e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
3113 Woodcreek Drive
Downers Grove, IL 60515
(Address of principal executive offices)
(630) 719-7800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO 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 October 31, 2007, there were 28,799,268 outstanding shares of the issuers Common Stock,
par value $0.01 per share.
FTD GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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September 30, 2007 |
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June 30, 2007 |
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(Unaudited) |
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ASSETS
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Current Assets: |
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Cash and cash equivalents |
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$ |
13,678 |
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$ |
25,462 |
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Accounts receivable, less allowance for doubtful accounts
of $5,913 at September 30, 2007 and $5,431 at June 30, 2007 |
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37,941 |
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32,416 |
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Inventories, net |
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4,226 |
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3,694 |
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Deferred income taxes |
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4,325 |
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4,300 |
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Prepaid expenses and other current assets |
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7,077 |
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5,200 |
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Total Current Assets |
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67,247 |
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71,072 |
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Property and Equipment: |
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Property and equipment |
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36,528 |
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35,791 |
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Less accumulated depreciation |
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12,120 |
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11,018 |
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Property and Equipment, net |
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24,408 |
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24,773 |
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Other Assets: |
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Deferred financing fees, net |
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5,320 |
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5,537 |
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Computer software, net |
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12,404 |
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12,699 |
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Other noncurrent assets |
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16,659 |
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15,548 |
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Other intangible assets, less accumulated amortization of
$9,956 at September 30, 2007 and $9,154 at June 30, 2007 |
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12,675 |
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13,454 |
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Trademarks |
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189,264 |
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187,816 |
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Goodwill |
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419,780 |
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418,001 |
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Total Other Assets |
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656,102 |
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653,055 |
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Total Assets |
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$ |
747,757 |
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$ |
748,900 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Accounts payable |
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$ |
43,247 |
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$ |
52,009 |
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Customer deposits |
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4,019 |
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4,105 |
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Unearned revenue |
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2,738 |
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2,294 |
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Accrued interest |
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3,605 |
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5,989 |
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Accrued compensation |
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4,990 |
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7,905 |
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Other accrued liabilities |
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13,145 |
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8,218 |
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Current maturities of long-term debt |
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8,475 |
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8,475 |
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Dividends payable |
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4,804 |
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4,707 |
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Total Current Liabilities |
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85,023 |
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93,702 |
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Other liabilities |
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855 |
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3,038 |
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Senior secured credit facility |
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133,060 |
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133,418 |
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Senior subordinated notes |
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170,117 |
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170,117 |
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Post-retirement benefits, accrued pension obligations and other liabilities |
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1,924 |
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1,497 |
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Deferred income taxes |
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82,923 |
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85,350 |
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Stockholders Equity: |
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Common stock: $0.01 par value, 75,000 shares authorized; 29,796 shares issued
as of September 30, 2007 and 29,482 shares issued as of June 30, 2007 |
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298 |
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295 |
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Additional paid-in capital |
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235,695 |
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235,589 |
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Retained earnings |
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25,040 |
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20,952 |
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Accumulated other comprehensive income |
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12,822 |
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9,933 |
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Treasury stock, at cost, 519 shares as of June 30, 2007 |
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(4,991 |
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Total Stockholders Equity |
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273,855 |
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261,778 |
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Total Liabilities and Stockholders Equity |
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$ |
747,757 |
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$ |
748,900 |
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
FTD
GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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September 30, |
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2007 |
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2006 |
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Revenues: |
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Products |
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$ |
88,858 |
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$ |
73,873 |
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Services |
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34,887 |
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34,898 |
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Total revenues |
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123,745 |
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108,771 |
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Costs of Products Sold and Services
Provided: |
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Products |
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66,733 |
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56,154 |
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Services |
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4,436 |
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4,269 |
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Total costs
of products sold and services provided |
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71,169 |
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60,423 |
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Gross Profit: |
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Products |
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22,125 |
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17,719 |
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Services |
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30,451 |
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30,629 |
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Total gross profit |
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52,576 |
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48,348 |
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Operating Expenses: |
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Advertising and selling |
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16,652 |
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16,564 |
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General and administrative |
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19,071 |
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16,410 |
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Total operating expenses |
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35,723 |
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32,974 |
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Income from operations |
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16,853 |
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15,374 |
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Other Income and Expenses: |
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Interest income |
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(302 |
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(298 |
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Interest expense |
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6,387 |
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8,226 |
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Other income, net |
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(210 |
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(1,544 |
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Total other income and expenses |
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5,875 |
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6,384 |
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Income before income tax expense |
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10,978 |
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8,990 |
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Income tax expense |
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2,822 |
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3,547 |
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Net income |
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$ |
8,156 |
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$ |
5,443 |
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Other Comprehensive Income: |
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Foreign currency translation adjustments |
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2,889 |
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2,400 |
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Comprehensive income |
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$ |
11,045 |
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$ |
7,843 |
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Net income per Common Share basic |
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$ |
0.28 |
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$ |
0.19 |
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Net income per Common Share diluted |
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$ |
0.28 |
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$ |
0.18 |
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Weighted Average Common Shares Outstanding: |
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Basic |
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29,066 |
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28,232 |
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Diluted |
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29,549 |
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29,469 |
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Cash Dividends Declared per Common Share |
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$ |
0.1625 |
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$ |
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
FTD GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended |
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September 30, |
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2007 |
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2006 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
8,156 |
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$ |
5,443 |
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Adjustments to reconcile net income to net cash
used in operating activities: |
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Depreciation and amortization |
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3,221 |
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3,316 |
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Stock-based compensation expense |
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721 |
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393 |
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Amortization and write off of deferred financing costs |
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217 |
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2,077 |
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Provision for doubtful accounts |
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735 |
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764 |
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Deferred income taxes |
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(3,060 |
) |
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(601 |
) |
Excess tax benefit from stock-based compensation |
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(2,282 |
) |
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(654 |
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(Decrease) increase due to changes in operating assets and liabilities,
net of acquisition: |
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Accounts receivable |
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(6,110 |
) |
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(5,924 |
) |
Inventories |
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(524 |
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327 |
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Prepaid expenses and other |
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(1,833 |
) |
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829 |
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Other noncurrent assets |
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(1,133 |
) |
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(428 |
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Accounts payable |
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(5,030 |
) |
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(8,812 |
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Other
accrued liabilities, unearned revenue, customer deposits and other |
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(2,640 |
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(2,216 |
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Net cash used in operating activities |
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(9,562 |
) |
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(5,486 |
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Cash Flows from Investing Activities: |
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Acquisition of business, net of cash acquired |
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(96,717 |
) |
Capital expenditures |
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(1,558 |
) |
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(1,935 |
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Dividends received |
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146 |
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Net cash used in investing activities |
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(1,558 |
) |
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(98,506 |
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Cash Flows from Financing Activities: |
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Dividends paid |
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(4,707 |
) |
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Proceeds from exercise of stock options |
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2,091 |
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422 |
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Excess tax benefit from stock-based compensation |
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2,282 |
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|
654 |
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Repayments of long-term debt |
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(358 |
) |
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(50,000 |
) |
Proceeds from issuance of long-term debt, net of financing costs |
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148,556 |
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Proceeds from issuance of common stock |
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6 |
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Net proceeds from revolving credit facility |
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6,000 |
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Net cash (used in) provided by financing activities |
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(686 |
) |
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105,632 |
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Effect of foreign exchange rate changes on cash and cash equivalents |
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22 |
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|
708 |
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Net (decrease) increase in cash and cash equivalents |
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(11,784 |
) |
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|
2,348 |
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Cash and cash equivalents at beginning of period |
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25,462 |
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|
10,954 |
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Cash and cash equivalents at end of period |
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$ |
13,678 |
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$ |
13,302 |
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Supplemental disclosures of cash flow information |
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Non-cash disclosure: |
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Issuance of
notes payable associated with the purchase of Interflora Holdings Limited |
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$ |
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$ |
23,345 |
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Issuance of
treasury stock associated with the purchase of Interflora Holdings Limited |
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$ |
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$ |
3,206 |
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
FTD
Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of the Business
Basis of Presentation
These condensed consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, therefore, do not include all
information and footnote disclosures normally included in audited financial statements. However,
in the opinion of management, all adjustments consisting only of normal recurring adjustments,
unless otherwise noted herein, necessary to present fairly the results of operations, financial
position and cash flows have been made. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes thereto included in FTD
Group, Inc.s Annual Report on Form 10-K for the year ended June 30, 2007. The results of
operations for any interim period are not necessarily indicative of the results of operations to be
expected for the full year.
As used in this Form 10-Q, the term Company refers to FTD Group, Inc. and its consolidated
subsidiaries, including FTD, Inc. taken as a whole. FTD, Inc. is a Delaware corporation that
commenced operations in 1994.
On July 31, 2006, the Company completed its acquisition of Interflora Holdings Limited
(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.
All intercompany accounts and transactions have been eliminated in consolidation.
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.
5
Note 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 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 notes payable, of which $23.1
million were paid in May 2007 and the remainder, $1.8 million, is expected to be paid in the first
half of fiscal year 2009. The remainder of the purchase price 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 was recorded in
other income, net within the Condensed Consolidated Statements of Operations and Comprehensive
Income. 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. The
remaining forward contract for £0.8 million is expected to be settled during the first half 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 quarters ended September 30, 2007
and 2006, other income, net, included $0.1 million and $1.5 million, respectively, 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, 2006
(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.
|
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|
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|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
Revenues |
|
$ |
119,424 |
|
|
|
|
|
|
Income from operations |
|
$ |
16,249 |
|
|
|
|
|
|
Net income |
|
$ |
5,613 |
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.20 |
|
|
|
|
|
Net income per share diluted |
|
$ |
0.19 |
|
|
|
|
|
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 ($5.3 million
translated at the September 30, 2007 exchange rate). The Company recorded $0.3 million and $0.2
million of expense during the periods ended September 30, 2007 and 2006, respectively related to
this deferred compensation plan. At September 30, 2007 and 2006, the amounts accrued under this
deferred compensation plan were $1.5 million and $0.2 million, respectively.
Note 3. Income Taxes
Taxes on earnings reflect the estimated annual effective rates, excluding the effect of
significant unusual items. Tax expense in the quarter ended September 30, 2007 includes 12.3
percentage points of tax benefit related to a statutory income tax rate reduction in the U.K.
Excluding this unusual item, the effective tax rate was 38.0% for the first quarter of fiscal year
2008. For the same quarter of fiscal year 2007, the effective rate was 39.5%.
6
Unrecognized tax benefits as of the adoption of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48) on July 1,
2007 were approximately $2.4 million. If recognized, $0.7 million of these unrecognized tax
benefits would reduce the effective tax rate. As a result of the implementation of FIN 48, the
Company recognized a $0.7 million decrease in the liability for unrecognized tax benefits. This
decrease in the liability resulted in an increase to beginning retained earnings of $0.7 million.
The Company does not expect the total amount of unrecognized tax benefits to change significantly
within the next twelve months. Consistent with prior periods, the Company recognizes interest and
penalties related to unrecognized benefits as a component of tax expense. Reserves for interest
and penalties are not significant. The Company is subject to U.S. Federal income tax examinations
for the tax years ended June 30, 2004 through June 30, 2007. The Company is subject to income tax
examinations in the U.K. for the twelve-month period ended May 31, 2007 and the one-month period
ended June 30, 2007. In addition, the Company is subject to various state and local income tax
examinations for the tax years ended June 30, 2003 through June 30, 2007. During the first quarter
ended September 30, 2007, the change in unrecognized tax benefits was not significant.
Note 4. Financing Arrangements
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 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 2006 Credit Agreement. The interest rate at September 30, 2007
and 2006 on the term loan was 7.36% and 7.41%, respectively. The Credit Agreement also requires
the Company to pay commitment fees on the unused portion of the revolving credit facility. For
each of the three-month periods ended September 30, 2007 and 2006, the commitment fees totaled $0.1
million. 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 September 30, 2007.
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, allows the Company to
make certain restricted junior payments, including dividend payments, subject to certain
conditions.
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 in outstanding debt 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 Condensed
Consolidated Statements of Operations 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.
At
September 30, 2007, the Company had $170.1 million of Notes
outstanding, $141.5 million outstanding under the 2006 Credit
Agreement, $1.8 million of notes payable related to the acquisition of Interflora and an additional
$1.2 million in outstanding letters of credit and, as a result, approximately $72.0 million of the
revolving credit facility was available.
7
Note 5. Net Income Per Common Share
The computations of basic and diluted net income per common share for the three-month periods
ended September 30, 2007 and 2006 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
8,156 |
|
|
$ |
5,443 |
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding basic |
|
|
29,066 |
|
|
|
28,232 |
|
Effect of dilutive securities stock options
and restricted stock |
|
|
483 |
|
|
|
1,237 |
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding diluted |
|
|
29,549 |
|
|
|
29,469 |
|
|
|
|
|
|
|
|
|
Net income per share of Common Stock basic |
|
$ |
0.28 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
Net income per share of Common Stock diluted |
|
$ |
0.28 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
For the three-month period ended September 30, 2007 there were 12,500 options that were not
included in the computation of diluted earnings per share because the exercise prices of the
options were greater than the average market prices of the Companys Common Stock during the
periods and therefore, were anti-dilutive. For the three-month period ended September 30, 2006,
there were 1,027,717 outstanding stock options which were not included in the computation of
diluted earnings per share because their effect was anti-dilutive.
Note 6. Stock-Based Compensation
During the three-month period ended September 30, 2007, the Company issued 300,000 shares of
restricted stock to certain members of management. The shares vest equally each year over a
five-year service period. During the three-month period ended September 30, 2006, the Company
granted 1,367,717 options to various employees and directors of the Company. Outstanding
non-qualified stock options have an expiration date ten years from the date of grant and begin
vesting as early as the date of grant, depending upon the individual agreements. All stock options
were granted with an exercise price equal to the fair market value of the Companys stock on the
date of grant.
During the three-month periods ended September 30, 2007 and 2006, 40,000 and 116,666 options,
respectively, were forfeited. During the three-month periods ended September 30, 2007 and 2006,
533,564 and 140,780 options, respectively, were exercised.
Stock-based compensation expense was $0.7 million and $0.4 million for the three-month periods
ended September 30, 2007, and 2006, respectively.
Note 7. 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 outcomes of these
matters are uncertain, they are not expected to have a material adverse effect on the Companys
financial condition, results of operations and cash flows.
Note 8. Segment Information
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.
8
During the first quarter of the fiscal year ending June 30, 2008, the Company eliminated
certain allocations of costs between its consumer and florist segments in order to simplify
financial reporting and to reflect how the Company now manages its businesses. Certain
reclassifications have been made to the basis of presentation to reflect the elimination of these
allocations to facilitate comparable reporting. Such changes do not impact the consolidated
financial statements.
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, in
addition to 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 offering floral products in the U.S. and Canada, encompassing clearinghouse services,
publishing products and services, technology sales and leases, fresh flower sales and other
specialty wholesale products.
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. 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. Interflora was acquired by the Company on July 31, 2006. As such, the quarter
ended September 30, 2007 includes the results of operations of Interflora for three months whereas
the quarter ended September 30, 2006 included the results of Interfloras operations for only two
months..
The Companys total assets by segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Consumer segment |
|
$ |
262,257 |
|
|
$ |
264,245 |
|
Florist segment* |
|
|
309,324 |
|
|
|
308,605 |
|
International segment |
|
|
176,176 |
|
|
|
173,746 |
|
|
|
|
|
|
|
|
Total |
|
$ |
747,757 |
|
|
$ |
746,596 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes corporate assets. |
The following table reports the Companys operating results by reportable segment for the
three-month periods ended September 30, 2007 and 2006:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
(In thousands) |
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
$ |
47,936 |
|
|
$ |
(2,216 |
) |
|
$ |
45,720 |
|
|
$ |
49,642 |
|
|
$ |
(2,249 |
) |
|
$ |
47,393 |
|
Florist segment |
|
|
42,925 |
|
|
|
(104 |
) |
|
|
42,821 |
|
|
|
43,912 |
|
|
|
(91 |
) |
|
|
43,821 |
|
International segment |
|
|
35,120 |
|
|
|
84 |
|
|
|
35,204 |
|
|
|
17,524 |
|
|
|
33 |
|
|
|
17,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
125,981 |
|
|
|
(2,236 |
) |
|
|
123,745 |
|
|
|
111,078 |
|
|
|
(2,307 |
) |
|
|
108,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Products Sold and
Services Provided: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
32,023 |
|
|
|
(104 |
) |
|
|
31,919 |
|
|
|
33,538 |
|
|
|
(91 |
) |
|
|
33,447 |
|
Florist segment |
|
|
15,182 |
|
|
|
|
|
|
|
15,182 |
|
|
|
14,464 |
|
|
|
|
|
|
|
14,464 |
|
International segment |
|
|
23,616 |
|
|
|
(27 |
) |
|
|
23,589 |
|
|
|
12,012 |
|
|
|
(16 |
) |
|
|
11,996 |
|
Corporate |
|
|
479 |
|
|
|
|
|
|
|
479 |
|
|
|
516 |
|
|
|
|
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,300 |
|
|
|
(131 |
) |
|
|
71,169 |
|
|
|
60,530 |
|
|
|
(107 |
) |
|
|
60,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
15,913 |
|
|
|
(2,112 |
) |
|
|
13,801 |
|
|
|
16,104 |
|
|
|
(2,158 |
) |
|
|
13,946 |
|
Florist segment |
|
|
27,743 |
|
|
|
(104 |
) |
|
|
27,639 |
|
|
|
29,448 |
|
|
|
(91 |
) |
|
|
29,357 |
|
International segment |
|
|
11,504 |
|
|
|
111 |
|
|
|
11,615 |
|
|
|
5,512 |
|
|
|
49 |
|
|
|
5,561 |
|
Corporate |
|
|
(479 |
) |
|
|
|
|
|
|
(479 |
) |
|
|
(516 |
) |
|
|
|
|
|
|
(516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
54,681 |
|
|
|
(2,105 |
) |
|
|
52,576 |
|
|
|
50,548 |
|
|
|
(2,200 |
) |
|
|
48,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and Selling: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
4,764 |
|
|
|
|
|
|
|
4,764 |
|
|
|
4,886 |
|
|
|
|
|
|
|
4,886 |
|
Florist segment |
|
|
11,364 |
|
|
|
(2,216 |
) |
|
|
9,148 |
|
|
|
12,724 |
|
|
|
(2,249 |
) |
|
|
10,475 |
|
International segment |
|
|
2,722 |
|
|
|
18 |
|
|
|
2,740 |
|
|
|
1,246 |
|
|
|
(43 |
) |
|
|
1,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,850 |
|
|
|
(2,198 |
) |
|
|
16,652 |
|
|
|
18,856 |
|
|
|
(2,292 |
) |
|
|
16,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
4,405 |
|
|
|
|
|
|
|
4,405 |
|
|
|
4,478 |
|
|
|
|
|
|
|
4,478 |
|
Florist segment |
|
|
2,099 |
|
|
|
|
|
|
|
2,099 |
|
|
|
2,265 |
|
|
|
|
|
|
|
2,265 |
|
International segment |
|
|
5,837 |
|
|
|
39 |
|
|
|
5,876 |
|
|
|
3,023 |
|
|
|
136 |
|
|
|
3,159 |
|
Corporate |
|
|
6,691 |
|
|
|
|
|
|
|
6,691 |
|
|
|
6,508 |
|
|
|
|
|
|
|
6,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19,032 |
|
|
|
39 |
|
|
|
19,071 |
|
|
|
16,274 |
|
|
|
136 |
|
|
|
16,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
before Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
6,744 |
|
|
|
(2,112 |
) |
|
|
4,632 |
|
|
|
6,740 |
|
|
|
(2,158 |
) |
|
|
4,582 |
|
Florist segment |
|
|
14,280 |
|
|
|
2,112 |
|
|
|
16,392 |
|
|
|
14,459 |
|
|
|
2,158 |
|
|
|
16,617 |
|
International segment |
|
|
2,945 |
|
|
|
54 |
|
|
|
2,999 |
|
|
|
1,243 |
|
|
|
(44 |
) |
|
|
1,199 |
|
Corporate |
|
|
(7,170 |
) |
|
|
|
|
|
|
(7,170 |
) |
|
|
(7,024 |
) |
|
|
|
|
|
|
(7,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16,799 |
|
|
|
54 |
|
|
|
16,853 |
|
|
|
15,418 |
|
|
|
(44 |
) |
|
|
15,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
986 |
|
|
|
|
|
|
|
986 |
|
|
|
817 |
|
|
|
|
|
|
|
817 |
|
Florist segment |
|
|
2,569 |
|
|
|
|
|
|
|
2,569 |
|
|
|
2,392 |
|
|
|
|
|
|
|
2,392 |
|
International segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(3,555 |
) |
|
|
|
|
|
|
(3,555 |
) |
|
|
(3,209 |
) |
|
|
|
|
|
|
(3,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
5,758 |
|
|
|
(2,112 |
) |
|
|
3,646 |
|
|
|
5,923 |
|
|
|
(2,158 |
) |
|
|
3,765 |
|
Florist segment |
|
|
11,711 |
|
|
|
2,112 |
|
|
|
13,823 |
|
|
|
12,067 |
|
|
|
2,158 |
|
|
|
14,225 |
|
International segment |
|
|
2,945 |
|
|
|
54 |
|
|
|
2,999 |
|
|
|
1,243 |
|
|
|
(44 |
) |
|
|
1,199 |
|
Corporate |
|
|
(3,615 |
) |
|
|
|
|
|
|
(3,615 |
) |
|
|
(3,815 |
) |
|
|
|
|
|
|
(3,815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,799 |
|
|
$ |
54 |
|
|
$ |
16,853 |
|
|
$ |
15,418 |
|
|
$ |
(44 |
) |
|
$ |
15,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
$ |
906 |
|
|
$ |
|
|
|
$ |
906 |
|
|
$ |
940 |
|
|
$ |
|
|
|
$ |
940 |
|
Florist segment |
|
|
666 |
|
|
|
|
|
|
|
666 |
|
|
|
834 |
|
|
|
|
|
|
|
834 |
|
International segment |
|
|
994 |
|
|
|
|
|
|
|
994 |
|
|
|
576 |
|
|
|
|
|
|
|
576 |
|
Corporate |
|
|
655 |
|
|
|
|
|
|
|
655 |
|
|
|
966 |
|
|
|
|
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,221 |
|
|
$ |
|
|
|
$ |
3,221 |
|
|
$ |
3,316 |
|
|
$ |
|
|
|
$ |
3,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
Unless the context otherwise indicates, as used in this Form 10-Q, the term Company refers
to FTD Group, Inc. and its consolidated subsidiaries, taken as a whole. This quarterly report on
Form 10-Q contains various forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements may 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 Quarterly Report on Form 10-Q and in the Companys 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.
The following discussion should be read in conjunction with the condensed consolidated
financial statements and notes to those statements that appear elsewhere in this Form 10-Q. 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 captions Forward-Looking Information,
Risk Factors and elsewhere in this Form 10-Q.
Overview
FTD Group, Inc. is a leading provider of floral and specialty gift products 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 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, which sells products directly to consumers primarily through the www.ftd.com
Web site, in addition to the 1-800-SEND-FTD toll-free telephone number.
Florist Segment. The florist segment provides a comprehensive suite of products and services
that enable FTD members to send and deliver floral orders. 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.
11
International Segment. The international segment is primarily comprised of Interflora, which
serves both the florist and consumer markets. 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. Interflora also provides various
products and services to its members.
Corporate Costs. Costs related to corporate headquarters, including accounting, executive,
legal, facilities, information technology and credit and collections are charged to Corporate.
Costs related to facilities, information technology and credit and collections are allocated to the
consumer and florist segments.
Seasonality. In view of seasonal variations in the revenues and operating results of the
Companys florist, consumer 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 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.
Revenues 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, the
popular floral holidays of Easter and the U.K. Mothers Day sometimes fall within the quarter
ending March 31 and sometimes fall within the quarter ending June 30.
Three Months Ended September 30, 2007 compared to the Three Months Ended September 30, 2006
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
% Change |
|
Consumer segment |
|
$ |
45,720 |
|
|
$ |
47,393 |
|
|
|
(3.5 |
%) |
Florist segment |
|
|
42,821 |
|
|
|
43,821 |
|
|
|
(2.3 |
%) |
International segment |
|
|
35,204 |
|
|
|
17,557 |
|
|
|
100.5 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
123,745 |
|
|
$ |
108,771 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenue grew $14.9 million, or 13.8%, to $123.7 million for the first quarter fiscal
year 2008, compared to total revenues of $108.8 million for the same period of fiscal year 2007.
The Company acquired Interflora on July 31, 2006, and, as a result, only two months of Interfloras
financial results are included in the first quarter of the
12
prior year. Interflora, which is
included in the Companys international segment, accounted for $17.6 million of the increase in
revenue, partially offset by declines in the Companys consumer and florist segments totaling $2.7
million.
Revenues in the consumer segment decreased $1.7 million, or 3.5% to $45.7 million in the first
quarter of fiscal year 2008, compared to revenues of $47.4 million in the same period of fiscal
year 2007. This decline was driven by an 8.4% decrease in order volumes, which totaled 703,000
during the first quarter of fiscal year 2008 compared to 768,000 orders in the same period of
fiscal year 2007. This decline was partially offset by an increase in average order value to
$63.36 for the first quarter of fiscal year 2008, compared to $60.52 for the same period of fiscal
year 2007. The percentage of Internet orders increased to 89.4% from 88.1% in the first quarter of
fiscal year 2007.
Revenues in the florist segment decreased $1.0 million, or 2.3%, to $42.8 million in the first
quarter of fiscal year 2008, compared to revenues of $43.8 million in the same period of fiscal
year 2007. This decline was driven by reduced container sales and
decreases in clearinghouse order
volumes and other services, partially offset by an increase in sales of fresh flowers.
Revenues in the international segment were $35.2 million in the first quarter of fiscal year
2008. First quarter fiscal year 2007 revenues were $17.6 million, which represented only two months
of financial results as Interflora was acquired by the Company on July 31, 2006. The remaining
increase was driven by favorable exchange (7%) and increased sales volume in both Interfloras
consumer and florist businesses. Consumer orders in the international segment were 407,000 in the
first quarter of 2008, compared to orders of 229,000 in the two-month period of the prior year.
Average order value increased to $70.12 in the first quarter of fiscal 2008 compared to $62.84 in
the two-month period in the prior year driven by favorable exchange, as well as price and product
mix. The percentage of Internet orders increased to 71.7% from 69.7% for the two-month period in
the prior year.
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
% Change |
|
Consumer segment |
|
$ |
13,801 |
|
|
$ |
13,946 |
|
|
|
(1.0 |
%) |
Florist segment |
|
|
27,639 |
|
|
|
29,357 |
|
|
|
(5.9 |
%) |
International segment |
|
|
11,615 |
|
|
|
5,561 |
|
|
|
108.9 |
% |
Corporate |
|
|
(479 |
) |
|
|
(516 |
) |
|
|
(7.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
52,576 |
|
|
$ |
48,348 |
|
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
Gross profit increased by $4.3 million, or 8.7% to $52.6 million for the first quarter of
fiscal year 2008, compared to gross profit for the first quarter of fiscal year 2007 of $48.3
million. Total gross margin decreased to 42.5% for the first quarter of fiscal year 2008 from 44.4%
for the same period in fiscal year 2007.
Gross profit associated with the consumer segment decreased by $0.1 million, or 1.0%, to $13.8
million for the first quarter of fiscal year 2008, compared to $13.9 million for the first quarter
of fiscal year 2007. Gross margin for the consumer segment increased to 30.2% for the first quarter
of fiscal year 2008, compared to 29.4% for same period in fiscal year 2007, primarily due to
increases in advertising revenue and average order value, partially offset by an increase in costs
associated with miles and points programs.
Gross profit associated with the florist segment decreased by $1.8 million, or 5.9%, to $27.6
million for the first quarter of fiscal year 2008, compared to $29.4 million for the first quarter
of fiscal year 2007. Gross margin for the florist segment decreased to 64.5% for the first quarter
of fiscal year 2008, compared to 67.0% for the same period
in fiscal year 2007, primarily due to the mix of products and services sold in the first
quarter of fiscal year 2008 compared to 2007.
Gross profit associated with the international segment increased by $6.0 million, or 108.9%,
to $11.6 million for the first quarter of fiscal year 2008, compared to $5.6 million for the two
months ended September 30, 2007. Gross margin for the international segment increased to 33.0%
for the first quarter of fiscal year 2008, compared to 31.7%
13
for the two months ended September 30,
2006, primarily due to increases in average order value and in advertising revenue related to a
program that the international segment initiated in the third quarter of fiscal 2007.
Costs related to corporate activities remained consistent at $0.5 million for the first
quarter of fiscal year 2008, compared to $0.5 million for the first quarter of fiscal year 2007.
These costs are related to the development and maintenance of internal corporate technology
platforms which support the florist and consumer segments.
Advertising and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
%Change |
|
Consumer segment |
|
$ |
4,764 |
|
|
$ |
4,886 |
|
|
|
(2.5 |
%) |
Florist segment |
|
|
9,148 |
|
|
|
10,475 |
|
|
|
(12.7 |
%) |
International segment |
|
|
2,740 |
|
|
|
1,203 |
|
|
|
127.8 |
% |
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs |
|
$ |
16,652 |
|
|
$ |
16,564 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
Advertising and selling costs increased $0.1 million, or 0.5%, to $16.7 million for the first
quarter of fiscal year 2008, compared to $16.6 million for the first quarter of fiscal year 2007.
As a percentage of revenue, advertising and selling costs decreased to 13.5% for the first quarter
of fiscal year 2008 compared to 15.2% for the first quarter of fiscal year 2007.
Advertising and selling costs associated with the consumer segment remained relatively
consistent at $4.8 million for the first quarter of fiscal year 2008, compared to $4.9 million for
the first quarter of fiscal year 2007. Advertising and selling costs as a percentage of revenue
associated with the consumer segment were 10.4% for the first quarter of fiscal year 2008 compared
to 10.3% for the first quarter of fiscal year 2007.
Advertising and selling costs associated with the florist segment decreased $1.4 million, or
12.7%, to $9.1 million for the first quarter of fiscal year 2008 compared to $10.5 million for the
first quarter of fiscal year 2007. The decrease in advertising and selling costs was primarily due
to certain selling expenses incurred in fiscal year 2007 which were not repeated in fiscal year
2008, timing of trade show conventions and a decrease in rebates, which are earned by FTD members
under a customer incentive program.
Advertising and selling costs associated with the international segment increased $1.5
million, or 127.8%, to $2.7 million for the first quarter of fiscal year 2008, compared to $1.2
million for the two months ended September 30, 2006. The increase is primarily related to the
additional month of operations included in the current year quarter versus the prior year. As a
percentage of revenue, advertising and selling costs increased to 7.8% for the first quarter of
fiscal year 2008 compared to 6.9% for the prior year two-month period. The increase in advertising
and selling costs was primarily due to an increase in marketing costs per order.
General and administrative costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
% Change |
|
Consumer segment |
|
$ |
4,405 |
|
|
$ |
4,478 |
|
|
|
(1.6 |
%) |
Florist segment |
|
|
2,099 |
|
|
|
2,265 |
|
|
|
(7.3 |
%) |
International segment |
|
|
5,876 |
|
|
|
3,159 |
|
|
|
86.0 |
% |
Corporate |
|
|
6,691 |
|
|
|
6,508 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
Total general and administrative costs |
|
$ |
19,071 |
|
|
$ |
16,410 |
|
|
|
16.2 |
% |
|
|
|
|
|
|
|
|
|
|
General and administrative costs increased by $2.7 million, or 16.2%, to $19.1 million for the
first quarter of fiscal year 2008, compared to $16.4 million for the first quarter of fiscal year
2007.
14
General and administrative costs associated with the consumer segment remained relatively
consistent at $4.4 million for the first quarter of fiscal year 2008, compared to $4.5 million for
the first quarter of fiscal year 2007. General and administrative costs as a percentage of revenue
also remained consistent between fiscal years 2008 and 2007 at 9.6% and 9.4%, respectively.
General and administrative costs associated with the florist segment were $2.1 million for the
first quarter of fiscal year 2008, compared to $2.3 million for the first quarter of fiscal year
2007. As a percentage of revenue, general and administrative costs declined to 4.9% compared with
5.2% in the prior year quarter. This decrease is primarily related to a decrease in legal expenses
in the first quarter of fiscal year 2008.
General and administrative costs associated with the international segment increased by $2.7
million, or 86.0%, to $5.9 million for the first quarter of fiscal year 2008, compared to $3.2
million for the two months ended September 30, 2006. The increase is primarily related to the
additional month of operations included in the current year quarter versus the prior year. As a
percentage of revenue, general and administrative costs declined to 16.7% compared with 18.0% in
the prior year first quarter.
Corporate general and administrative costs were $6.7 million for the first quarter of fiscal
year 2008, compared to $6.5 million for the first quarter of fiscal year 2007. The increase in
general and administrative costs was primarily due to an increase in salary and personnel-related
costs.
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
%Change |
|
Interest income |
|
$ |
(302 |
) |
|
$ |
(298 |
) |
|
|
1.3 |
% |
Interest expense |
|
|
6,387 |
|
|
|
8,226 |
|
|
|
(22.4 |
%) |
Other income, net |
|
|
(210 |
) |
|
|
(1,544 |
) |
|
|
(86.4 |
%) |
|
|
|
|
|
|
|
|
|
|
Total other (income) and expenses |
|
$ |
5,875 |
|
|
$ |
6,384 |
|
|
|
(8.0 |
%) |
|
|
|
|
|
|
|
|
|
|
Interest income remained consistent at $0.3 million for the first quarters of fiscal years
2008 and 2007.
Interest expense decreased by $1.8 million, or 22.4%, to $6.4 million for the first quarter of
fiscal year 2008, compared to $8.2 million for the first quarter of fiscal year 2007. The decrease
relates to the $1.8 million write-off of unamortized deferred financing costs in the first quarter
of 2007 associated with the refinancing of the Companys existing credit facility in connection
with the Interflora acquisition.
Other income decreased to $0.2 million for the first quarter of fiscal year 2008, compared to
$1.5 million for the first quarter of fiscal year 2007. The decrease is primarily related to a
foreign currency contract in the amount of £51.0 million that was settled on July 28, 2006 and
resulted in a gain of $1.4 million in the first quarter of fiscal 2007. Other income in fiscal
year 2008 relates to the remaining forward contract for £0.8 million that is expected to be settled
during the first half of fiscal year 2009.
Taxes on earnings reflect the estimated annual effective rates, excluding the effect of
significant unusual items. Tax expense in the quarter ended September 30, 2007 includes 12.3
percentage points of tax benefit related to a statutory income tax rate reduction in the U.K.
Excluding this unusual item, the effective tax rate was 38.0% for the first quarter of fiscal year
2008. For the same quarter of fiscal year 2007, the effective rate was 39.5%.
Liquidity and Capital Resources
As of September 30, 2007, the Companys debt balance totaled $313.4 million, including notes
payable of $1.8 million related to the Interflora acquisition and $170.1 million of 7.75% Senior Subordinated Notes, down from $313.7 million as of June 30, 2007. The Companys principal sources of liquidity are cash from operations and funds
available for borrowing under FTD, Inc.s senior secured credit facility (the 2006 Credit
Agreement) that 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. As of
September 30, 2007, the balance outstanding under the 2006 Credit Agreement was $141.5 million.
The Company also had notes payable related to the acquisition of Interflora of $1.8 million and an
additional $1.2 million in
15
outstanding letters of credit. Borrowings under the revolving credit
facility are used to finance working capital, capital expenditures, acquisitions and letter of
credit needs. The revolving credit facility had availability of approximately $72.0 million at
September 30, 2007.
Cash and cash equivalents decreased by $11.8 million to $13.7 million at September 30, 2007
from $25.5 million at June 30, 2007.
Net cash used in operating activities was $9.6 million for the three-month period ended
September 30, 2007 and $5.5 million for the three-month period ended September 30, 2006. Net
income, adjusted for non-cash items, continues to be a primary source of funds to finance operating
needs and capital expenditures, repay indebtedness, pay dividends and make other strategic
investments.
Net cash used in investing activities was $1.6 million for the three-month period ended
September 30, 2007, which was comprised of capital expenditures, primarily related to continued
technology developments and improvements.
Net cash used in investing activities for the three-month period ended September 30, 2006 was
$98.5 million, which primarily consisted of $96.7 million related to the Interflora acquisition and
$1.9 million of capital expenditures, which was primarily related to continued technology
developments and improvements.
Net cash used in financing activities was $0.7 million for the three-month period ended
September 30, 2007, which primarily consisted of $4.7 million of dividends paid and $0.4 million of
repayments under the 2006 Credit Agreement, partially offset by $2.1 million of proceeds from stock
option exercises and $2.3 million of excess tax benefits from stock-based compensation.
Net cash provided by financing activities was $105.6 million for the three-month period ended
September 30, 2006, which primarily consisted of $148.6 million of net proceeds from the 2006
Credit Agreement, $6.0 million of net proceeds from the revolving credit facility, which was used
to fund working capital needs, partially offset by $50.0 million of repayments under the 2004
Credit Agreement.
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 indebtedness for the foreseeable future.
On August 14, 2007, the Companys Board of Directors declared a quarterly cash dividend of
$0.1625 per share. The dividend was paid on October 4, 2007 to stockholders of record as of the
close of business on September 20, 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, as amended, 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 markets 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. No shares were
repurchased under this program during the year ended June 30, 2007 or during the first quarter of
fiscal year 2008.
Critical Accounting Policies and Estimates
The Companys condensed 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
16
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.
See the information concerning the Companys critical accounting policies included under Note
1 and Item 7 in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007.
Item 3. 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 September 30, 2007, $141.5 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. Approximately 45.1% (or $141.5 million
aggregate principal amount) of the Companys $313.4 million aggregate principal amount of
indebtedness as of September 30, 2007 bore interest at variable rates. A 1% increase in the
variable interest rate would result in additional annual interest expense of approximately $1.4
million.
Through the first quarter of fiscal year 2008, the Company was exposed to foreign currency
exchange rate risk with respect to the British pound, the Canadian dollar and the Euro. The
resulting foreign currency exchange adjustments are included in the other comprehensive income
caption on the consolidated statements of operations and comprehensive income.
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 Condensed Consolidated Statements of Operations and
Comprehensive Income. 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. The remaining forward contract for £0.8 million is expected to be settled during the first
half 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 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation for the period covered by this Quarterly Report on Form 10-Q, the
Chief Executive Officer and the Chief Financial Officer of FTD Group, Inc. have concluded that, as
of the end of such period, 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
the SECs rules and forms.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2007, there were no changes in the Companys internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
17
PART II. OTHER INFORMATION
Item 1. 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 outcomes of these
matters are uncertain, they are not expected to have a material adverse effect on the Companys
financial condition, results of operations and cash flows.
Item 1A. Risk Factors
The Companys business, financial condition, results of operations or cash flows can be
impacted by a number of factors, any one of which could cause actual results to vary materially
from anticipated future results. See the discussion in Forward-Looking Information, Risk
Factors and elsewhere in the most recent Annual Report on Form 10-K and in Forward-Looking
Information and elsewhere in this Quarterly Report on Form 10-Q. Except as noted below, there
have been no changes to such risk factors since June 30, 2007. The following risk factor has been
updated since June 30, 2007:
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 order
gatherers and the Companys interpretation of applicable law, the Companys subsidiary, FTD.COM, is
an internet order gatherer that collects and remits sales taxes in only a limited number of states
where it has a physical presence, based on where the orders are delivered. If 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 this regard, in a sales tax audit of fiscal years 2004-2006, the
Department of Revenue of Illinois, where we maintain our headquarters, has advised that at this
juncture it believes that FTD.COM should be taxed in Illinois on certain orders taken in Illinois
rather than based on where the orders are delivered. No adjustments to the Companys tax returns
have been proposed. Although the outcome of the audit cannot be predicted, the Company believes
that it has complied with applicable state laws and regulations and plans to vigorously contest
this assertion by the State of Illinois. 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 has been extended several times, most recently
until November 1, 2014. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 6. Exhibits
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31.1 |
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Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
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32 |
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Certifications of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements 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.
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FTD Group, Inc. |
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Date: November 9, 2007
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By:
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/S/ BECKY A. SHEEHAN
Becky A. Sheehan
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Chief Financial Officer
(principal financial officer) |
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19
EXHIBIT INDEX
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Exhibit Number |
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Description of Document |
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
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|
32
|
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Certifications of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
20