximately $72.2 million of the revolving credit
facility was available. FTD, Inc. is permitted to voluntarily
repay principal amounts outstanding or reduce commitments under
the Agreement at any time, in whole or in part, without premium
or penalty, upon the giving of proper notice and subject to
minimum amount requirements. In January 2007, a voluntary
repayment of $7.0 million was made. In addition, subject to
certain exceptions, FTD, Inc. is required to prepay outstanding
amounts under the Agreement with a portion of its excess cash
flow (as defined under the Agreement), the net proceeds of
certain asset dispositions, casualty insurance and condemnation
recovery events and upon the issuance of certain securities or
debt. As of June 30, 2007, the Company had excess cash flow
and as such, is required to make a mandatory prepayment on the
term loan in the amount of $7.0 million in the first half
of fiscal year 2008. The balance of the term loan is due in
annual installments of 1% of the outstanding principal balance
per year with the remaining balance due at maturity, on
July 28, 2013.
On February 20, 2007, the Board of Directors of the Company
approved, and the Company entered into, an amendment to the 2006
Credit Agreement, which, among other things, amended certain
restrictions to allow the Company to make certain restricted
junior payments, including dividend payments.
The 2006 Credit Agreement imposes various restrictions on the
Company, including restrictions that limit FTD, Inc.s
ability to incur liens or encumbrances, make investments or
acquisitions, incur additional debt, enter into sale leaseback
transactions, incur certain contingent liabilities, make certain
restricted junior payments and other similar distributions,
enter into mergers, consolidations and similar combinations,
sell assets or engage in similar transfers, amend certain
material agreements, including the indenture governing the
7.75% Senior Subordinated Notes (the Notes),
make capital expenditures and engage in transactions with
affiliates.
In conjunction with the Companys completion of a going
private transaction on February 24, 2004, FTD, Inc. entered
into a senior secured credit facility (the 2004 Credit
Agreement). There was $50.0 million outstanding at
June 30, 2006 under the 2004 Credit Agreement, which was
subsequently paid off on July 28, 2006 with the proceeds
from the 2006 Credit Agreement. As a result of repaying amounts
borrowed under the 2004 Credit Agreement, the Company wrote off
$1.8 million of deferred financing costs, net of
accumulated amortization, during the first quarter of fiscal
year 2007. This expense is recorded in interest expense in the
accompanying Consolidated Statements of Income and Comprehensive
Income. In connection with the 2006 Credit Agreement, the
Company incurred $1.5 million of deferred financing costs,
which were allocated, pro rata, to the six-year revolving credit
facility and the seven-year term loan and are being amortized
using the effective interest method.
F-17
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$175.0 million
7.75% Senior Subordinated Notes due 2014
On February 6, 2004, Nectar Merger Corporation completed
the issuance and sale of $175.0 million in aggregate
principal amount of the $175.0 million 7.75% Senior
Subordinated Notes due 2014. Upon consummation of the 2004 Going
Private Transaction, FTD, Inc. assumed Nectar Merger
Corporations obligations under the Notes. The Notes will
mature on February 15, 2014 and interest is payable on
February 15 and August 15 of each year. The proceeds from the
issuance of the Notes were used to finance the 2004 Going
Private Transaction.
The Notes are unsecured, senior subordinated obligations,
ranking junior in right of payment to all of FTD, Inc.s
existing and future senior indebtedness and equal in right of
payment to all of the Companys existing and future senior
subordinated indebtedness. The Notes rank senior in right of
payment to all of FTD, Inc.s existing and future
subordinated indebtedness and are unconditionally guaranteed by
the Company and FTD, Inc.s subsidiary guarantors on a
senior subordinated basis.
Except in certain circumstances, the Company will not have the
right to redeem any of the Notes prior to February 15,
2009. If redeemed during the
12-month
period commencing February 15, 2009, the Notes may be
redeemed at 103.875% of the principal amount plus any accrued
and unpaid interest through the date of redemption. Such
redemption percentage is reduced in each subsequent
12-month
period until maturity of the Notes.
The indenture governing the Notes provides for certain
limitations on FTD, Inc.s ability to incur additional
indebtedness, issue disqualified capital stock, make restricted
payments, other payment restrictions affecting subsidiaries,
layer indebtedness, enter into liens securing indebtedness,
enter into transactions with affiliates or guarantors, enter
into certain merger, sale or consolidation transactions and the
release of guarantors.
As a result of issuing the Notes, the Company recorded
$6.7 million of deferred financing costs, which are being
amortized using the effective interest method over the term of
the Notes.
On March 15, 2005, the Company received net proceeds of
approximately $5.3 million from the sale of 435,200
additional shares of common stock pursuant to the exercise of
the underwriters over-allotment option. On April 15,
2005, the Company used part of the proceeds from the
over-allotment to redeem $4.9 million of the Notes at a
redemption price of 107.75% of principal amount, plus accrued
and unpaid interest to the date of redemption. This payment
resulted in a write-off of deferred financing costs of
$0.2 million.
The Company has entered into operating leases for certain
hardware components of computer equipment, facilities and other
equipment. Rental expense relating to these leases totaled
$3.8 million, $2.2 million and $2.0 million for
the years ended June 30, 2007, 2006 and 2005, respectively.
The minimum aggregate annual operating lease obligations for
fiscal years ending June 30, are as follows (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
|
2008
|
|
$
|
2,424
|
|
2009
|
|
|
1,124
|
|
2010
|
|
|
937
|
|
2011
|
|
|
824
|
|
2012
|
|
|
641
|
|
Thereafter
|
|
|
161
|
|
|
|
|
|
|
Total
|
|
$
|
6,111
|
|
|
|
|
|
|
F-18
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Subsequent to the sale of Renaissance in December 2005, the
Company remained the lessee of the Sanford, Maine location, but
subleased the facility to the new owner. A sublease payment of
$0.3 million is due in October 2007 from the sub-lessee to
the Company.
For financial reporting purposes, income from continuing
operations before income taxes, by jurisdiction, is comprised of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
$
|
44,532
|
|
|
$
|
42,929
|
|
|
$
|
(14,513
|
)
|
Foreign
|
|
|
8,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,705
|
|
|
$
|
42,929
|
|
|
$
|
(14,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes for the years ended June 30,
2007, 2006 and 2005 differs from the amount computed by applying
the U.S. federal income tax rate of 35% to pretax income
because of the effect of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax expense at U.S. federal income
tax rate
|
|
$
|
18,447
|
|
|
$
|
15,025
|
|
|
$
|
(5,079
|
)
|
State income taxes, net of federal
income tax effect
|
|
|
2,003
|
|
|
|
1,902
|
|
|
|
912
|
|
Foreign rate differential
|
|
|
(415
|
)
|
|
|
|
|
|
|
|
|
Foreign earnings subject to U.S.
tax
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
Non-deductible interest expense on
preferred stock
|
|
|
|
|
|
|
|
|
|
|
12,156
|
|
Other permanent items, net
|
|
|
341
|
|
|
|
459
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
20,793
|
|
|
$
|
17,386
|
|
|
$
|
8,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following
components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
13,377
|
|
|
$
|
13,770
|
|
|
$
|
2,694
|
|
State
|
|
|
3,064
|
|
|
|
3,014
|
|
|
|
955
|
|
Foreign
|
|
|
2,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
18,868
|
|
|
|
16,784
|
|
|
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
2,045
|
|
|
$
|
689
|
|
|
$
|
3,990
|
|
State
|
|
|
8
|
|
|
|
(87
|
)
|
|
|
448
|
|
Foreign
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
1,925
|
|
|
|
602
|
|
|
|
4,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
20,793
|
|
|
$
|
17,386
|
|
|
$
|
8,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At June 30, 2007 and 2006, the Companys deferred tax
assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,162
|
|
|
$
|
1,775
|
|
Accrued vacation
|
|
|
1,407
|
|
|
|
329
|
|
Other
|
|
|
1,214
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
4,783
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign tax credit
|
|
|
2,353
|
|
|
|
|
|
State net operating loss
|
|
|
2,084
|
|
|
|
2,084
|
|
Other
|
|
|
500
|
|
|
|
947
|
|
Valuation allowance
|
|
|
(3,260
|
)
|
|
|
(2,084
|
)
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax
assets
|
|
|
1,677
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,460
|
|
|
|
3,952
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(483
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
Total current deferred tax
liabilities
|
|
|
(483
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
Tax over book depreciation and
amortization
|
|
|
(77,958
|
)
|
|
|
(58,398
|
)
|
Acquisition costs
|
|
|
(4,273
|
)
|
|
|
(2,915
|
)
|
Residual tax on unrepatriated
earnings
|
|
|
(2,819
|
)
|
|
|
|
|
Other
|
|
|
(1,977
|
)
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax
liabilities
|
|
|
(87,027
|
)
|
|
|
(62,107
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(87,510
|
)
|
|
|
(62,417
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(81,050
|
)
|
|
$
|
(58,465
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
4,300
|
|
|
$
|
2,695
|
|
Net noncurrent deferred tax
liability
|
|
|
(85,350
|
)
|
|
|
(61,160
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(81,050
|
)
|
|
$
|
(58,465
|
)
|
|
|
|
|
|
|
|
|
|
In assessing the realization of deferred tax assets, the Company
considers whether it is more likely than not that some portion
or the entire deferred tax asset will be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
these temporary differences are deductible. This assessment is
performed considering expected taxable income in future years
and tax planning strategies available to the Company. Valuation
allowances total $3.3 million as of June 30, 2007 and
relate to state net operating losses and foreign tax credits.
The valuation allowance at June 30, 2006 of
$2.5 million related to state net operating losses. Unused
foreign tax credits expire in 2014.
Income taxes are not provided for the basis difference in the
original investments in foreign subsidiaries as these are
considered to be permanent investments. Determination of the
amount of the unrecognized deferred tax liability related to
such differences is not practicable.
F-20
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(9)
|
Post-retirement
Benefits Other Than Pensions
|
The post-retirement health care benefit plan was terminated in
fiscal year 1997 for employees who had not yet retired. As it
relates to the 49 remaining participants covered by the plan,
the following tables provide a reconciliation of the benefit
obligation and funded status at June 30, 2007 and 2006, as
well as the components of net periodic post-retirement benefit
costs for the years ended June 30, 2007, 2006 and 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Benefit obligation at beginning of
year
|
|
$
|
1,460
|
|
|
$
|
1,703
|
|
Interest cost
|
|
|
89
|
|
|
|
80
|
|
Benefits paid
|
|
|
(40
|
)
|
|
|
(41
|
)
|
Actuarial gain
|
|
|
(63
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,446
|
|
|
$
|
1,460
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(1,446
|
)
|
|
|
(1,460
|
)
|
Unrecognized net gain
|
|
|
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(1,446
|
)
|
|
$
|
(1,655
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic post-retirement benefit cost of $89, $80 and $94
for the fiscal years ended June 30, 2007, 2006 and 2005 is
equivalent to interest cost. The measurement date for the plan
is June 30 for all years presented.
Application
of SFAS No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statement No. 87, 88, 106 and 132(R),
(SFAS No. 158). SFAS No. 158
requires full recognition of the funded status of the
Companys
post-retirement
benefit plan. Adoption of this provision did not impact earnings.
The Company adopted SFAS No. 158 effective
June 30, 2007 and the incremental effect of applying this
standard on individual line items in the Consolidated Balance
Sheet as of June 30, 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
After
|
|
|
|
Application
|
|
|
|
|
|
Application
|
|
|
|
of SFAS No. 158
|
|
|
Adjustments
|
|
|
of SFAS No. 158
|
|
|
Post-retirement benefits and
accrued pension obligations
|
|
$
|
1,704
|
|
|
$
|
(391
|
)
|
|
$
|
1,313
|
|
Other accrued liabilities
|
|
|
|
|
|
|
133
|
|
|
|
133
|
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
258
|
|
|
|
258
|
|
Amounts recognized in accumulated other comprehensive income in
fiscal year 2007 represent net actuarial gain. The estimated
actuarial gain that will be amortized from other comprehensive
income into net periodic post-retirement benefit cost during
2008 is immaterial.
Weighted average actuarial assumptions for post-retirement
benefits used at June 30, 2007, 2006 and 2005 to determine
benefit obligations and net benefit cost are set forth in the
following table.
Weighted
average actuarial assumptions for benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
|
|
5.00
|
%
|
F-21
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Weighted
average actuarial assumptions for net benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.00
|
%
|
|
|
6.25
|
%
|
For measurement purposes a 5.75% annual rate of increase in the
per capita cost of covered health care benefits was assumed. The
rate is assumed to remain at 5.75% in 2008 and thereafter.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. If the
current health care cost trend rate assumption was increased by
one percent, the accumulated post-retirement benefit obligation
(APBO) at June 30, 2007 would have increased
approximately $126,000 or 8.7%. If the current health care cost
trend rate assumptions were decreased by one percent, the APBO
at June 30, 2007 would have decreased approximately
$111,000, or 7.7%. The resulting changes in net periodic
post-retirement benefit cost from a one percent increase or
decrease would not have a significant impact on the periods
presented.
The expected benefit payments for the following ten years are
estimated as follows:
|
|
|
|
|
|
|
Estimated
|
|
|
|
Future Benefit
|
|
Fiscal Year Ending June 30,
|
|
Payments
|
|
|
2008
|
|
$
|
140,000
|
|
2009
|
|
$
|
130,000
|
|
2010
|
|
$
|
120,000
|
|
2011
|
|
$
|
120,000
|
|
2012
|
|
$
|
130,000
|
|
2013 to 2017
|
|
$
|
630,000
|
|
|
|
(10)
|
Employee
Benefit Plans
|
Approximately 84 employees and former employees participate
under the Companys defined benefit pension plan. Benefits
under the plan, which has been frozen since January 1,
1997, were based on the employees age, years of service
and the highest consecutive five-year average compensation.
F-22
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with the disclosure requirements of
SFAS No. 132 (R), Employers Disclosures about
Pensions and Other Postretirement Benefits (as amended by
SFAS No. 158) (SFAS 132(R)), the
following tables provide a reconciliation of the benefit
obligation and plan assets, as well as the funded status of the
pension plan at June 30, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation at
beginning of year
|
|
$
|
1,722
|
|
|
$
|
2,281
|
|
Service cost
|
|
|
55
|
|
|
|
55
|
|
Interest cost
|
|
|
103
|
|
|
|
110
|
|
Benefits paid
|
|
|
(203
|
)
|
|
|
(487
|
)
|
Actuarial gain
|
|
|
(37
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at
end of year
|
|
$
|
1,640
|
|
|
$
|
1,722
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
|
$
|
1,009
|
|
|
$
|
1,040
|
|
Actual return on plan assets
|
|
|
170
|
|
|
|
80
|
|
Employer contributions
|
|
|
479
|
|
|
|
376
|
|
Benefits paid
|
|
|
(203
|
)
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
$
|
1,455
|
|
|
$
|
1,009
|
|
|
|
|
|
|
|
|
|
|
Accrued funded status
|
|
$
|
(185
|
)
|
|
$
|
(713
|
)
|
Unrecognized net loss
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
$
|
(185
|
)
|
|
$
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
The following table presents amounts recognized on the
Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Long term accrued benefit liability
|
|
$
|
(185
|
)
|
|
$
|
(713
|
)
|
Accumulated other comprehensive
income, pre-tax
|
|
|
112
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(73
|
)
|
|
$
|
(481
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income in
fiscal year 2007 represent net actuarial loss. The estimated
actuarial loss that will be amortized from other comprehensive
income into net periodic pension cost during 2008 is immaterial.
Application
of SFAS No. 158
In September 2006, the FASB issued SFAS No. 158.
SFAS No. 158 requires full recognition of the funded
status of the Companys defined benefit pension plan.
Adoption of SFAS No. 158 for the defined benefit plan
did not have any impact on earnings, accrued pension obligations
or accumulated other comprehensive income.
Weighted average actuarial assumptions for pension benefits used
at June 30, 2007, 2006 and 2005 to determine benefit
obligations and net benefit cost are set forth in the following
table.
Weighted
average actuarial assumptions for benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
|
|
5.00
|
%
|
F-23
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Weighted
average actuarial assumptions for net benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.00
|
%
|
|
|
6.25
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
The Companys expected long-term rate of return on assets
assumption is derived from a study which included a review of
anticipated future long-term performance of individual asset
classes and consideration of the appropriate asset allocation
strategy given the anticipated requirements of the plan to
determine the average rate of earnings expected on the funds
invested to provide for the pension plan benefits. While the
study gives appropriate consideration to recent fund performance
and historical returns, the assumption is primarily a long-term,
prospective rate.
The Companys pension plan asset allocations at
June 30, 2007 and 2006 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
61
|
%
|
|
|
71
|
%
|
Debt securities
|
|
|
31
|
%
|
|
|
28
|
%
|
Other
|
|
|
8
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The Company maintains target allocation percentages among
various asset classes based on an investment policy established
for the pension plan, which is designed to achieve long term
objectives of return, while mitigating against downside risk and
considering expected cash flows. The current weighted-average
target asset allocation is as follows: equity securities
60-75%, debt
securities
25-40%, and
other 1-5%. The investment policy is reviewed from time to time
to ensure consistency with long term objectives.
During the years ended June 30, 2007, 2006 and 2005,
pension expense of $69,000, $158,000 and $100,000, respectively,
was recognized in relation to the pension plan. In addition,
during the years ended June 30, 2007, 2006 and 2005, the
Company paid benefits of $203,000, $487,000 and $323,000,
respectively. The measurement date for the plan is June 30 for
all years presented. The table below provides the necessary
disclosures in accordance with SFAS No. 132 (R) (as
amended by SFAS No. 158) of the components of
pension expense for the defined benefit plan for the years ended
June 30, 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Interest cost
|
|
$
|
103
|
|
|
$
|
110
|
|
|
$
|
127
|
|
Service cost
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
Expected return on assets
|
|
|
(91
|
)
|
|
|
(90
|
)
|
|
|
(81
|
)
|
Recognized net actuarial loss
|
|
|
2
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
69
|
|
|
|
110
|
|
|
|
46
|
|
Settlement loss
|
|
|
|
|
|
|
48
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost
|
|
$
|
69
|
|
|
$
|
158
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects to contribute $0.3 million to its
defined benefit plan in fiscal year 2008. The expected benefit
payments for the following ten years, which reflect expected
future service, as appropriate, are estimated as follows:
|
|
|
|
|
|
|
Estimated
|
|
|
|
Future Benefit
|
|
Fiscal Year Ending June 30,
|
|
Payments
|
|
|
2008
|
|
$
|
90,000
|
|
2009
|
|
$
|
80,000
|
|
2010
|
|
$
|
100,000
|
|
2011
|
|
$
|
110,000
|
|
2012
|
|
$
|
110,000
|
|
2013 to 2017
|
|
$
|
640,000
|
|
The Company sponsors a 401(k) savings plan for all of its
eligible employees. All eligible employees may contribute
between 1% and 75% of their gross annual salary up to $15,500
annually for calendar year 2007, on a pre-tax basis. The Company
matches an amount equal to 25% of each participants
pre-tax contribution up to 6% of the participants
compensation. Company contributions to the 401(k) plan for the
years ended June 30, 2007, 2006 and 2005 were $289,000,
$267,000 and $346,000, respectively.
|
|
(11)
|
Related
Party Transactions
|
In connection with the 2004 Going Private Transaction, FTD, Inc.
entered into a management services agreement with Leonard
Green & Partners, L.P. Under the management services
agreement, Leonard Green & Partners, L.P. provided
management, consulting and financial planning services in
exchange for an annual management fee of $2.0 million,
payable in equal monthly installments commencing in March 2004.
This agreement was terminated in February 2005, in connection
with the initial public offering in consideration of a lump sum
payment of $12.5 million by FTD, Inc. to Leonard
Green & Partners L.P., in accordance with the
management services agreement. For the year ended June 30,
2005, the Company incurred expenses, including the termination
fee, of $13.9 million, related to the management services
agreement with Leonard Green & Partners, L.P.
There were no related party transactions during the years ended
June 30, 2007 and 2006.
|
|
(12)
|
Stockholders
Equity
|
Accumulated other comprehensive income, net of taxes, consisted
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cumulative foreign currency
translation gains
|
|
$
|
9,845
|
|
|
$
|
338
|
|
Cumulative retirement plan
adjustments, net of tax(1)
|
|
|
88
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income
|
|
$
|
9,933
|
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $154, net of tax of $104, relating to the adoption of
SFAS No. 158. |
On February 20, 2007, the Companys Board of Directors
declared a quarterly cash dividend of $0.1625 per share. The
dividend was paid on April 2, 2007 to stockholders of
record as of the close of business on March 19, 2007.
Additionally, on April 24, 2007, the Companys Board
of Directors declared a quarterly cash dividend of $0.1625 per
share. The dividend was paid on July 6, 2007 to
stockholders of record as of the close of business on
June 22, 2007. The continued payment of cash dividends in
the future is at the discretion of the Companys Board of
Directors and depends on numerous factors, including without
limitation, the Companys
F-25
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
net earnings, financial condition, availability of capital,
continued compliance with the requirements of the Companys
2006 Credit Agreement and the indenture governing the
7.75% Senior Subordinated Notes and other business needs.
On March 12, 2007, the Company closed its underwritten
secondary public offering of 6,000,000 shares of common
stock. The underwriters exercised in full their over-allotment
option for an additional 900,000 shares of common stock at
the public offering price of $17.50 per share, less underwriting
discounts. Of the shares sold, 6,285,900 shares were sold
by affiliates of Leonard Green & Partners, L.P. and
614,100 shares were sold by members of management. As a
result of the secondary offering, affiliates of Leonard
Green & Partners, L.P. control less than a majority of
the voting power of the Companys outstanding common stock.
As a result, the Company is no longer a controlled
company within the meaning of the New York Stock Exchange
rules and, thus, is required to have a board of directors
comprised of a majority of independent directors and nominating
and compensation committees composed entirely of independent
directors. The Company will phase in these corporate governance
requirements by March 11, 2008.
In conjunction with the offering, the Company realized
$1.7 million in proceeds from the exercise of stock options
by members of management and incurred $0.8 million in
offering related costs. These offering related costs have been
recorded in other income, net within the Consolidated Statements
of Operations and Comprehensive Income (Loss).
On October 25, 2005, the Board of Directors authorized a
share repurchase program totaling $30.0 million, effective
through September 30, 2007. These purchases may be made
from time to time in both open market and private transactions,
dependent upon market and other conditions. This repurchase
program is expected to remain in effect through
September 30, 2007, unless terminated earlier by the Board
of Directors, or completed. The Company repurchased shares
pursuant to a 10b5-1 plan, which generally permits the Company
to repurchase shares at times when it might otherwise be
prevented from doing so under certain securities laws.
Repurchased shares will be held in treasury pending use for
general corporate purposes, including issuances under various
employee and director stock plans. During the year ended
June 30, 2006, the Company repurchased a total of
1.5 million shares of Common Stock for $15.0 million.
No shares were repurchased under this plan during the year ended
June 30, 2007.
On February 14, 2005, the Company closed the sale of
13,100,000 shares of Common Stock at a price of $13.00 per
share in a firm commitment underwritten initial public offering.
In addition, on that date, 2,307,693 shares of Common Stock
were sold at the public offering price to Green Equity Investors
IV, L.P., the Companys principal stockholder and an
affiliate. On March 15, 2005, the Company closed the sale
of 435,200 shares of Common Stock at the public offering
price to satisfy the underwriters over-allotment option.
The net proceeds raised by the Company in the offering were used
to: repurchase all outstanding shares of the Companys
14% Senior Redeemable Exchangeable Cumulative Preferred
Stock and all outstanding shares of the Companys 12%
Junior Redeemable Exchangeable Cumulative Preferred Stock;
redeem a portion of FTD, Inc.s 7.75% Senior
Subordinated Notes due 2014; pay for fees and expenses of the
offering; and for general corporate purposes.
On February 7, 2005, the stockholders approved an increase
in the number of authorized shares to 75,000,000 as well as a
1-for-3
reverse stock split. All common share and per share amounts
reflect this reverse stock split.
F-26
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(13)
|
Net
Income (Loss) Per Common Share
|
The computations of basic and diluted net income (loss) per
common share for the years ended June 30, 2007, 2006 and
2005 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss)
|
|
$
|
31,912
|
|
|
$
|
25,543
|
|
|
$
|
(22,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares of
Common Stock outstanding
|
|
|
28,496
|
|
|
|
28,736
|
|
|
|
19,722
|
|
Effect of dilutive
securities options to purchase shares of Common
Stock outstanding
|
|
|
1,081
|
|
|
|
1,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares of
Common Stock outstanding
|
|
|
29,577
|
|
|
|
29,779
|
|
|
|
19,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of
Common Stock basic
|
|
$
|
1.12
|
|
|
$
|
0.89
|
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of
Common Stock diluted
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares associated with stock options that were not included in
the computation of net loss per share because their effect was
anti-dilutive consisted of 12,500 shares for the year ended
June 30, 2007, 175,000 shares for the year ended
June 30, 2006 and 2,209,455 shares for the year ended
June 30, 2005.
|
|
(14)
|
Stock
Awards and Incentive Plans
|
The Companys 2005 Amended and Restated Equity Incentive
Award Plan (the 2005 Equity Plan) allows for the
issuance of 4,592,778 shares of common stock of the Company
and became effective on February 7, 2005. The 2005 Equity
Plan provides for a variety of awards, including stock options,
stock appreciation rights, restricted stock awards, restricted
stock unit awards, deferred stock awards, dividend equivalents,
performance share awards, performance stock unit awards, stock
payment awards, performance-based awards and other stock-based
awards. Through June 30, 2007, the Company has only granted
non-qualified stock options under the 2005 Equity Plan. The
Company grants stock options at a strike price equal to fair
market value on the date of grant. During fiscal year 2007, the
Company granted 1,380,217 options to certain employees. Option
grants in fiscal years 2006 and 2005 were 137,500 and 2,239,467,
respectively. These options were awarded at the fair market
value at the date of grant. As of June 30, 2007,
1,194,440 shares remained available for grant under the
2005 Equity Plan. On July 9, 2007, the Company issued a
grant of 300,000 shares of restricted stock to certain
members of management. The shares vest equally each year over a
five-year service period.
Outstanding nonqualified stock options are exercisable during a
ten-year period. The Companys options granted to employees
vest equally each year over a five-year service period, except
for certain stock options granted in fiscal year 2005, which
vest in full after a seven-year service period unless certain
performance acceleration targets are met. If the performance
targets are met, the vesting of the options is accelerated. Each
of the three performance targets were met, so these installments
vested on August 8, 2005, August 8, 2006 and
August 14, 2007, respectively. As of June 30, 2007,
the total compensation cost related to non-vested awards not yet
recognized was $7.3 million, which is expected to be
recognized over a weighted average period of 3.12 years.
The total fair value of shares becoming fully vested during
fiscal 2007, 2006 and 2005 was $2.0 million,
$0.6 million, and $0.5 million, respectively.
F-27
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys options granted to independent directors were
granted at a strike price equal to the fair market value at the
date of grant and vest as early as the date of grant up to two
years from the date of grant. A summary of stock option activity
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Common Stock
|
|
|
Range of
|
|
|
Weighted Average
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Exercise Prices
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Balance, June 30,
2005
|
|
|
2,209,455
|
|
|
$
|
3.00 - $13.00
|
|
|
$
|
3.58
|
|
|
|
|
|
Granted
|
|
|
137,500
|
|
|
$
|
9.42 - $11.67
|
|
|
$
|
10.27
|
|
|
|
|
|
Exercised
|
|
|
70,911
|
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
|
|
|
|
Forfeited
|
|
|
170,168
|
|
|
$
|
3.00 - $10.705
|
|
|
$
|
3.45
|
|
|
|
|
|
Balance, June 30,
2006
|
|
|
2,105,876
|
|
|
$
|
3.00 - $13.00
|
|
|
$
|
3.89
|
|
|
|
|
|
Granted
|
|
|
1,380,217
|
|
|
$
|
13.565 - $17.095
|
|
|
$
|
15.58
|
|
|
|
|
|
Exercised
|
|
|
768,627
|
|
|
$
|
3.00 - $12.75
|
|
|
$
|
3.27
|
|
|
|
|
|
Forfeited
|
|
|
158,666
|
|
|
$
|
3.00 - $16.20
|
|
|
$
|
6.01
|
|
|
|
|
|
Balance, June 30,
2007
|
|
|
2,558,800
|
|
|
$
|
3.00 - $17.095
|
|
|
$
|
10.38
|
|
|
|
8.31 years
|
|
Exercisable at June 30,
2007
|
|
|
805,781
|
|
|
$
|
3.00 - $16.20
|
|
|
$
|
8.89
|
|
|
|
8.20 years
|
|
The intrinsic value of options exercised during fiscal 2007 and
2006 was $10.5 million and $0.5 million, respectively.
There were no options exercised in fiscal 2005. Upon exercise,
the Company generally issues treasury shares, when available.
The intrinsic value of options outstanding and of options
exercisable at June 30, 2007 was $20.5 million and
$7.7 million, respectively.
A summary of outstanding stock options by range of exercise
price as of June 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Balance, June 30,
|
|
|
Weighted Average
|
|
|
Remaining
|
|
Range of Exercise Prices
|
|
2007
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
$3.00
|
|
|
976,083
|
|
|
$
|
3.00
|
|
|
|
7.25 years
|
|
$9.42 - $13.00
|
|
|
232,500
|
|
|
$
|
11.24
|
|
|
|
8.10 years
|
|
$13.57 - $17.10
|
|
|
1,350,217
|
|
|
$
|
15.57
|
|
|
|
9.10 years
|
|
Total
|
|
|
2,558,800
|
|
|
$
|
10.38
|
|
|
|
8.31 years
|
|
Using the Black-Scholes single option pricing model and the
following weighted average assumptions, the weighted average
estimated fair value, at the dates of grant of the
Companys options in fiscal year 2007 and 2006 was $3.10
and $1.17 per option of Common Stock, respectively. Expected
volatility assumptions are based on historical volatility of FTD
stock. Expected life assumptions are based on the
simplified method as described in SEC Staff
Accounting Bulletin No. 107, which is the midpoint
between the vesting date and the end of the contractual term.
The risk free rate was selected based on yields of
U.S. Treasury issues with a term equal to the expected life
of the option being valued. The expected dividend yield
assumptions are based on the Board of Directors direction
on dividends at the time of each grant.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
4.93
|
%
|
|
|
4.40
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
30.25
|
%
|
|
|
26.89
|
%
|
Estimated lives of options (in
years)
|
|
|
4.91
|
|
|
|
4.35
|
|
F-28
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(15)
|
Commitments
and Contingencies
|
The Company is involved in various claims and lawsuits and other
matters arising in the normal course of business. In the opinion
of management of the Company, although the outcome of these
claims and suits are uncertain, they should not have a material
adverse effect on the Companys financial condition,
results of operations and cash flows.
Operating segments are components of the business for which
separate financial information is available that is regularly
reviewed by the enterprises chief operating decision maker
to make decisions about resources to be allocated to each
segment and to assess its performance. Revenue and expenses
earned and charged between segments are recorded at fair value
and eliminated in consolidation.
For purposes of managing the Company, management reviews segment
financial performance to the operating income level for each of
its reportable segments. As such, interest income, interest
expense and tax expense are recorded on a consolidated corporate
basis.
The consumer segment encompasses sales of floral and specialty
gift products, which are sold primarily to consumers in the
U.S. and Canada through the Companys web site,
www.ftd.com, or its toll-free telephone number,
1-800-SEND-FTD.
The florist segment includes all products and services sold to
FTD members and other retail locations in the U.S. and
Canada offering floral products, encompassing clearinghouse
services, publishing products and services, technology sales and
leases, fresh flower sales and other specialty wholesale product
sales.
The international segment is primarily comprised of Interflora,
a U.K. based provider of floral related products and services to
consumers and retail floral locations in the U.K. and the
Republic of Ireland. Interfloras products and services
enable its members to send and deliver floral orders and it is
also an Internet and telephone marketer of flowers and specialty
gift items to consumers, operating primarily thorough the
www.interflora.co.uk Web site as well as toll-free
telephone numbers.
The Companys total assets, long-term assets and additions
to long-term assets by segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
Additions to
|
|
|
|
Total
|
|
|
Long-term
|
|
|
Long-Term
|
|
|
|
Assets
|
|
|
Assets
|
|
|
Assets
|
|
|
Consumer segment
|
|
$
|
264,252
|
|
|
$
|
261,199
|
|
|
$
|
2,225
|
|
Florist segment*
|
|
|
311,409
|
|
|
|
256,745
|
|
|
|
4,168
|
|
International segment
|
|
|
173,239
|
|
|
|
159,884
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
748,900
|
|
|
$
|
677,828
|
|
|
$
|
7,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
Additions to
|
|
|
|
Total
|
|
|
Long-term
|
|
|
Long-Term
|
|
|
|
Assets
|
|
|
Assets
|
|
|
Assets
|
|
|
Consumer segment
|
|
$
|
264,733
|
|
|
$
|
262,252
|
|
|
$
|
5,643
|
|
Florist segment*
|
|
|
306,004
|
|
|
|
261,960
|
|
|
|
3,111
|
|
International segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
570,737
|
|
|
$
|
524,212
|
|
|
$
|
8,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes corporate assets. |
F-29
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reports the Companys operating results
by reportable segment for the fiscal years ended June 30,
2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2007
|
|
|
Year Ended June 30, 2006
|
|
|
Year Ended June 30, 2005
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Segment
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Segment
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
305,033
|
|
|
$
|
(17,412
|
)
|
|
$
|
287,621
|
|
|
$
|
295,187
|
|
|
$
|
(19,414
|
)
|
|
$
|
275,773
|
|
|
$
|
267,075
|
|
|
$
|
(19,967
|
)
|
|
$
|
247,108
|
|
Florist segment
|
|
|
182,592
|
|
|
|
(597
|
)
|
|
|
181,995
|
|
|
|
189,674
|
|
|
|
(314
|
)
|
|
|
189,360
|
|
|
|
190,815
|
|
|
|
(128
|
)
|
|
|
190,687
|
|
International segment
|
|
|
143,072
|
|
|
|
324
|
|
|
|
143,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
630,697
|
|
|
|
(17,685
|
)
|
|
|
613,012
|
|
|
|
484,861
|
|
|
|
(19,728
|
)
|
|
|
465,133
|
|
|
|
457,890
|
|
|
|
(20,095
|
)
|
|
|
437,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Goods Sold and Services
Provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
206,234
|
|
|
|
(2,747
|
)
|
|
|
203,487
|
|
|
|
203,235
|
|
|
|
(2,686
|
)
|
|
|
200,549
|
|
|
|
186,225
|
|
|
|
(2,533
|
)
|
|
|
183,692
|
|
Florist segment
|
|
|
60,782
|
|
|
|
(3,284
|
)
|
|
|
57,498
|
|
|
|
63,329
|
|
|
|
(3,339
|
)
|
|
|
59,990
|
|
|
|
65,208
|
|
|
|
(3,183
|
)
|
|
|
62,025
|
|
International segment
|
|
|
98,511
|
|
|
|
(121
|
)
|
|
|
98,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
1,996
|
|
|
|
|
|
|
|
1,996
|
|
|
|
2,235
|
|
|
|
|
|
|
|
2,235
|
|
|
|
2,300
|
|
|
|
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
367,523
|
|
|
|
(6,152
|
)
|
|
|
361,371
|
|
|
|
268,799
|
|
|
|
(6,025
|
)
|
|
|
262,774
|
|
|
|
253,733
|
|
|
|
(5,716
|
)
|
|
|
248,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
98,799
|
|
|
|
(14,665
|
)
|
|
|
84,134
|
|
|
|
91,952
|
|
|
|
(16,728
|
)
|
|
|
75,224
|
|
|
|
80,850
|
|
|
|
(17,434
|
)
|
|
|
63,416
|
|
Florist segment
|
|
|
121,810
|
|
|
|
2,687
|
|
|
|
124,497
|
|
|
|
126,345
|
|
|
|
3,025
|
|
|
|
129,370
|
|
|
|
125,607
|
|
|
|
3,055
|
|
|
|
128,662
|
|
International segment
|
|
|
44,561
|
|
|
|
445
|
|
|
|
45,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
(1,996
|
)
|
|
|
(2,235
|
)
|
|
|
|
|
|
|
(2,235
|
)
|
|
|
(2,300
|
)
|
|
|
|
|
|
|
(2,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
263,174
|
|
|
|
(11,533
|
)
|
|
|
251,641
|
|
|
|
216,062
|
|
|
|
(13,703
|
)
|
|
|
202,359
|
|
|
|
204,157
|
|
|
|
(14,379
|
)
|
|
|
189,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and
Selling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
36,100
|
|
|
|
|
|
|
|
36,100
|
|
|
|
35,921
|
|
|
|
|
|
|
|
35,921
|
|
|
|
29,080
|
|
|
|
|
|
|
|
29,080
|
|
Florist segment
|
|
|
59,677
|
|
|
|
(11,978
|
)
|
|
|
47,699
|
|
|
|
66,902
|
|
|
|
(13,702
|
)
|
|
|
53,200
|
|
|
|
70,697
|
|
|
|
(14,378
|
)
|
|
|
56,319
|
|
International segment
|
|
|
11,006
|
|
|
|
(380
|
)
|
|
|
10,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
106,783
|
|
|
|
(12,358
|
)
|
|
|
94,425
|
|
|
|
102,823
|
|
|
|
(13,702
|
)
|
|
|
89,121
|
|
|
|
99,777
|
|
|
|
(14,378
|
)
|
|
|
85,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
(includes Management fees):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
25,537
|
|
|
|
(2,835
|
)
|
|
|
22,702
|
|
|
|
22,629
|
|
|
|
(2,712
|
)
|
|
|
19,917
|
|
|
|
19,556
|
|
|
|
(2,475
|
)
|
|
|
17,081
|
|
Florist segment
|
|
|
8,357
|
|
|
|
|
|
|
|
8,357
|
|
|
|
6,591
|
|
|
|
|
|
|
|
6,591
|
|
|
|
10,161
|
|
|
|
|
|
|
|
10,161
|
|
International segment
|
|
|
20,908
|
|
|
|
444
|
|
|
|
21,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
23,850
|
|
|
|
2,835
|
|
|
|
26,685
|
|
|
|
22,963
|
|
|
|
2,711
|
|
|
|
25,674
|
|
|
|
35,017
|
|
|
|
2,474
|
|
|
|
37,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
78,652
|
|
|
|
444
|
|
|
|
79,096
|
|
|
|
52,183
|
|
|
|
(1
|
)
|
|
|
52,182
|
|
|
|
64,734
|
|
|
|
(1
|
)
|
|
|
64,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) before
Corporate Allocations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
37,162
|
|
|
|
(11,830
|
)
|
|
|
25,332
|
|
|
|
33,402
|
|
|
|
(14,016
|
)
|
|
|
19,386
|
|
|
|
32,214
|
|
|
|
(14,959
|
)
|
|
|
17,255
|
|
Florist segment
|
|
|
53,776
|
|
|
|
14,665
|
|
|
|
68,441
|
|
|
|
52,852
|
|
|
|
16,727
|
|
|
|
69,579
|
|
|
|
44,749
|
|
|
|
17,433
|
|
|
|
62,182
|
|
International segment
|
|
|
12,647
|
|
|
|
381
|
|
|
|
13,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(25,846
|
)
|
|
|
(2,835
|
)
|
|
|
(28,681
|
)
|
|
|
(25,198
|
)
|
|
|
(2,711
|
)
|
|
|
(27,909
|
)
|
|
|
(37,317
|
)
|
|
|
(2,474
|
)
|
|
|
(39,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
77,739
|
|
|
|
381
|
|
|
|
78,120
|
|
|
|
61,056
|
|
|
|
|
|
|
|
61,056
|
|
|
|
39,646
|
|
|
|
|
|
|
|
39,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Allocations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
4,111
|
|
|
|
|
|
|
|
4,111
|
|
|
|
3,272
|
|
|
|
|
|
|
|
3,272
|
|
|
|
2,895
|
|
|
|
|
|
|
|
2,895
|
|
Florist segment
|
|
|
9,760
|
|
|
|
|
|
|
|
9,760
|
|
|
|
11,166
|
|
|
|
|
|
|
|
11,166
|
|
|
|
12,154
|
|
|
|
|
|
|
|
12,154
|
|
International segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(13,871
|
)
|
|
|
|
|
|
|
(13,871
|
)
|
|
|
(14,438
|
)
|
|
|
|
|
|
|
(14,438
|
)
|
|
|
(15,049
|
)
|
|
|
|
|
|
|
(15,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
|
33,051
|
|
|
|
(11,830
|
)
|
|
|
21,221
|
|
|
|
30,130
|
|
|
|
(14,016
|
)
|
|
|
16,114
|
|
|
|
29,319
|
|
|
|
(14,959
|
)
|
|
|
14,360
|
|
Florist segment
|
|
|
44,016
|
|
|
|
14,665
|
|
|
|
58,681
|
|
|
|
41,686
|
|
|
|
16,727
|
|
|
|
58,413
|
|
|
|
32,595
|
|
|
|
17,433
|
|
|
|
50,028
|
|
International segment
|
|
|
12,647
|
|
|
|
381
|
|
|
|
13,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(11,975
|
)
|
|
|
(2,835
|
)
|
|
|
(14,810
|
)
|
|
|
(10,760
|
)
|
|
|
(2,711
|
)
|
|
|
(13,471
|
)
|
|
|
(22,268
|
)
|
|
|
(2,474
|
)
|
|
|
(24,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,739
|
|
|
$
|
381
|
|
|
$
|
78,120
|
|
|
$
|
61,056
|
|
|
$
|
|
|
|
$
|
61,056
|
|
|
$
|
39,646
|
|
|
$
|
|
|
|
$
|
39,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
3,768
|
|
|
$
|
|
|
|
$
|
3,768
|
|
|
$
|
3,201
|
|
|
$
|
|
|
|
$
|
3,201
|
|
|
$
|
2,405
|
|
|
$
|
|
|
|
$
|
2,405
|
|
Florist segment
|
|
|
3,267
|
|
|
|
|
|
|
|
3,267
|
|
|
|
3,398
|
|
|
|
|
|
|
|
3,398
|
|
|
|
4,241
|
|
|
|
|
|
|
|
4,241
|
|
International segment
|
|
|
3,845
|
|
|
|
|
|
|
|
3,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
3,455
|
|
|
|
|
|
|
|
3,455
|
|
|
|
3,862
|
|
|
|
|
|
|
|
3,862
|
|
|
|
3,853
|
|
|
|
|
|
|
|
3,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,335
|
|
|
$
|
|
|
|
$
|
14,335
|
|
|
$
|
10,461
|
|
|
$
|
|
|
|
$
|
10,461
|
|
|
$
|
10,499
|
|
|
$
|
|
|
|
$
|
10,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
FTD
GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(17)
|
Financial
Statements of Guarantors
|
The accompanying consolidated balance sheets, statements of
operations and statements of cash flows presented herein
represent the accounts of the Company and its Guarantor and
non-Guarantor subsidiaries, as defined in the indenture to the
Notes issued in February 2004. The Notes are unconditionally
guaranteed, on a joint and several basis, by the Guarantor
subsidiaries including FTD Group, Inc. and all domestic
subsidiaries of FTD, Inc. Non-Guarantor subsidiaries include FTD
Canada, Inc. which is insignificant and is therefore not
separately presented. As FTD, Inc., either directly or
indirectly, owns 100% of each of the Guarantor subsidiaries and,
as FTD, Inc. does not have any independent assets or operations
apart from the Guarantor subsidiaries, separate subsidiary
financial information has not been presented.
F-31
SCHEDULE I
CONDENSED FINANCIAL INFORMATION
FTD Group, Inc. (Parent Company Only)
Condensed Balance Sheets
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Prepaid expenses and other current
assets
|
|
$
|
1,453
|
|
|
$
|
933
|
|
Investment in subsidiary
|
|
|
255,156
|
|
|
|
216,674
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
256,609
|
|
|
$
|
217,607
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Accounts payable
|
|
$
|
57
|
|
|
$
|
71
|
|
Dividend payable
|
|
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
295
|
|
|
|
295
|
|
Additional paid-in capital
|
|
|
235,589
|
|
|
|
233,362
|
|
Retained earnings (accumulated
deficit)
|
|
|
20,952
|
|
|
|
(1,554
|
)
|
Treasury stock
|
|
|
(4,991
|
)
|
|
|
(14,567
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
251,845
|
|
|
|
217,536
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
256,609
|
|
|
$
|
217,607
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
F-32
FTD
Group, Inc. (Parent Company Only)
Condensed
Statement of Operations
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs of goods sold and services
provided
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
919
|
|
|
|
1,207
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
919
|
|
|
|
1,207
|
|
|
|
898
|
|
Equity in earnings of subsidiary
|
|
|
(33,276
|
)
|
|
|
(26,275
|
)
|
|
|
(12,609
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
Interest expense and prepayment
fees on shares subject to mandatory redemption
|
|
|
591
|
|
|
|
|
|
|
|
34,732
|
|
Other expense, net
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
31,615
|
|
|
|
25,068
|
|
|
|
(22,911
|
)
|
Income tax benefit
|
|
|
(297
|
)
|
|
|
(475
|
)
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,912
|
|
|
$
|
25,543
|
|
|
$
|
(22,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
F-33
FTD
Group, Inc. (Parent Company Only)
Condensed
Statement of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,912
|
|
|
$
|
25,543
|
|
|
$
|
(22,600
|
)
|
Equity in earnings of subsidiary
|
|
|
(33,276
|
)
|
|
|
(26,275
|
)
|
|
|
(12,609
|
)
|
Interest expense on mandatorily
redeemable shares
|
|
|
|
|
|
|
|
|
|
|
34,732
|
|
Increase (decrease) in cash due to
changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current
assets
|
|
|
(520
|
)
|
|
|
(323
|
)
|
|
|
(830
|
)
|
Accounts payable
|
|
|
(14
|
)
|
|
|
(330
|
)
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(1,898
|
)
|
|
|
(1,385
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in FTD, Inc.
|
|
|
(1,998
|
)
|
|
|
|
|
|
|
(5,338
|
)
|
Settlement of foreign exchange
contract
|
|
|
1,386
|
|
|
|
|
|
|
|
|
|
Restricted junior payments
|
|
|
15,881
|
|
|
|
15,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
15,269
|
|
|
|
15,974
|
|
|
|
(5,338
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(11,182
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(4,699
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit from
stock-based compensation
|
|
|
|
|
|
|
220
|
|
|
|
|
|
Proceeds from exercise of stock
options
|
|
|
2,510
|
|
|
|
212
|
|
|
|
|
|
Purchase of company stock
|
|
|
|
|
|
|
(14,999
|
)
|
|
|
|
|
Net proceeds from the issuance of
common stock
|
|
|
|
|
|
|
(22
|
)
|
|
|
192,227
|
|
Repurchase of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(186,811
|
)
|
Capital contribution
common stock
|
|
|
|
|
|
|
|
|
|
|
827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(13,371
|
)
|
|
|
(14,589
|
)
|
|
|
6,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed financial statements.
F-34
FTD
Group, Inc. (Parent Company Only)
Note to
Condensed Financial Statements
|
|
(1)
|
Basis of
Presentation
|
Under the terms of agreements governing indebtedness of certain
subsidiaries of FTD Group, Inc. (the Company), such
subsidiaries are restricted from making dividend payments, loans
or advances to the Company. These restrictions resulted in
restricted net assets (as defined in
Rule 4-03(e)(3)
of
Regulation S-X)
of the Companys subsidiaries exceeding 25% of the
consolidated net assets of the Company and its subsidiaries.
The unaudited financial statements of FTD Group, Inc. (Parent
Company Only) summarize the results of operations for the years
ended June 30, 2007, 2006 and 2005. In these statements,
FTD Group, Inc.s investment in subsidiary is stated at
cost plus equity in the undistributed earnings of subsidiaries
since the date of acquisition, February 24, 2004. The FTD
Group, Inc. (Parent Company Only) financial statements should be
read in conjunction with the FTD Group, Inc. consolidated
financial statements.
F-35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write Offs, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
of Collection of
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Written Off, and
|
|
|
|
|
|
|
Beginning of
|
|
|
Charged to Cost
|
|
|
Sale of Related
|
|
|
Balance at End
|
|
|
|
Period
|
|
|
and Expenses
|
|
|
Assets
|
|
|
of Period
|
|
|
Fiscal year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4,437
|
|
|
$
|
3,409
|
|
|
$
|
2,415
|
|
|
$
|
5,431
|
|
Inventory valuation reserve
|
|
$
|
927
|
|
|
$
|
606
|
|
|
$
|
874
|
|
|
$
|
659
|
|
Fiscal year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,521
|
|
|
$
|
3,436
|
|
|
$
|
1,520
|
|
|
$
|
4,437
|
|
Inventory valuation reserve
|
|
$
|
2,648
|
|
|
$
|
645
|
|
|
$
|
2,366
|
|
|
$
|
927
|
|
Fiscal year 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
5,067
|
|
|
$
|
4,250
|
|
|
$
|
6,796
|
|
|
$
|
2,521
|
|
Inventory valuation reserve
|
|
$
|
951
|
|
|
$
|
1,954
|
|
|
$
|
257
|
|
|
$
|
2,648
|
|
F-36
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger,
dated as of October 5, 2003, among FTD, Inc., Mercury Man
Holdings Corporation and Nectar Merger Corporation (incorporated
by reference to Exhibit 2.1 to FTD, Inc.s Registration
Statement on Form S-4 filed with the SEC on March 22, 2004, as
amended (File No. 333-113807) (the 2004 FTD S-4)).
|
|
2
|
.2
|
|
Share Purchase Agreement dated
July 7, 2006 by and among FTD UK Holdings Limited, FTD, Inc. and
certain Shareholders of Interflora Holdings Limited named
therein (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K dated July 6, 2006).
|
|
3
|
.1
|
|
Second Amended and Restated
Certificate of Incorporation of FTD Group, Inc. (incorporated by
reference to Exhibit 3.1 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2005 (the
3/31/05 10-Q)).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of FTD
Group, Inc. (incorporated by reference to Exhibit 3.2 to the
3/31/05 10-Q).
|
|
4
|
.1
|
|
Specimen common stock certificate
(incorporated by reference to Exhibit 4.6 to the Companys
Registration Statement on Form S-1, as amended (File No.
333-120723)(the 2005 Company S-1)).
|
|
4
|
.2
|
|
Indenture, dated February 6, 2004,
by and between FTD, Inc., U.S. Bank National Association, as
trustee, and the subsidiary guarantors party thereto from time
to time (incorporated by reference to Exhibit 4.1 to the 2004
FTD S-4).
|
|
4
|
.3
|
|
Form of Note (incorporated by
reference to Exhibit A to Exhibit 4.1 to the 2004 FTD S-4).
|
|
4
|
.4
|
|
Supplemental Indenture, dated as
of February 24, 2004, by and among, FTD, Inc., the subsidiary
guarantors listed on the signature pages thereto, and U.S. Bank
National Association, as trustee (incorporated by reference to
Exhibit 4.4 to the 2004 FTD S-4).
|
|
4
|
.5
|
|
Second Supplemental Indenture,
dated as of February 14, 2005, by and among, FTD, Inc., the
subsidiary guarantors listed on the signature pages thereto, FTD
Group, Inc. and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.5 to the Companys
Annual Report on Form 10-K dated September 19, 2005 (the
2005 Company 10-K)).
|
|
4
|
.6
|
|
Guarantee, dated February 24,
2004, by the subsidiary guarantors listed on the signature pages
thereto (incorporated by reference to Exhibit 4.7 to the 2004
Company S-4).
|
|
4
|
.7
|
|
Amended and Restated Stockholders
Agreement, dated as of September 30, 2004, by and among FTD
Group, Inc., Green Equity Investors IV, L.P., FTD Co-Investment,
LLC, Jon R. Burney, Lawrence W. Johnson, George T. Kanganis,
Timothy Meline, William J. Van Cleave, Daniel W. Smith, Michael
J. Soenen, Carrie A. Wolfe, Marcia Chapman and Jandy Tomy
(incorporated by reference to Exhibit 4.5 to the 2005 Company
S-1).
|
|
4
|
.8
|
|
Amendment No. 1 to Amended and
Restated Stockholders Agreement, dated as of February 14, 2005,
by and among FTD Group, Inc., Green Equity Investors IV, L.P.,
FTD Co-Investment, LLC, Jon R. Burney, Lawrence W. Johnson,
George T. Kanganis, Timothy Meline, William J. Van Cleave,
Daniel W. Smith, Michael J. Soenen, Carrie A. Wolfe, Marcia
Chapman and Jandy Tomy (incorporated by reference to Exhibit 4.8
to the 2005 Company 10-K).
|
|
10
|
.1
|
|
Credit Agreement, dated as of July
28, 2006, by and among FTD, Inc., as borrower, Wells Fargo Bank,
N.A., as Administrative Agent, Syndication Agent and
Documentation Agent, and the other parties signatory thereto
(incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated August 2, 2006).
|
|
10
|
.2
|
|
Security Agreement, dated as of
July 28, 2006, by and among FTD, Inc., FTD Group, Inc., FTD.COM
INC., Florists Transworld Delivery, Inc. and Wells Fargo
Bank, N.A., as Administrative Agent (incorporated by reference
to Exhibit 10.2 to the Companys Current Report on Form 8-K
dated August 2, 2006).
|
|
10
|
.3
|
|
First Amended and Restated Credit
Agreement, dated as of August 7, 2006, by and among FTD, Inc.,
Wells Fargo Bank, N.A., as Administrative Agent and Lender,
Mizuho Corporate Bank, Ltd. and ING Capital LLC, as
Co-Syndication Agents and BMO Capital Markets as Documentation
Agent (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated August 11,
2006).
|
E-1
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.4
|
|
Tax Sharing Agreement, dated as of
December 19, 1994, between FTD Corporation and Florists
Transworld Delivery, Inc. (incorporated by reference to Exhibit
10.3 to the 2004 FTD S-4).
|
|
10
|
.5
|
|
First Amendment to Tax Sharing
Agreement, dated as of May 19, 1999 among FTD Corporation,
Florists Transworld Delivery, Inc. and FTD.COM
(incorporated by reference to Exhibit 10.4 to the 2004 FTD S-4).
|
|
10
|
.6*
|
|
Employment agreement dated May 20,
2003 regarding William J. Van Cleave employment arrangements
(incorporated by reference to Exhibit 10.10 to the 2004 FTD S-4).
|
|
10
|
.7*
|
|
Employment agreement dated May 20,
2003 regarding Jon R. Burney employment arrangements
(incorporated by reference to Exhibit 10.11 to the 2004 FTD S-4).
|
|
10
|
.8*
|
|
Employment agreement dated May 20,
2003 regarding Lawrence W. Johnson employment arrangements
(incorporated by reference to Exhibit 10.8 to FTD, Inc.s
Annual Report on
Form 10-K
for the fiscal year ended June 30, 2004 (the FTD, Inc.
2004 Form 10-K)).
|
|
10
|
.9*
|
|
Employment agreement dated May 20,
2003 regarding George T. Kanganis employment arrangements
(incorporated by reference to Exhibit 10.9 to the FTD, Inc. 2004
Form 10-K).
|
|
10
|
.10*
|
|
Form of Amendment to Employment
Agreement, dated as of October 5, 2003, by and between FTD, Inc.
and each of Jon R. Burney, Lawrence W. Johnson, George T.
Kanganis and William J. Van Cleave (incorporated by reference to
Exhibit 10.13 to the 2004 FTD S-4).
|
|
10
|
.11*
|
|
Form of Second Amendment to
Employment Agreement, dated as of February 24, 2004, by and
between FTD, Inc. and each of Jon R. Burney, Lawrence W.
Johnson, George T. Kanganis and William J. Van Cleave
(incorporated by reference to Exhibit 10.14 to the 2004 FTD S-4).
|
|
10
|
.12*
|
|
Form of Confidentiality and
Non-Competition Agreement between FTD.COM and William J. Van
Cleave, dated as of May 17, 2000 (incorporated by reference to
Exhibit 10.15 to the 2004
FTD S-4).
|
|
10
|
.13*
|
|
Form of Confidentiality and
Non-Competition Agreement between Florists Transworld
Delivery, Inc. and each of the following executive officers: Jon
R. Burney, Vice President and General Counsel, dated as of
November 12, 2002; George Kanganis, Executive Vice President of
Sales, dated as of November 12, 2002; and Lawrence W. Johnson,
Executive Vice President of Mercury Technology, dated as of
November 12, 2002 (incorporated by reference to Exhibit 10.16 to
the 2004 FTD S-4).
|
|
10
|
.14*
|
|
Letter Agreement between the
Company and Becky A. Sheehan (incorporated by reference to the
Companys Current Report on Form 8-K dated June 5, 2006).
|
|
10
|
.15
|
|
Form of Trademark License
Agreement between Florists Transworld Delivery, Inc. and
FTD.COM (incorporated by reference to Exhibit 10.17 to the 2004
FTD S-4).
|
|
10
|
.16
|
|
Form of Florists Online
Hosting Agreement between Florists Transworld Delivery,
Inc. and FTD.COM (incorporated by reference to Exhibit 10.18 to
the 2004 FTD S-4).
|
|
10
|
.17
|
|
Form of Commission Agreement
between Florists Transworld Delivery, Inc. and FTD.COM
(incorporated by reference to Exhibit 10.19 to the 2004 FTD S-4).
|
|
10
|
.18
|
|
Management Services Agreement,
dated as of February 24, 2004, by and among FTD, Inc., FTD.COM,
Florists Transworld Delivery, Inc., Value Network Service,
Inc., FTD Holdings, Incorporated, Renaissance Greeting Cards,
Inc., Flowers USA, Inc., and Leonard Green & Partners, L.P.
(incorporated by reference to Exhibit 10.20 to the 2004 FTD S-4).
|
|
10
|
.19
|
|
Termination Agreement, dated as of
February 14, 2005, by and among FTD, Inc., FTD.COM INC.,
Florists Transworld Delivery, Inc., FTD International
Corporation, Value Network Service, Inc., FTD Holdings
Incorporated, Renaissance Greeting Cards, Inc., Flowers USA,
Inc. and Leonard Green & Partners, L.P. (incorporated by
reference to Exhibit 10.19 to the 2005 Company 10-K).
|
|
10
|
.20*
|
|
Stock Option Plan of FTD Group,
Inc., dated as of September 30, 2004 (incorporated by reference
to Exhibit 10.4 to FTD, Inc.s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2004 (the
9/30/04 FTD, Inc. 10-Q)).
|
|
10
|
.21*
|
|
Form of Non-Qualified Performance
Accelerated Stock Option Agreement for use in connection with
stock options granted under the Stock Option Plan of FTD Group,
Inc. to directors and officers of FTD Group, Inc. (incorporated
by reference to Exhibit 10.5 to the 9/30/04 FTD, Inc. 10-Q).
|
E-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.22*
|
|
Form of Non-Qualified Stock Option
Agreement for use in connection with stock options granted under
the Stock Option Plan of FTD Group, Inc. to directors and
officers of FTD Group, Inc. (incorporated by reference to
Exhibit 10.6 to the 9/30/04 FTD, Inc. 10-Q).
|
|
10
|
.23*
|
|
Form of Indemnification Agreement
with certain directors and officers of the Company (incorporated
by reference to Exhibit 10.25 to the 2005 Company S-1).
|
|
10
|
.24*
|
|
FTD Group, Inc. 2005 Amended and
Restated Equity Incentive Award Plan (incorporated by reference
to Exhibit 10.26 to the 2005 Company S-1).
|
|
10
|
.25*
|
|
FTD Group, Inc. Incentive Bonus
Plan (incorporated by reference to Exhibit 10.27 to the 2005
Company S-1).
|
|
10
|
.26*
|
|
Employment agreement dated as of
July 1, 2007 regarding Becky A. Sheehan employment arrangements
(incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on July 26, 2007).
|
|
10
|
.27*
|
|
Form of Restricted Stock Award
Grant Notice and Restricted Stock Award Agreement (incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on July 11, 2007).
|
|
14
|
.1
|
|
Code of Business Conduct and
Ethics (incorporated by reference to Exhibit 14.1 to the 2005
Company 10-K).
|
|
21
|
.1 +
|
|
Subsidiaries of FTD Group, Inc.
|
|
23
|
.1 +
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1 +
|
|
Certification of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31
|
.2 +
|
|
Certification of Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32 +
|
|
|
Certifications of Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Management contract or compensatory arrangement. |
|
+ |
|
Filed as an exhibit to this
Form 10-K. |
E-3