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 March 31, 2006
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
(State or other jurisdiction of
incorporation or organization)
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87-0719190
(I.R.S. Employer
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 Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
As
of May 8, 2006, there were 27,977,702 outstanding shares of the issuers Common Stock, par
value $0.01 per share.
FTD GROUP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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March 31, 2006 |
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June 30, 2005 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
223 |
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$ |
8,890 |
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Accounts receivable, less allowance for doubtful accounts
of $3,851 at March 31, 2006 and $2,521 at June 30, 2005 |
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31,463 |
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23,419 |
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Inventories, net |
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2,735 |
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6,495 |
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Deferred income taxes |
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2,371 |
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2,550 |
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Prepaid expenses and other current assets |
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4,798 |
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7,782 |
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Total current assets |
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41,590 |
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49,136 |
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Property and equipment: |
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Land and improvements |
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1,380 |
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1,380 |
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Building and improvements |
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15,415 |
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14,291 |
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Computer equipment |
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4,828 |
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3,345 |
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Furniture and equipment |
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3,262 |
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2,814 |
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Total |
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24,885 |
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21,830 |
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Less accumulated depreciation |
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5,412 |
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3,790 |
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Property and equipment, net |
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19,473 |
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18,040 |
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Other assets: |
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Deferred financing fees, net |
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7,323 |
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8,527 |
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Computer software, net |
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11,005 |
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11,010 |
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Other noncurrent assets |
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12,235 |
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8,985 |
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Other intangible assets, less accumulated amortization of
$5,343 at March 31, 2006 and $3,393 at June 30, 2005 |
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15,430 |
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17,380 |
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Trademark |
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121,577 |
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121,577 |
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Goodwill |
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336,659 |
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336,659 |
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Total other assets |
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504,229 |
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504,138 |
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Total assets |
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$ |
565,292 |
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$ |
571,314 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
44,356 |
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$ |
41,498 |
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Customer deposits |
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4,497 |
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5,143 |
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Unearned income |
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2,359 |
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2,522 |
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Accrued interest |
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2,253 |
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4,993 |
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Accrued compensation |
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4,285 |
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4,128 |
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Other accrued liabilities |
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7,823 |
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5,058 |
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Current maturities of long-term debt |
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590 |
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1,633 |
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Total current liabilities |
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66,163 |
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64,975 |
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Senior secured credit facility |
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57,277 |
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67,330 |
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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 and accrued pension obligations |
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2,624 |
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2,856 |
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Deferred income taxes |
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60,610 |
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60,289 |
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Stockholders equity: |
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Common stock: $0.01 par value, 75,000,000 shares authorized; 29,482,182 and 29,451,791
shares issued as of March 31, 2006 and June 30,
2005, respectively |
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295 |
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295 |
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Additional paid-in capital |
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233,200 |
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232,759 |
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Accumulated deficit |
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(10,348 |
) |
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(27,097 |
) |
Accumulated other comprehensive loss |
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(68 |
) |
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(210 |
) |
Treasury stock, at cost, 1,505,480 shares as of March 31, 2006 |
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(14,578 |
) |
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Total stockholders equity |
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208,501 |
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205,747 |
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Total liabilities and stockholders equity |
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$ |
565,292 |
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$ |
571,314 |
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
FTD GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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March 31, |
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March 31, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues: |
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Products |
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$ |
79,060 |
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$ |
78,425 |
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$ |
192,496 |
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$ |
190,397 |
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Services |
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49,525 |
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46,467 |
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131,143 |
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124,820 |
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Total revenues |
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128,585 |
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124,892 |
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323,639 |
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315,217 |
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Costs of Goods Sold and Services Provided: |
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Products |
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69,080 |
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67,214 |
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165,364 |
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162,223 |
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Services |
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4,883 |
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5,026 |
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15,579 |
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14,777 |
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Total costs of goods sold and services provided |
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73,963 |
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72,240 |
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180,943 |
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177,000 |
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Gross Profit: |
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Products |
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9,980 |
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|
11,211 |
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|
27,132 |
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|
|
28,174 |
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Services |
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|
44,642 |
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|
41,441 |
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115,564 |
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110,043 |
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Total gross profit |
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54,622 |
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52,652 |
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142,696 |
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138,217 |
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Operating Expenses: |
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Advertising and selling |
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22,743 |
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22,671 |
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62,284 |
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60,856 |
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General and administrative |
|
|
15,048 |
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26,488 |
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38,444 |
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51,559 |
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Total operating expenses |
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37,791 |
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|
49,159 |
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|
100,728 |
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112,415 |
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Income from operations |
|
|
16,831 |
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|
3,493 |
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|
41,968 |
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25,802 |
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|
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Other Income and Expenses: |
|
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Interest income |
|
|
(233 |
) |
|
|
(299 |
) |
|
|
(528 |
) |
|
|
(466 |
) |
Interest expense |
|
|
4,829 |
|
|
|
5,395 |
|
|
|
14,596 |
|
|
|
15,429 |
|
Interest expense and prepayment fee on shares subject to mandatory redemption |
|
|
|
|
|
|
24,684 |
|
|
|
|
|
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|
34,732 |
|
Other expense (income), net |
|
|
(118 |
) |
|
|
(100 |
) |
|
|
(206 |
) |
|
|
(421 |
) |
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Total other income and expenses |
|
|
4,478 |
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|
|
29,680 |
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|
|
13,862 |
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|
|
49,274 |
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|
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|
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|
|
|
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|
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|
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|
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|
Income (loss) before income tax |
|
|
12,353 |
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|
|
(26,187 |
) |
|
|
28,106 |
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|
(23,472 |
) |
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|
|
|
|
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|
|
|
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|
|
|
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Income tax expense (benefit) |
|
|
4,932 |
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|
|
(602 |
) |
|
|
11,357 |
|
|
|
4,504 |
|
|
|
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|
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|
|
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|
|
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|
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|
|
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Net income (loss) |
|
$ |
7,421 |
|
|
$ |
(25,585 |
) |
|
$ |
16,749 |
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|
$ |
(27,976 |
) |
|
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|
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|
|
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|
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|
|
|
|
|
|
|
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Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
12 |
|
|
|
|
|
|
|
142 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
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Comprehensive income (loss) |
|
$ |
7,433 |
|
|
$ |
(25,585 |
) |
|
$ |
16,891 |
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|
$ |
(27,792 |
) |
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Net income (loss) per Common Share basic |
|
$ |
0.26 |
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|
$ |
(1.14 |
) |
|
$ |
0.58 |
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|
$ |
(1.70 |
) |
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|
Net income (loss) per Common Share diluted |
|
$ |
0.26 |
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|
$ |
(1.14 |
) |
|
$ |
0.56 |
|
|
$ |
(1.70 |
) |
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Weighted Average Common Shares Outstanding: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
28,111 |
|
|
|
22,493 |
|
|
|
28,989 |
|
|
|
16,479 |
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted |
|
|
29,031 |
|
|
|
22,493 |
|
|
|
30,025 |
|
|
|
16,479 |
|
|
|
|
|
|
|
|
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
FTD GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
16,749 |
|
|
$ |
(27,976 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
3,160 |
|
|
|
4,031 |
|
Amortization |
|
|
4,580 |
|
|
|
4,057 |
|
Interest expense and prepayment fee on mandatorily redeemable shares |
|
|
|
|
|
|
34,732 |
|
Gain from sale of business and related transactions |
|
|
(991 |
) |
|
|
|
|
Stock-based compensation |
|
|
458 |
|
|
|
|
|
Amortization and write off of deferred financing costs |
|
|
1,204 |
|
|
|
1,170 |
|
Provision for doubtful accounts |
|
|
2,589 |
|
|
|
3,179 |
|
Deferred income taxes |
|
|
500 |
|
|
|
3,206 |
|
Increase (decrease) in cash due to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(12,002 |
) |
|
|
(7,621 |
) |
Inventories |
|
|
1,388 |
|
|
|
2,122 |
|
Prepaid expenses and other |
|
|
2,575 |
|
|
|
(1,066 |
) |
Other noncurrent assets |
|
|
(1,807 |
) |
|
|
(2,145 |
) |
Accounts payable |
|
|
3,308 |
|
|
|
763 |
|
Other accrued liabilities, unearned income, customer deposits and other |
|
|
(981 |
) |
|
|
(2,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
20,730 |
|
|
|
11,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(7,370 |
) |
|
|
(3,058 |
) |
Proceeds from sale of business |
|
|
3,500 |
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
(8,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(3,870 |
) |
|
|
(11,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock |
|
|
|
|
|
|
193,533 |
|
Redemption of preferred stock and prepayment fee |
|
|
|
|
|
|
(186,811 |
) |
Repayments of long-term debt |
|
|
(11,096 |
) |
|
|
(5,638 |
) |
Net proceeds from revolving credit facility |
|
|
|
|
|
|
2,000 |
|
Purchase of company stock |
|
|
(14,999 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
209 |
|
|
|
|
|
Tax effect of stock option benefit |
|
|
217 |
|
|
|
|
|
Capital contribution |
|
|
|
|
|
|
827 |
|
Deferred financing costs |
|
|
|
|
|
|
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(25,669 |
) |
|
|
3,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash |
|
|
142 |
|
|
|
184 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(8,667 |
) |
|
|
3,937 |
|
Cash and cash equivalents at beginning of period |
|
|
8,890 |
|
|
|
2,491 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
223 |
|
|
$ |
6,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
16,131 |
|
|
$ |
16,902 |
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
4,570 |
|
|
$ |
23 |
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
FTD Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Description of the Business
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.
As used in this Form 10-Q, the term the Company refers to FTD Group, Inc., including its
wholly-owned subsidiary, FTD, Inc.
FTD, Inc. (FTD or the Operating Company) 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. The operations of FTD include those of its
wholly-owned subsidiaries, FTD.COM INC. (FTD.COM) and FTD Canada, Inc. (formerly known as
Florists Transworld Delivery Association of Canada, Ltd.). Substantially all of the Companys
operations are conducted through FTD and its subsidiaries.
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 consolidated financial statements.
The Company provides floral-related products and services to consumers and retail florists, as
well as other retail locations offering floral products. The Company generates its revenue from two
segments, the florist segment and the consumer segment.
Through its florist segment, the Company provides products and services, such as clearinghouse
services, publishing products and services, technology products and services and floral shop
supplies, to approximately 20,000 FTD members in the U.S. and Canada, and connects approximately
30,000 additional florists through affiliated or related organizations in 150 countries outside of
North America.
The consumer segment is comprised of FTD.COM, an Internet and telephone marketer of flowers
and specialty gifts, which sells products directly to consumers primarily through the www.ftd.com
Web site and the 1-800-SEND-FTD toll-free telephone number.
Seasonality. In view of seasonal variations in the revenues and operating results of the
Companys florist and consumer business 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 holiday of Easter sometimes falls within the quarter ending March 31 (as in fiscal
year 2005) and sometimes falls within the quarter ending June 30 (as in fiscal year 2006).
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal,
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three- and nine-month periods ended March 31, 2006 are not necessarily indicative
of the results that may be expected for the year ending June 30, 2006.
5
For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys annual report on Form 10-K for the year ended June 30, 2005.
Certain amounts have been reclassified in the Companys financial statements for the three-
and nine-month periods ending March 31, 2005 to conform to the current year presentation.
Note 3. Sale of Renaissance
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 payable on
December 21, 2007 and a $50,000 payable due December 21, 2006, both of which are non-interest
bearing. These notes were recorded at net present value and, as a result, are accruing interest
income. 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.
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 |
) |
|
|
|
|
|
|
$ |
3,515 |
|
|
|
|
|
The Company recognized a gain of $1.0 million as a result of the sale of Renaissance and
related transactions, net of estimated legal and severance costs of $0.4 million. In accordance
with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets to be Disposed Of, this gain is included in general and administrative expense
within the consolidated statements of operations and comprehensive income (loss). The results of
operations of Renaissance prior to the sale and the gain on the sale are included within the
florist segment.
Note 4. Stock Repurchase
On October 25, 2005, the 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. 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
nine-month period ended March 31, 2006, the Company repurchased 1,545,000 shares of Common Stock
for $15.0 million at an average price of $9.71 per share.
Note 5. Net Income (Loss) Per Common Share
The computations of basic and diluted net income (loss) per common share for the three- and
nine-month periods ended March 31, 2006 and 2005 are as follows (in thousands, except per share
amounts):
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income (loss) |
|
$ |
7,421 |
|
|
$ |
(25,585 |
) |
|
$ |
16,749 |
|
|
$ |
(27,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding basic |
|
|
28,111 |
|
|
|
22,493 |
|
|
|
28,989 |
|
|
|
16,479 |
|
Effect of dilutive securities stock options |
|
|
920 |
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding diluted |
|
|
29,031 |
|
|
|
22,493 |
|
|
|
30,025 |
|
|
|
16,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of Common Stock
basic |
|
$ |
0.26 |
|
|
$ |
(1.14 |
) |
|
$ |
0.58 |
|
|
$ |
(1.70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of Common Stock
diluted |
|
$ |
0.26 |
|
|
$ |
(1.14 |
) |
|
$ |
0.56 |
|
|
$ |
(1.70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three- and nine-month periods ended March 31, 2006 there were 212,500 and 195,000
outstanding stock options, respectively, which 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 respective periods. For the three- and nine-month
periods ended March 31, 2005, there were 2,718,612 outstanding stock options which were not
included in the computation of diluted earnings per share because their effect was anti-dilutive.
Note 6. Pension and Other Post-Retirement Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaried
Employees Pension Plan |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands) |
|
Service cost |
|
$ |
13 |
|
|
$ |
|
|
|
$ |
41 |
|
|
$ |
|
|
Interest cost |
|
|
28 |
|
|
|
31 |
|
|
|
83 |
|
|
|
94 |
|
Expected return on assets |
|
|
(22 |
) |
|
|
(20 |
) |
|
|
(67 |
) |
|
|
(60 |
) |
Amortization of loss |
|
|
9 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
28 |
|
|
$ |
11 |
|
|
$ |
84 |
|
|
$ |
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical Plan |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands) |
|
Interest cost |
|
$ |
20 |
|
|
$ |
24 |
|
|
$ |
60 |
|
|
$ |
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
20 |
|
|
$ |
24 |
|
|
$ |
60 |
|
|
$ |
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Stock-Based Compensation
During the three- and nine-month periods ended March 31, 2006, the Company granted 35,000 and
97,500 options, respectively, to various employees or directors of the Company. Outstanding
non-qualified stock options expire ten years from the date of grant and begin vesting as early as
the date of grant, dependent upon the individual agreements. All stock options were granted with
an exercise price equal to the fair market value on the date of grant.
7
During the nine-month period ended March 31, 2006, the Company issued 30,391 shares of Common
Stock in connection with the exercise of vested stock options. In addition, during the three- and
nine-month periods ended March 31, 2006, the Company reissued 8,408 and 39,520 shares,
respectively, of Common Stock out of treasury in connection with the exercise of vested stock options. During
the three- and nine-month periods ended March 31, 2006, 18,667 and 169,334 options, respectively,
were forfeited.
Prior to July 1, 2005, the Company accounted for stock-based compensation programs according
to the provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees, as permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Effective July 1, 2005, the Company adopted the fair
value recognition provisions of SFAS 123 (R), Share-Based Payments, using the modified prospective
transition method and Black-Scholes as the option valuation model. Under that transition method,
compensation cost recognized in the three- and nine-month periods ended March 31, 2006 included (i)
compensation cost for all share-based payments granted prior to, but not yet vested as of, July 1,
2005, based on the grant date fair value estimated in accordance with the original provisions of
SFAS No. 123, and (ii) compensation cost for all share-based payments granted subsequent to July 1,
2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No.
123 (R). Results for prior periods have not been restated.
As a result of adopting SFAS 123(R) on July 1, 2005, income before income taxes and net income
are $153,000 and $92,000 lower, respectively, for the three-month period ended March 31, 2006 and
$458,000 and $275,000 lower, respectively, for the nine-month period ended March 31, 2006, than if
the Company had continued to account for share-based compensation under APB No. 25. Basic and
diluted earnings per share would have been $0.27 and $0.26, respectively, for the three-month
period ended March 31, 2006, if SFAS No. 123(R) had not been adopted, compared to basic earnings
and diluted earnings per share of $0.26. Basic and diluted earnings per share would have been
$0.59 and $0.57, respectively, for the nine-month period ended March 31, 2006, if SFAS No. 123(R)
had not been adopted, compared to basic earnings per share of $0.58 and diluted earnings per share
of $0.56.
The Company would have recognized compensation expense, net of tax, of $103,000 and $194,000
related to the Companys stock options in the three- and nine-month periods ended March 31, 2005,
respectively, if the expense based on the estimated fair value, as determined in accordance with
SFAS No. 123, of the outstanding stock options of the Company had been recorded in the consolidated
financial statements. As such, the Companys net loss would have been impacted as shown by the pro
forma amounts displayed in the table below (the pro forma disclosures shown are not representative
of the future effects on net income (loss)):
8
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2005 |
|
|
2005 |
|
Net loss, as reported |
|
$ |
(25,585 |
) |
|
$ |
(27,976 |
) |
Less: Stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects |
|
|
(103 |
) |
|
|
(194 |
) |
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(25,688 |
) |
|
$ |
(28,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of Common Stock: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
(1.14 |
) |
|
$ |
(1.70 |
) |
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
(1.14 |
) |
|
$ |
(1.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
(1.14 |
) |
|
$ |
(1.70 |
) |
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
(1.14 |
) |
|
$ |
(1.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
22,493 |
|
|
|
16,479 |
|
|
|
|
|
|
|
|
Diluted |
|
|
22,493 |
|
|
|
16,479 |
|
|
|
|
|
|
|
|
The Companys options granted to employees either vest equally each year over an
approximate five-year period or vest in full after an approximate seven-year period unless certain
performance acceleration targets are met. If the performance targets are met, the vesting of the
options will accelerate. The first performance target was met, so the first installment vested on
June 30, 2005. If certain additional performance targets are met, the remaining two installments
will vest on June 30, 2006 and 2007.
The Companys options granted to independent directors vest as early as the date of grant up
to two years from the date of grant.
As a result of the options vesting over a period of time, the cost recognized during the
three- and nine-month periods ended March 31, 2006 and the estimated cost indicated in the table
above for the three- and nine-month periods ended March 31, 2005 reflect only a partial vesting of
such options. If full vesting were assumed, the costs recognized and the estimated pro forma costs
would have been higher than indicated above.
Note 8. Segment Information
The Companys reportable segments include the florist segment and consumer segment. The
florist segment includes all products and services sold to FTD members, encompassing clearinghouse
services, publishing products and services, technology products and services and floral shop
supplies. The consumer segment encompasses sales of floral and specialty gift products, which are
sold primarily to consumers through FTD.COMs Web site, www.ftd.com, or its toll-free telephone
number, 1-800-SEND-FTD.
For purposes of managing the Company, management reviews segment financial performance to the
operating income level for each of its reportable segments. Revenue and expenses earned and
charged between segments are recorded at fair value and eliminated in consolidation.
The following tables report the Companys operating results by reportable segment for the
three- and nine-month periods ended March 31, 2006 and 2005:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
$ |
52,979 |
|
|
$ |
(74 |
) |
|
$ |
52,905 |
|
|
$ |
54,320 |
|
|
$ |
(39 |
) |
|
$ |
54,281 |
|
Consumer segment |
|
|
80,883 |
|
|
|
(5,203 |
) |
|
|
75,680 |
|
|
|
76,147 |
|
|
|
(5,536 |
) |
|
|
70,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
133,862 |
|
|
|
(5,277 |
) |
|
|
128,585 |
|
|
|
130,467 |
|
|
|
(5,575 |
) |
|
|
124,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Goods Sold and
Services Provided: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
18,849 |
|
|
|
(828 |
) |
|
|
18,021 |
|
|
|
19,846 |
|
|
|
(820 |
) |
|
|
19,026 |
|
Consumer segment |
|
|
56,156 |
|
|
|
(747 |
) |
|
|
55,409 |
|
|
|
53,372 |
|
|
|
(743 |
) |
|
|
52,629 |
|
Corporate |
|
|
533 |
|
|
|
|
|
|
|
533 |
|
|
|
585 |
|
|
|
|
|
|
|
585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
75,538 |
|
|
|
(1,575 |
) |
|
|
73,963 |
|
|
|
73,803 |
|
|
|
(1,563 |
) |
|
|
72,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
34,130 |
|
|
|
754 |
|
|
|
34,884 |
|
|
|
34,474 |
|
|
|
781 |
|
|
|
35,255 |
|
Consumer segment |
|
|
24,727 |
|
|
|
(4,456 |
) |
|
|
20,271 |
|
|
|
22,775 |
|
|
|
(4,793 |
) |
|
|
17,982 |
|
Corporate |
|
|
(533 |
) |
|
|
|
|
|
|
(533 |
) |
|
|
(585 |
) |
|
|
|
|
|
|
(585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
58,324 |
|
|
|
(3,702 |
) |
|
|
54,622 |
|
|
|
56,664 |
|
|
|
(4,012 |
) |
|
|
52,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and Selling: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
16,044 |
|
|
|
(3,702 |
) |
|
|
12,342 |
|
|
|
18,271 |
|
|
|
(4,012 |
) |
|
|
14,259 |
|
Consumer segment |
|
|
10,401 |
|
|
|
|
|
|
|
10,401 |
|
|
|
8,412 |
|
|
|
|
|
|
|
8,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
26,445 |
|
|
|
(3,702 |
) |
|
|
22,743 |
|
|
|
26,683 |
|
|
|
(4,012 |
) |
|
|
22,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
(includes Management Fees): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
2,377 |
|
|
|
|
|
|
|
2,377 |
|
|
|
2,612 |
|
|
|
|
|
|
|
2,612 |
|
Consumer segment |
|
|
6,881 |
|
|
|
(735 |
) |
|
|
6,146 |
|
|
|
5,639 |
|
|
|
(700 |
) |
|
|
4,939 |
|
Corporate |
|
|
5,790 |
|
|
|
735 |
|
|
|
6,525 |
|
|
|
18,237 |
|
|
|
700 |
|
|
|
18,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15,048 |
|
|
|
|
|
|
|
15,048 |
|
|
|
26,488 |
|
|
|
|
|
|
|
26,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
before Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
15,709 |
|
|
|
4,456 |
|
|
|
20,165 |
|
|
|
13,591 |
|
|
|
4,793 |
|
|
|
18,384 |
|
Consumer segment |
|
|
7,445 |
|
|
|
(3,721 |
) |
|
|
3,724 |
|
|
|
8,724 |
|
|
|
(4,093 |
) |
|
|
4,631 |
|
Corporate |
|
|
(6,323 |
) |
|
|
(735 |
) |
|
|
(7,058 |
) |
|
|
(18,822 |
) |
|
|
(700 |
) |
|
|
(19,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16,831 |
|
|
|
|
|
|
|
16,831 |
|
|
|
3,493 |
|
|
|
|
|
|
|
3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
2,868 |
|
|
|
|
|
|
|
2,868 |
|
|
|
3,117 |
|
|
|
|
|
|
|
3,117 |
|
Consumer segment |
|
|
849 |
|
|
|
|
|
|
|
849 |
|
|
|
693 |
|
|
|
|
|
|
|
693 |
|
Corporate |
|
|
(3,717 |
) |
|
|
|
|
|
|
(3,717 |
) |
|
|
(3,810 |
) |
|
|
|
|
|
|
(3,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
12,841 |
|
|
|
4,456 |
|
|
|
17,297 |
|
|
|
10,474 |
|
|
|
4,793 |
|
|
|
15,267 |
|
Consumer segment |
|
|
6,596 |
|
|
|
(3,721 |
) |
|
|
2,875 |
|
|
|
8,031 |
|
|
|
(4,093 |
) |
|
|
3,938 |
|
Corporate |
|
|
(2,606 |
) |
|
|
(735 |
) |
|
|
(3,341 |
) |
|
|
(15,012 |
) |
|
|
(700 |
) |
|
|
(15,712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,831 |
|
|
$ |
|
|
|
$ |
16,831 |
|
|
$ |
3,493 |
|
|
$ |
|
|
|
$ |
3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
$ |
821 |
|
|
$ |
|
|
|
$ |
821 |
|
|
$ |
919 |
|
|
$ |
|
|
|
$ |
919 |
|
Consumer segment |
|
|
836 |
|
|
|
|
|
|
|
836 |
|
|
|
593 |
|
|
|
|
|
|
|
593 |
|
Corporate |
|
|
967 |
|
|
|
|
|
|
|
967 |
|
|
|
961 |
|
|
|
|
|
|
|
961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,624 |
|
|
$ |
|
|
|
$ |
2,624 |
|
|
$ |
2,473 |
|
|
$ |
|
|
|
$ |
2,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
$ |
143,323 |
|
|
$ |
(205 |
) |
|
$ |
143,118 |
|
|
$ |
146,190 |
|
|
$ |
(99 |
) |
|
$ |
146,091 |
|
Consumer segment |
|
|
193,836 |
|
|
|
(13,315 |
) |
|
|
180,521 |
|
|
|
182,964 |
|
|
|
(13,838 |
) |
|
|
169,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
337,159 |
|
|
|
(13,520 |
) |
|
|
323,639 |
|
|
|
329,154 |
|
|
|
(13,937 |
) |
|
|
315,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Goods Sold and
Services Provided: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
49,485 |
|
|
|
(2,524 |
) |
|
|
46,961 |
|
|
|
51,499 |
|
|
|
(2,338 |
) |
|
|
49,161 |
|
Consumer segment |
|
|
134,073 |
|
|
|
(1,809 |
) |
|
|
132,264 |
|
|
|
127,829 |
|
|
|
(1,769 |
) |
|
|
126,060 |
|
Corporate |
|
|
1,718 |
|
|
|
|
|
|
|
1,718 |
|
|
|
1,779 |
|
|
|
|
|
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
185,276 |
|
|
|
(4,333 |
) |
|
|
180,943 |
|
|
|
181,107 |
|
|
|
(4,107 |
) |
|
|
177,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
93,838 |
|
|
|
2,319 |
|
|
|
96,157 |
|
|
|
94,691 |
|
|
|
2,239 |
|
|
|
96,930 |
|
Consumer segment |
|
|
59,763 |
|
|
|
(11,506 |
) |
|
|
48,257 |
|
|
|
55,135 |
|
|
|
(12,069 |
) |
|
|
43,066 |
|
Corporate |
|
|
(1,718 |
) |
|
|
|
|
|
|
(1,718 |
) |
|
|
(1,779 |
) |
|
|
|
|
|
|
(1,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
151,883 |
|
|
|
(9,187 |
) |
|
|
142,696 |
|
|
|
148,047 |
|
|
|
(9,830 |
) |
|
|
138,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and Selling: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
48,703 |
|
|
|
(9,187 |
) |
|
|
39,516 |
|
|
|
51,381 |
|
|
|
(9,828 |
) |
|
|
41,553 |
|
Consumer segment |
|
|
22,768 |
|
|
|
|
|
|
|
22,768 |
|
|
|
19,303 |
|
|
|
|
|
|
|
19,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
71,471 |
|
|
|
(9,187 |
) |
|
|
62,284 |
|
|
|
70,684 |
|
|
|
(9,828 |
) |
|
|
60,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
(includes Management Fees): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
5,607 |
|
|
|
|
|
|
|
5,607 |
|
|
|
7,729 |
|
|
|
|
|
|
|
7,729 |
|
Consumer segment |
|
|
15,407 |
|
|
|
(1,785 |
) |
|
|
13,622 |
|
|
|
14,107 |
|
|
|
(1,684 |
) |
|
|
12,423 |
|
Corporate |
|
|
17,430 |
|
|
|
1,785 |
|
|
|
19,215 |
|
|
|
29,725 |
|
|
|
1,682 |
|
|
|
31,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
38,444 |
|
|
|
|
|
|
|
38,444 |
|
|
|
51,561 |
|
|
|
(2 |
) |
|
|
51,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
before Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
39,528 |
|
|
|
11,506 |
|
|
|
51,034 |
|
|
|
35,581 |
|
|
|
12,067 |
|
|
|
47,648 |
|
Consumer segment |
|
|
21,588 |
|
|
|
(9,721 |
) |
|
|
11,867 |
|
|
|
21,725 |
|
|
|
(10,385 |
) |
|
|
11,340 |
|
Corporate |
|
|
(19,148 |
) |
|
|
(1,785 |
) |
|
|
(20,933 |
) |
|
|
(31,504 |
) |
|
|
(1,682 |
) |
|
|
(33,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
41,968 |
|
|
|
|
|
|
|
41,968 |
|
|
|
25,802 |
|
|
|
|
|
|
|
25,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
8,364 |
|
|
|
|
|
|
|
8,364 |
|
|
|
9,126 |
|
|
|
|
|
|
|
9,126 |
|
Consumer segment |
|
|
2,451 |
|
|
|
|
|
|
|
2,451 |
|
|
|
2,187 |
|
|
|
|
|
|
|
2,187 |
|
Corporate |
|
|
(10,815 |
) |
|
|
|
|
|
|
(10,815 |
) |
|
|
(11,313 |
) |
|
|
|
|
|
|
(11,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
|
31,164 |
|
|
|
11,506 |
|
|
|
42,670 |
|
|
|
26,455 |
|
|
|
12,067 |
|
|
|
38,522 |
|
Consumer segment |
|
|
19,137 |
|
|
|
(9,721 |
) |
|
|
9,416 |
|
|
|
19,538 |
|
|
|
(10,385 |
) |
|
|
9,153 |
|
Corporate |
|
|
(8,333 |
) |
|
|
(1,785 |
) |
|
|
(10,118 |
) |
|
|
(20,191 |
) |
|
|
(1,682 |
) |
|
|
(21,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
41,968 |
|
|
$ |
|
|
|
$ |
41,968 |
|
|
$ |
25,802 |
|
|
$ |
|
|
|
$ |
25,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florist segment |
|
$ |
2,551 |
|
|
$ |
|
|
|
$ |
2,551 |
|
|
$ |
3,354 |
|
|
$ |
|
|
|
$ |
3,354 |
|
Consumer segment |
|
|
2,293 |
|
|
|
|
|
|
|
2,293 |
|
|
|
1,842 |
|
|
|
|
|
|
|
1,842 |
|
Corporate |
|
|
2,896 |
|
|
|
|
|
|
|
2,896 |
|
|
|
2,892 |
|
|
|
|
|
|
|
2,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,740 |
|
|
$ |
|
|
|
$ |
7,740 |
|
|
$ |
8,088 |
|
|
$ |
|
|
|
$ |
8,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Item 2. 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-Q. The following
discussion contains forward-looking statements that reflect the Companys plans, estimates and
beliefs. The Companys actual results could differ 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 and Risk Factors and
elsewhere in this Form 10-Q.
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. and
Canadian floral retail market. The business is supported by the highly recognized FTD brand, which
was established in 1910 and enjoys 96% brand recognition among the Companys target market of U.S.
consumers between the ages of 25 and 64, as well as by the Mercury Man logo, which is displayed in
approximately 50,000 floral shops globally. The Company generates revenue from two business
segments, the florist segment and the consumer segment.
Florist Segment. The florist segment includes revenue associated with the services and
products provided to FTD members. The following table sets forth the percentage of revenue in each
category of the florist segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Member Services |
|
|
57 |
% |
|
|
55 |
% |
|
|
59 |
% |
|
|
59 |
% |
Mercury Technology |
|
|
16 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
|
15 |
% |
Specialty Wholesaling |
|
|
27 |
% |
|
|
30 |
% |
|
|
24 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Florist Segment revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Segment. The consumer segment is comprised of FTD.COM, an Internet and
telephone marketer of flowers and specialty gifts, which sells products directly to consumers
primarily through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number.
FTD.COM offers same day delivery of floral orders to nearly 100% of the U.S. and Canadian
populations. The majority of orders are fulfilled by the Companys network of FTD members who
adhere to FTD.COMs quality and service standards. FTD.COM typically offers over 400 floral
arrangements and over 800 specialty gift items, which are delivered via common carrier, including
unarranged boxed flowers, plants, gourmet food gifts, holiday gifts, bath and beauty products,
jewelry, wine and gift baskets, dried flowers and stuffed animals.
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 to be placed through floral direct
marketers versus traditional retail florists, the advent of retail consumer companies that deliver
unarranged boxed flowers via common carrier with no involvement of retail florists and the
increased presence of supermarkets and mass merchants, which has reduced the cash and carry floral
business for the traditional retail florist. Each of these trends are addressed through the florist
segment and consumer segment business strategies.
Business Strategy. The Company plans to continue to expand the product and service offerings
of the florist segment, while simplifying pricing strategies and improving sales and service
capabilities, with the objective of improving product penetration and maintaining or growing the
number of FTD 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.
The Company plans to continue to direct consumers to the Internet for their floral and
specialty gift purchasing needs, as processing orders over the Internet is a profitable order
generating vehicle and an efficient and convenient ordering method for the consumer. The Company
also plans to pursue growth in additional specialty gift categories and refinement of its existing
categories as management believes the Companys direct marketing expertise and brand strength
allows the business to attract a wide range of quality specialty gift manufacturers. Additionally,
the
12
Company plans to continue expanding the lower-priced floral offerings to meet consumer demand.
Management believes this is a growing segment of the market and the Company is expanding its
marketing efforts and product offerings targeting this segment. The network of FTD members enables
the Company to offer same day delivery for many of these products, which management believes is a
competitive advantage over the Companys competitors who offer delivery on a next day basis through
common carrier.
In
addition to funding working capital needs and capital expenditures,
the Company plans to service and reduce its indebtedness and repurchase shares of its Common Stock pursuant to its share repurchase
program, which expires on September 30, 2007, with available cash generated from operations.
Seasonality. In view of seasonal variations in the revenues and operating results of the
Companys florist and consumer business segments, the Company believes that comparisons of its
revenues and operating results for any period with those of the immediately preceding period or 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 holiday of Easter sometimes falls within the quarter ending March 31 (as in fiscal
year 2005) and sometimes falls within the quarter ending June 30 (as in fiscal year 2006).
Three Months Ended March 31, 2006 compared to the Three Months Ended March 31, 2005
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
52,905 |
|
|
$ |
54,281 |
|
|
|
(2.5 |
%) |
Consumer segment |
|
|
75,680 |
|
|
|
70,611 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
128,585 |
|
|
$ |
124,892 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
Revenues increased by $3.7 million, or 3.0%, to $128.6 million for the three-month period
ended March 31, 2006, compared to revenues for the three-month period ended March 31, 2005 of
$124.9 million. There were no revenues associated with corporate activities.
Management believes a key metric in driving revenues for the florist segment is the number of
FTD members that use or purchase services and products provided by the florist segment, which is
partially driven by membership. Average membership for the three-month period ended March 31, 2006
and 2005 was approximately 19,400 and 20,000 FTD members, respectively. Revenues for the florist
segment decreased by $1.4 million, or 2.5%, to $52.9 million for the three-month period ended March 31, 2006,
compared to revenues for the three-month period ended March 31, 2005 of $54.3 million. The December 2005 sale of substantially
all of the assets and certain liabilities of Renaissance Greeting Cards, Inc. (Renaissance), a
low growth business that was not core to the Companys business objectives, contributed
approximately $3.0 million to the decrease in revenues. Also contributing to this decrease was a
decrease in directory services revenues partially offset by an increase in fresh flower sales, an
increase in revenue related to Florists Online Web sites and an increase in revenue
related to technology support.
Management believes a key metric in driving revenues in the consumer segment is order volume.
Order volume increased 6.3% to 1,194,000 orders for the three-month period ended March 31, 2006,
from 1,124,000 orders for the three-month period ended March 31, 2005. Revenues for the consumer
segment increased by $5.1 million, or 7.2%, to $75.7 million for the three-month period ended March
31, 2006 compared to $70.6 million for the three-month period ended March 31, 2005. The increase in
revenues is primarily related to an increase in order volume and
13
advertising revenue, partially offset by a decrease in average order value. Order volume
growth was primarily driven by an increase in Valentines Day orders, partially offset by the shift
of the Easter holiday to the fourth quarter of fiscal year 2006 from the third quarter of fiscal
year 2005. In the third quarter of fiscal year 2005, the Easter holiday represented approximately
5% of the quarterly revenues for the consumer segment. Specialty gifts, which include all orders
delivered via common carrier, comprised 36.1% of total order volume for the three-month period
ended March 31, 2006, compared to 27.6% for the three-month period ended March 31, 2005. Internet
orders were 91.3% of total orders for the three-month period ended March 31, 2006, compared to
88.2% for the three-month period ended March 31, 2005. Average order value for the three-month
period ended March 31, 2006 was $62.18, which was relatively consistent with average order value of
$62.84 for the three-month period ended March 31, 2005.
Total costs of goods sold and services provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
18,021 |
|
|
$ |
19,026 |
|
|
|
(5.3 |
%) |
Consumer segment |
|
|
55,409 |
|
|
|
52,629 |
|
|
|
5.3 |
% |
Corporate |
|
|
533 |
|
|
|
585 |
|
|
|
(8.9 |
%) |
|
|
|
|
|
|
|
|
|
|
Total costs of goods sold and services provided |
|
$ |
73,963 |
|
|
$ |
72,240 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
Costs of goods sold and services provided increased by $1.8 million, or 2.4%, to $74.0
million for the three-month period ended March 31, 2006, compared to costs of goods sold and
services provided for the three-month period ended March 31, 2005 of $72.2 million. Total gross
margin increased to 42.5% for the three-month period ended March 31, 2006 from 42.2% for
three-month period ended March 31, 2005.
Costs of goods sold and services provided associated with the florist segment decreased by
$1.0 million, or 5.3%, to $18.0 million for three-month period ended March 31, 2006, compared to
$19.0 million for the three-month period ended March 31, 2005. Gross margin for the florist segment
increased to 65.9% for the three-month period ended March 31, 2006, compared to 64.9% for the
three-month period ended March 31, 2005, primarily due to an increase in the inventory reserve in
the prior year, partially offset by a shift in sales mix in part related to a decrease in current
year revenue from the Companys higher margin product lines such as directory publications.
Costs of goods sold and services provided associated with the consumer segment increased by
$2.8 million, or 5.3%, to $55.4 million for the three-month period ended March 31, 2006, compared
to $52.6 million for the three-month period ended March 31, 2005. Gross margin for the consumer
segment increased to 26.8% for the three-month period ended March 31, 2006, compared to 25.5% for
the three-month period ended March 31, 2005, primarily due to advertising revenue.
Costs of goods sold and services provided related to corporate activities remained relatively
consistent at $0.5 million for the three-month period ended March 31, 2006, compared to $0.6
million for the three-month period ended March 31, 2005. These costs are related to the
development and support of the internal corporate technology platforms.
Advertising and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
12,342 |
|
|
$ |
14,259 |
|
|
|
(13.4 |
%) |
Consumer segment |
|
|
10,401 |
|
|
|
8,412 |
|
|
|
23.6 |
% |
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs |
|
$ |
22,743 |
|
|
$ |
22,671 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
14
Advertising and selling costs remained relatively constant at $22.7 million for the
three-month periods ended March 31, 2006 and 2005. There were no advertising and selling costs
related to corporate activities.
Advertising and selling costs associated with the florist segment decreased by $2.0 million,
or 13.4%, to $12.3 million for the three-month period ended March 31, 2006, compared to advertising
and selling costs for the three-month period ended March 31,
2005 of $14.3 million. The decrease in advertising and selling costs was primarily due to the
sale of Renaissance and a decrease in rebates paid to FTD members, partially related to the shift of the Easter holiday
to the fourth quarter of fiscal year 2006 from the third quarter of fiscal year 2005.
Advertising and selling costs associated with the consumer segment increased by $2.0 million,
or 23.6%, to $10.4 million for the three-month period ended March 31, 2006, compared to $8.4
million for the three-month period ended March 31, 2005. This increase in advertising and selling
costs was primarily due to an increase in online advertising expenses, which was primarily related
to increased cost per order and volume generated from search-oriented Web sites.
General and administrative costs and management fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
2,377 |
|
|
$ |
2,612 |
|
|
|
(9.0 |
%) |
Consumer segment |
|
|
6,146 |
|
|
|
4,939 |
|
|
|
24.4 |
% |
Corporate |
|
|
6,525 |
|
|
|
18,937 |
|
|
|
(65.5 |
%) |
|
|
|
|
|
|
|
|
|
|
Total general and
administrative
costs and
management fees |
|
$ |
15,048 |
|
|
$ |
26,488 |
|
|
|
(43.2 |
%) |
|
|
|
|
|
|
|
|
|
|
General and administrative costs and management fees decreased by $11.5 million, or
43.2%, to $15.0 million for the three-month period ended March 31, 2006, compared to $26.5 million
for the three-month period ended March 31, 2005.
General and administrative costs associated with the florist segment decreased by $0.2
million, or 9.0%, to $2.4 million for the three-month period ended March 31, 2006, compared to $2.6
million for the three-month period ended March 31, 2005. This decrease is primarily due to the sale
of Renaissance.
General and administrative costs associated with the consumer segment increased by $1.2
million, or 24.4%, to $6.1 million for the three-month period ended March 31, 2006, compared to
$4.9 million for the three-month period ended March 31, 2005. This increase is primarily due to an
increase in customer service costs due primarily to an increase in order volume. Also
contributing to this increase was an increase in software and hardware depreciation and
amortization related to newly capitalized assets and an increase in software support costs to
support the new technology put into service.
Corporate general and administrative costs and management fees decreased by $12.4 million, or
65.5%, to $6.5 million for the three-month period ended March 31, 2006, compared to $18.9 million
for the three-month period ended March 31, 2005. The decrease was primarily related to a decrease
in expense related to the termination of the Management Services Agreement with Leonard Green &
Partners, L.P., which occurred during the quarter ended
March 31, 2005, partially offset by an
increase in public company costs.
15
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Interest income |
|
$ |
(233 |
) |
|
$ |
(299 |
) |
|
|
(22.1 |
%) |
Interest expense |
|
|
4,829 |
|
|
|
5,395 |
|
|
|
(10.5 |
%) |
Interest expense and prepayment fee on
shares subject to mandatory redemption |
|
|
|
|
|
|
24,684 |
|
|
|
(100.0 |
%) |
Other (income) expense, net |
|
|
(118 |
) |
|
|
(100 |
) |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) and expenses |
|
$ |
4,478 |
|
|
$ |
29,680 |
|
|
|
(84.9 |
%) |
|
|
|
|
|
|
|
|
|
|
Interest income decreased $0.1 million to $0.2 million for the three-month period ended
March 31, 2006 compared to $0.3 million for the three-month period ended March 31, 2005.
Interest expense decreased by $0.6 million, or 10.5%, to $4.8 million for the three-month
period ended March 31, 2006, compared to $5.4 million for the three-month period ended March 31,
2005. The decrease was primarily related to a $0.4 million prepayment penalty which occurred
during the quarter ended March 31, 2005 as a result of a
$4.9 million payment on FTDs 7.75% Senior Subordinated Notes due 2014.
The Companys preferred stock was redeemed in full using the proceeds from its initial public
offering and as such, there is no interest expense or prepayment fee on shares subject to mandatory
redemption for the three-month period ended March 31, 2006.
Other income remained consistent at $0.1 million for the three-month periods ended March 31,
2006 and March 31, 2005.
Nine Months Ended March 31, 2006 compared to the Nine Months Ended March 31, 2005
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
143,118 |
|
|
$ |
146,091 |
|
|
|
(2.0 |
%) |
Consumer segment |
|
|
180,521 |
|
|
|
169,126 |
|
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
323,639 |
|
|
$ |
315,217 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
Revenues increased by $8.4 million, or 2.7%, to $323.6 million for the nine-month period
ended March 31, 2006, compared to revenues for the nine-month period ended March 31, 2005 of $315.2
million. There were no revenues associated with corporate activities.
Management believes a key metric in driving revenues for the florist segment is the number of
FTD members that use or purchase services and products provided by the florist segment, which is
partially driven by membership. Average membership for the nine-month periods ended March 31, 2006
and 2005 was approximately 19,600 and 20,000 FTD members, respectively. Revenues for the florist
segment decreased by $3.0 million, or 2.0%, to $143.1 million for the nine-month period ended March
31, 2006, compared to revenues for the nine-month period ended March 31, 2005 of $146.1 million.
The December 2005 sale of Renaissance contributed approximately $3.0 million to the decrease in
revenues. Also contributing to the decrease were lower sales resulting from the elimination of
certain specialty wholesaling products which were unprofitable or not core to the business and a
decrease in
directory services revenues partially offset by an increase in revenues related to Florists
Online Web sites, an increase in fresh flower sales and an
increase in revenue related to technology support.
16
Management believes a key metric in driving revenues in the consumer segment is order volume.
Order volume increased 7.2% to 2,943,000 orders for the nine-month period ended March 31, 2006,
from 2,746,000 orders for the nine-month period ended March 31, 2005. Revenues for the consumer
segment increased by $11.4 million, or 6.7%, to $180.5 million for the nine-month period ended
March 31, 2006 compared to $169.1 million for the nine-month period ended March 31, 2005. The
increase in revenues was primarily related to an increase in order volume and advertising revenue,
partially offset by a decrease in average order value. Sales of specialty gifts, which include all
orders delivered via common carrier, comprised 36.5% of total order volume for the nine-month
period ended March 31, 2006, compared to 27.8% for the nine-month period ended March 31, 2005.
Internet orders were 89.8% of total orders for the nine-month period ended March 31, 2006, compared
to 86.2% for the nine-month period ended March 31, 2005. Average order value for the nine-month
period ended March 31, 2006 was $60.71, which was lower than average order value of $61.58 for the
nine-month period ended March 31, 2005. This decrease in average order value is primarily related
to an increase in sales of the lower priced product offerings.
Total costs of goods sold and services provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
46,961 |
|
|
$ |
49,161 |
|
|
|
(4.5 |
%) |
Consumer segment |
|
|
132,264 |
|
|
|
126,060 |
|
|
|
4.9 |
% |
Corporate |
|
|
1,718 |
|
|
|
1,779 |
|
|
|
(3.4 |
%) |
|
|
|
|
|
|
|
|
|
|
Total costs of goods sold and services provided |
|
$ |
180,943 |
|
|
$ |
177,000 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
Costs of goods sold and services provided increased by $3.9 million, or 2.2%, to $180.9
million for the nine-month period ended March 31, 2006, compared to costs of goods sold and
services provided for the nine-month period ended March 31, 2005 of $177.0 million. Total gross
margin increased to 44.1% for the nine-month period ended March 31, 2006 from 43.8% for nine-month
period ended March 31, 2005.
Costs of goods sold and services provided associated with the florist segment decreased by
$2.2 million, or 4.5%, to $47.0 million for nine-month period ended March 31, 2006, compared to
$49.2 million for the nine-month period ended March 31, 2005. Gross margin for the florist segment
increased to 67.2% for the nine-month period ended March 31, 2006, compared to 66.3% for the
nine-month period ended March 31, 2005, primarily due to the prior year increase in
the inventory reserve.
Costs of goods sold and services provided associated with the consumer segment increased by
$6.2 million, or 4.9%, to $132.3 million for the nine-month period ended March 31, 2006, compared
to $126.1 million for the nine-
month period ended March 31, 2005. Gross margin for the consumer segment increased to 26.7%
for the nine-month period ended March 31, 2006, compared to 25.5% for the nine-month period ended
March 31, 2005, primarily due to an increase in sales of higher margin specialty gifts and
advertising revenue. Specialty gifts, which include all orders delivered via common carrier, have a
lower combined product and shipping cost as a percent of revenue compared to florist delivered
orders.
Costs of goods sold and services provided related to corporate activities remained relatively
consistent at $1.7 million for the nine-month period ended March 31, 2006 compared to $1.8 million
for the nine-month period ended March 31, 2005. These costs are related to the development and
support of the internal corporate technology platforms.
Advertising and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
39,516 |
|
|
$ |
41,553 |
|
|
|
(4.9 |
%) |
Consumer segment |
|
|
22,768 |
|
|
|
19,303 |
|
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs |
|
$ |
62,284 |
|
|
$ |
60,856 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
17
Advertising and selling costs increased by $1.4 million, or 2.3%, to $62.3 million for
the nine-month period ended March 31, 2006, compared to advertising and selling costs for the
nine-month period ended March 31, 2005 of $60.9 million. There were no advertising and selling
costs related to corporate activities.
Advertising and selling costs associated with the florist segment decreased by $2.1 million,
or 4.9%, to $39.5 million for the nine-month period ended March 31, 2006, compared to $41.6 million
for the nine-month period ended March 31, 2005. The decrease in advertising and selling costs was
primarily due to the sale of Renaissance and a decrease in rebates
paid to FTD members partially due to the shift of
the Easter holiday to the fourth quarter of fiscal year 2006 from the third quarter of fiscal year
2005.
Advertising and selling costs associated with the consumer segment increased by $3.5 million,
or 18.0%, to $22.8 million for the nine-month period ended March 31, 2006, compared to $19.3
million for the nine-month period ended March 31, 2005. This increase in advertising and selling
costs was primarily due to an increase in online advertising expenses, which was related to
increased cost per order and increased order volume primarily related to orders generated from
search-oriented Web sites.
General and administrative costs and management fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Florist segment |
|
$ |
5,607 |
|
|
$ |
7,729 |
|
|
|
(27.5 |
%) |
Consumer segment |
|
|
13,622 |
|
|
|
12,423 |
|
|
|
9.7 |
% |
Corporate |
|
|
19,215 |
|
|
|
31,407 |
|
|
|
(38.8 |
%) |
|
|
|
|
|
|
|
|
|
|
Total general and administrative costs and
management fees |
|
$ |
38,444 |
|
|
$ |
51,559 |
|
|
|
(25.4 |
%) |
|
|
|
|
|
|
|
|
|
|
General and administrative costs and management fees decreased by $13.2 million, or
25.4%, to $38.4 million for the nine-month period ended March 31, 2006, compared to $51.6 million
for the nine-month period ended March 31, 2005.
General and administrative costs associated with the florist segment decreased by $2.1
million, or 27.5%, to $5.6 million for the nine-month period ended March 31, 2006, compared to $7.7
million for the nine-month period ended March 31, 2005. The decrease in general and administrative
costs for the florist segment is primarily due to the sale of Renaissance, including the $1.0
million gain recognized in the current year, a decrease in depreciation expense as certain assets
of the florist business have become fully depreciated and a decrease in administrative expenses due
to efficiencies gained in the technology installation process.
General and administrative costs associated with the consumer segment increased by $1.2
million, or 9.7%, to $13.6 million for the nine-month period ended March 31, 2006, compared to
$12.4 million for the nine-month period ended March 31, 2005. This increase is primarily due to an
increase in customer service costs due primarily to increased order volume. Also contributing to
this increase was an increase in software and hardware depreciation and amortization due to assets
put into service in the last year and an increase in software support costs to support the new
technology put into service.
Corporate general and administrative costs and management fees decreased by $12.2 million, or
38.8%, to $19.2 million for the nine-month period ended March 31, 2006, compared to $31.4 million
for the nine-month period ended March 31, 2005. The decrease was primarily related to a decrease
in expense related to the termination of the Management Services Agreement with Leonard Green &
Partners, L.P. which occurred during the quarter ended March 31, 2005, partially offset by a gain
recorded in the prior year 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
and an increase in compensation cost due the implementation of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payments.
18
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Interest income |
|
$ |
(528 |
) |
|
$ |
(466 |
) |
|
|
13.3 |
% |
Interest expense |
|
|
14,596 |
|
|
|
15,429 |
|
|
|
(5.4 |
%) |
Interest expense and prepayment fee on
shares subject to mandatory redemption |
|
|
|
|
|
|
34,732 |
|
|
|
(100.0 |
%) |
Other (income) expense, net |
|
|
(206 |
) |
|
|
(421 |
) |
|
|
(51.1 |
%) |
|
|
|
|
|
|
|
|
|
|
Total other (income) and expenses |
|
$ |
13,862 |
|
|
$ |
49,274 |
|
|
|
(71.9 |
%) |
|
|
|
|
|
|
|
|
|
|
Interest income remained relatively consistent at $0.5 million for the nine-month periods
ended March 31, 2006 and March 31, 2005.
Interest expense decreased by $0.8 million, or 5.4%, to $14.6 million for the nine-month
period ended March 31, 2006, compared to $15.4 million for the three-month period ended March 31,
2005. The decrease is primarily due to a lower amount of outstanding indebtedness during the
current year period and a $0.4 million prepayment
penalty which occurred during the quarter ended March 31, 2005 as a result of a $4.9 million
payment on FTDs 7.75% Senior Subordinated
Notes due 2014. This reduction in interest expense was partially offset by higher interest rates in the
current year period.
The Companys preferred stock was redeemed in full using the proceeds from its IPO and as
such, there is no interest expense or prepayment fee on shares subject to mandatory redemption for
the nine-month period ended March 31, 2006.
Other income decreased to $0.2 million for the nine-month period ended March 31, 2006 compared
to $0.4 million for the nine-month period ended March 31, 2005.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $8.7 million to $0.2 million at March 31, 2006 from
$8.9 million at June 30, 2005.
Cash provided by operating activities was $20.7 million for the nine-month period ended March
31, 2006, which primarily consisted of net income of
$16.7 million and adjustments to reconcile net income to net cash of
$11.5 million, including the gain from the sale of Renaissance, depreciation, amortization,
provisions for doubtful accounts, stock based compensation, amortization and write-off of deferred
financing costs and deferred income taxes. This was partially offset by a decrease in cash
relating to changes in operating assets and liabilities of $7.5 million. Changes in operating
assets and liabilities primarily consisted of an increase of
$12.0 million in accounts receivable
primarily related to the shipment of specialty wholesaling products for the spring holidays and an
increase in long-term receivables of $1.8 million primarily related to Mercury Technology sales,
partially offset by an increase in accounts payable of $3.3 million primarily due to increased
direct and online marketing accruals and a decrease in prepaid expenses of $2.6 million primarily related to a decrease in prepaid taxes.
Cash used in investing activities was $3.9 million for the nine-month period ended March 31,
2006, which related to $7.4 million of capital expenditures, primarily related to the new call
center which was opened in October 2005 and continued technology developments and improvements,
offset by the cash proceeds from the sale of Renaissance.
Cash used in financing activities was $25.7 million for the nine-month period ended March 31,
2006, which primarily consisted of the repurchase of $15.0 million of the Companys Common Stock
and repayments of $11.1 million of long-term debt.
The Companys principal sources of liquidity are cash from operations and funds available for
borrowing under its $135.0 million senior secured credit
facility agreement (the 2004 Credit Agreement). 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
19
term loan, which was used in connection with the
Companys completion of a going private transaction on February 24, 2004. As the Company makes
principal repayments on the term loan, the balance of the term loan is permanently reduced. As of
March 31, 2006, the balance of the term loan was $57.9 million. A portion of the revolving credit
facility is available as a letter of credit sub-facility and as a swing-line facility. Borrowings
under the revolving credit facility are used to finance working capital, capital expenditures,
acquisitions, certain expenses associated with the bank credit facilities and letter of credit
needs. The revolving credit facility included $1.1 million in letters of credit outstanding and had
availability of $48.9 million at March 31, 2006.
On October 25, 2005 the 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. 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 has 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. FTD, Inc. amended the 2004 Credit Agreement, effective November 7, 2005,
to allow for the repurchases of Common Stock of the Company, subject to a maximum leverage ratio
and minimum liquidity requirements. During the nine-month period ended March 31, 2006, the Company
repurchased 1,545,000 shares of Common Stock for $15.0 million.
The 2004 Credit Agreement includes covenants that, among other things, required that as of
March 31, 2006, FTD, Inc. maintain a ratio of consolidated earnings before interest, taxes,
depreciation and amortization (subject to certain adjustments) to consolidated interest expense, a
fixed charge coverage ratio and a leverage ratio. FTD, Inc. was in compliance with all debt
covenants as of March 31, 2006. The debt covenant ratios are detailed below:
|
|
|
|
|
|
|
|
|
|
|
Actual Ratio |
|
|
Required Ratio |
|
|
|
as of March 31, 2006 |
|
|
as of March 31, 2006 |
|
Interest Expense Coverage |
|
|
3.50 |
|
|
2.20 minimum |
Fixed Charge Coverage |
|
|
2.92 |
|
|
1.50 minimum |
Leverage |
|
|
3.34 |
|
|
5.50 maximum |
Debt covenant targets are adjusted quarterly in accordance with the terms of 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 2004 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 2004 Credit Agreement for the foreseeable future.
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.
On an on-going basis, management evaluates its estimates and judgments, including those
related to revenue recognition, distribution agreements and the valuation of accounts receivable,
inventory, long-lived assets and deferred income taxes. 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.
20
See the information concerning the Companys critical accounting policies included under
Managements Discussion and Analysis of Financial Condition and Results of Operations in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2005 as filed with the SEC.
Forward-Looking Information
This quarterly report on Form 10-Q contains various forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 regarding the Companys outlook,
anticipated revenue growth and profitability; the anticipated benefits of investments in new
products, programs and offerings; and opportunities and trends within both the consumer and florist
segments, including opportunities to expand these businesses and capitalize on growth opportunities
or increase penetration of service offerings. These forward-looking statements are based on
managements current expectations, assumptions, estimates and projections about the Company and its
industry. Investors are cautioned that actual results could differ from those anticipated by the
forward-looking statements as a result of: the Companys ability to acquire and retain FTD members
and continued recognition by members of the value of the Companys products and services; the
acceptance by members of the new or modified service offerings recently introduced; the Companys
ability to sell additional products and services to members; the Companys ability to expand
existing marketing programs and secure new marketing programs within the consumer segment; the
success of the Companys marketing campaigns; the ability to retain customers and maintain average
order value within the consumer segment; the existence of failures in the Mercury Network or the
Companys
consumer segment 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 consumer and florist segments; 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; and the Companys ability
to integrate additional partners or acquisitions, if any are identified. These factors, along with
other potential risks and uncertainties, are discussed in the Companys reports and other documents
filed with the SEC.
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 March 31, 2006, $57.9 million of debt was outstanding under the 2004
Credit Agreement. Borrowings under the 2004 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. A 1% increase in the interest rate would result in additional annual interest
expense of $579,000.
The Company is also exposed to foreign currency exchange rate risk with respect to the
Canadian dollar and the Euro. The resulting foreign currency translation exchange adjustments are
included in the other comprehensive income (loss) caption and foreign currency transaction exchange
adjustments are included in other income and expense on the consolidated statements of operations
and comprehensive income (loss) and were not material for the three- and nine-month periods ended
March 31, 2006 and 2005.
Item 4. Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management is required
to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of March 31, 2006, an evaluation was carried out under the supervision and with the
participation of the Companys management, including the CEO and CFO. Based on this evaluation, the
CEO and CFO have concluded that the Companys disclosure controls and procedures were effective at
the reasonable assurance level.
There have been no significant changes in the Companys internal controls over financial
reporting during the Companys most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal controls over financial reporting.
21
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 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 1A. Risk Factors
Our business, financial condition and results of operations can be impacted by a number of
factors, any one of which could cause our actual results to vary materially from our anticipated
future results. See the discussion in Factors That May Affect The Company and Forward-Looking
Information and elsewhere in our most recent Form 10-K and in Forward-Looking Information and
elsewhere in this Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth information in connection with purchases made by, or on behalf
of, the Company, of shares of the Companys common stock during the quarterly period ended March
31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Approximate Dollar |
|
|
|
|
|
|
Average |
|
as Part of |
|
Value) |
|
|
Total |
|
Price |
|
Publicly |
|
of Shares that May Yet |
|
|
Number of |
|
Paid |
|
Announced |
|
Be Purchased |
|
|
Shares |
|
per |
|
Plans or |
|
Under the Plans or |
Period |
|
Purchased |
|
Share |
|
Programs |
|
Programs |
January 1, 2006
through
January 31, 2006
|
|
|
1,239,500 |
|
|
|
9.43 |
|
|
|
1,545,000 |
|
|
$15.0 million |
February 1, 2006
through
February 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15.0 million |
March 1, 2006
through
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15.0 million |
On October 25, 2005, the 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.
Item 6. Exhibits
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
Rule 13(a) 14(a)/15(d) 14(a) Certification (Principal Executive Officer). |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
Rule 13(a) 14(a)/15(d) 14(a) Certification (Principal Financial Officer). |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
Section 1350 Certifications. |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
FTD Group, Inc.
|
Date: May 10, 2006 |
By: |
/S/ CARRIE A. WOLFE
|
|
|
|
Carrie A. Wolfe |
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
23
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description of Document |
|
31.1
|
|
Rule 13(a) 14(a)/15(d) 14(a) Certification (Principal Executive Officer). |
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31.2
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Rule 13(a) 14(a)/15(d) 14(a) Certification (Principal Financial Officer). |
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32
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Section 1350 Certifications. |
24