e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 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
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87-0719190 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
3113 Woodcreek Drive
Downers Grove, IL 60515
(Address of principal executive offices)
(630) 719-7800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). YES o NO þ
As of November 6, 2006, there were 28,334,856 outstanding shares of the issuers Common Stock,
par value $0.01 per share.
FTD GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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September 30, 2006 |
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June 30, 2006 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
13,302 |
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$ |
10,954 |
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Accounts receivable, less allowance for doubtful accounts
of $4,890 at September 30, 2006 and $4,437 at June 30, 2006 |
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44,780 |
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26,044 |
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Inventories,
net, prepaid expenses and other current assets |
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12,578 |
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9,527 |
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Total current assets |
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70,660 |
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46,525 |
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Property and equipment: |
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Property and equipment |
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32,306 |
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25,265 |
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Less accumulated depreciation |
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7,124 |
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6,051 |
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Property and equipment, net |
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25,182 |
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19,214 |
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Other assets: |
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Computer software, net |
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14,393 |
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10,577 |
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Other noncurrent assets |
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21,938 |
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21,405 |
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Other intangible assets, less accumulated amortization of
$6,740 at September 30, 2006 and $5,993 at June 30, 2006 |
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15,776 |
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14,780 |
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Trademark |
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184,471 |
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121,577 |
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Goodwill |
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414,176 |
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336,659 |
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Total other assets |
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650,754 |
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504,998 |
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Total assets |
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$ |
746,596 |
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$ |
570,737 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Notes payable |
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$ |
21,645 |
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$ |
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Accounts payable |
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58,573 |
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45,273 |
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Other accrued liabilities |
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23,351 |
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24,083 |
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Current maturities of long-term debt |
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1,500 |
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1,125 |
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Total current liabilities |
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105,069 |
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70,481 |
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Senior secured credit facility |
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154,500 |
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48,875 |
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Senior subordinated notes |
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170,117 |
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170,117 |
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Post-retirement benefits, accrued pension obligations and other liabilities |
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5,209 |
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2,368 |
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Deferred income taxes |
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81,444 |
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61,160 |
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Stockholders equity: |
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Common stock: $0.01 par value, 75,000,000 shares authorized; 29,482,182
shares issued as of September 30, 2006 and June 30, 2006 |
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295 |
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295 |
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Additional paid-in capital |
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234,284 |
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233,362 |
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Retained earnings (accumulated deficit) |
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3,889 |
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(1,554 |
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Accumulated other comprehensive income |
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2,600 |
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200 |
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Treasury stock, at cost, 1,147,326 shares as of September 30, 2006
and 1,504,480 shares as of June 30, 2006 |
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(10,811 |
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(14,567 |
) |
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Total stockholders equity |
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230,257 |
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217,736 |
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Total liabilities and stockholders equity |
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$ |
746,596 |
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$ |
570,737 |
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
FTD GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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Revenues: |
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Products |
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$ |
73,873 |
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$ |
55,830 |
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Services |
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34,898 |
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30,039 |
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Total revenues |
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108,771 |
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85,869 |
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Costs of Products Sold and Services Provided: |
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Products |
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56,154 |
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41,309 |
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Services |
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4,269 |
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4,549 |
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Total costs of products sold and services provided |
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60,423 |
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45,858 |
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Gross Profit: |
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Products |
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17,719 |
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9,391 |
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Services |
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30,629 |
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30,620 |
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Total gross profit |
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48,348 |
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40,011 |
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Operating Expenses: |
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Advertising and selling |
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16,564 |
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17,651 |
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General and administrative |
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16,410 |
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11,929 |
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Total operating expenses |
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32,974 |
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29,580 |
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Income from operations |
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15,374 |
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10,431 |
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Other Income and Expenses: |
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Interest income |
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(298 |
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(166 |
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Interest expense |
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8,226 |
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4,781 |
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Other income, net |
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(1,544 |
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(44 |
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Total other income and expenses |
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6,384 |
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4,571 |
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Income before income tax |
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8,990 |
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5,860 |
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Income tax expense |
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3,547 |
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2,433 |
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Net income |
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$ |
5,443 |
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$ |
3,427 |
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Other Comprehensive Income: |
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Foreign currency translation adjustments |
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2,400 |
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(101 |
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Comprehensive income |
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$ |
7,843 |
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$ |
3,326 |
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Net income per Common Share basic |
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$ |
0.19 |
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$ |
0.12 |
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Net income per Common Share diluted |
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$ |
0.18 |
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$ |
0.11 |
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Weighted Average Common Shares Outstanding: |
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Basic |
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28,232 |
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29,454 |
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Diluted |
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29,469 |
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30,542 |
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
FTD GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net income |
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$ |
5,443 |
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$ |
3,427 |
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Adjustments to reconcile net income to net cash
used in operating activities: |
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Depreciation and amortization |
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3,316 |
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2,449 |
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Stock-based compensation expense |
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393 |
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165 |
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Amortization and write off of deferred financing costs |
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2,077 |
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316 |
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Provision for doubtful accounts |
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764 |
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771 |
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Deferred income taxes |
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(601 |
) |
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28 |
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Increase (decrease) in cash due to changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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(5,924 |
) |
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(7,327 |
) |
Inventories |
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327 |
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44 |
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Prepaid expenses and other |
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829 |
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2,218 |
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Other noncurrent assets |
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(428 |
) |
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5 |
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Accounts payable |
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(8,812 |
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(5,697 |
) |
Other accrued liabilities, unearned income, customer deposits and other |
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(2,870 |
) |
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(4,443 |
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Net cash used in operating activities |
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(5,486 |
) |
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(8,044 |
) |
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Cash flows from investing activities: |
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Acquisition of business, excluding cash acquired |
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(96,717 |
) |
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Capital expenditures |
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(1,935 |
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(3,292 |
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Dividends received |
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146 |
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Net cash used in investing activities |
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(98,506 |
) |
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(3,292 |
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Cash flows from financing activities: |
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Proceeds from issuance of long-term debt |
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150,000 |
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Repayments of long-term debt |
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(50,000 |
) |
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(174 |
) |
Net proceeds from revolving credit facility |
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6,000 |
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5,000 |
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Deferred financing costs |
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(1,444 |
) |
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Proceeds from exercise of stock options |
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422 |
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Excess tax benefit from stock-based compensation |
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654 |
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Net cash provided by financing activities |
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105,632 |
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4,826 |
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Effect of foreign exchange rate changes on cash and cash equivalents |
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708 |
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100 |
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Net increase (decrease) in cash and cash equivalents |
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2,348 |
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(6,410 |
) |
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Cash and cash equivalents at beginning of period |
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10,954 |
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8,890 |
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Cash and cash equivalents at end of period |
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$ |
13,302 |
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$ |
2,480 |
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Supplemental disclosures of cash flow information |
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Cash paid for: |
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Interest |
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$ |
7,105 |
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$ |
7,728 |
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Income taxes |
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$ |
3,027 |
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$ |
46 |
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Non-cash disclosure: |
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Issuance of notes payable associated with the purchase of Interflora Holdings Limited |
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$ |
23,345 |
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$ |
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Issuance of treasury stock associated with the purchase of Interflora Holdings Limited |
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$ |
3,206 |
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$ |
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
FTD Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of the Business
Basis of Presentation
These condensed consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, therefore, do not include all
information and footnote disclosures normally included in audited financial statements. However, in
the opinion of management, all adjustments consisting only of normal recurring adjustments, unless
otherwise noted herein, necessary to present fairly the results of operations, financial position
and cash flows have been made. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in FTD Group,
Inc.s Annual Report on Form 10-K for the year ended June 30, 2006. The results of operations for
any interim period are not necessarily indicative of the results of operations to be expected for
the full year.
As used in this Form 10-Q, the term Company refers to FTD Group, Inc. and its consolidated
subsidiaries, including FTD, Inc. taken as a whole. FTD, Inc. is a Delaware corporation that
commenced operations in 1994.
On July 31, 2006, the Company completed its acquisition of Interflora Holdings Limited
(Interflora), a U.K. based provider of floral-related products and services to consumers and
retail floral locations in the U.K. and the Republic of Ireland. Refer to Note 2 below. As a result
of the Interflora acquisition, the Company also acquired majority control of Interflora, Inc.
Interflora, Inc. is an international clearinghouse for flowers-by-wire order exchanges between its
members. The results of operations associated with Interflora and Interflora, Inc., beginning on
August 1, 2006, are included in a new international segment.
All intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts reported within
total revenues and costs of products sold and services provided have been reclassified
between products and services in the fiscal year 2006 financial statements to conform to current year presentation. Such
reclassification primarily related to service fees in the consumer segment and did not affect reported total
revenues or costs of products sold and services provided.
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans an amendment of FASB Statement No. 87, 88, 106 and 132(R), (SFAS 158),
effective for fiscal years ending after December 15, 2006. SFAS 158 requires the balance sheet
recognition of the overfunded or underfunded status of a defined benefit postretirement plan as an
asset or liability along with a corresponding after-tax adjustment to accumulated other
comprehensive income (loss) included in stockholders equity. The Company is currently evaluating
the impact the adoption of SFAS 158 will have on the Companys consolidated financial statements.
In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entitys financial statements in
accordance with SFAS 109 and prescribes that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax position taken or expected to be
taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured in
order to determine the tax benefit to be recognized in the financial statements. Additionally, FIN
48 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006, with early adoption permitted. The Company is currently evaluating the impact
the adoption of FIN 48 will have on the Companys consolidated financial statements.
5
Note 2. Acquisition of Interflora Holdings Limited
On July 31, 2006 the Company completed the acquisition of Interflora, in connection with the
Companys international expansion strategy, for a purchase price of approximately $122.8 million
(£66 million) plus transaction related costs totaling $2.3 million. Approximately $98.6 million of
the acquisition price was paid in cash at closing and $1.9 million of cash was
acquired in connection with the purchase. The consideration included approximately $23.3 million
(£12.5 million) as notes payable of which, $21.6 million (£11.6 million) will be paid in May 2007
and the remainder, $1.7 million (£0.9 million), will be paid in August 2008. The remainder of the
purchase price ($3.2 million) was funded through the issuance of 216,374 shares of common stock (consisting of treasury shares) to certain senior managers of Interflora.
The Company financed the acquisition with a new senior secured credit facility consisting of a
$150.0 million term loan and a $75.0 million revolving credit facility. The proceeds from the new
facility were also used to repay the Companys existing term loan. Refer to Note 4 below. In
addition, the Company entered into foreign currency forward exchange contracts totaling £61.8
million to hedge the acquisition cost. A contract in the amount of £51.0 million was settled on
July 28, 2006 and resulted in a gain of $1.4 million, which has been recorded in other income, net
within the Condensed Consolidated Statements of Operations and Comprehensive Income. The remaining
forward contracts include a contract for £10 million, expected to be settled during the fourth
quarter of fiscal year 2007 and a contract for £0.8 million, expected to be settled during the
first quarter of fiscal year 2008. The settlement of these contracts coincide with the due dates of
the notes payable related to the acquisition of Interflora.
Financial results for Interflora are included herein beginning August 1, 2006. The pro forma
information below presents the results of operations as if the acquisition occurred on July 1,
2005. Pro forma financial information related to Interflora, Inc. has not been included herein, as
the operating results of Interflora, Inc. are not considered material to the Companys operating
results.
|
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|
|
|
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|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Revenues |
|
$ |
119,424 |
|
|
$ |
109,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
16,249 |
|
|
$ |
11,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,590 |
|
|
$ |
3,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.20 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.19 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
The preliminary allocation of the acquisition cost is shown in the table below. Such
allocation will be finalized when appraisals and fair value adjustments are completed.
|
|
|
|
|
Goodwill |
|
$ |
76,124 |
|
Trademark |
|
|
61,764 |
|
Computer software |
|
|
4,372 |
|
Land and
building |
|
|
2,942 |
|
Other
intangible assets (customer list) |
|
|
1,711 |
|
Deferred tax liability |
|
|
(20,464 |
) |
Other assets
acquired and liabilities assumed, net |
|
|
(1,311 |
) |
|
|
|
|
Total preliminary allocation of acquisition cost |
|
$ |
125,138 |
|
|
|
|
|
Goodwill and trademark assets have indefinite lives and therefore will not be subject to
amortization, but will instead be subject to an annual impairment test. Computer software will be
amortized over 5 years; the customer list will be amortized over 3 years.
6
The Company implemented a deferred compensation plan for certain members of Interflora
management. Under the terms of the plan, participants will be paid a cash bonus upon achieving a
specified annual earnings target if such target is achieved in any annual period within the next
seven years. The maximum payout under such plan is £2.9 million. The Company recorded $0.2 million
of expense during the period ended September 30, 2006 related to this deferred compensation plan.
Note 3. Goodwill and Other Intangibles
Goodwill resulting from the Interflora acquisition will be reported as part of the
international segment.
The changes
in the carrying amount of goodwill, trademark and amortizable intangible assets, the related accumulated amortization as of September 30,
2006 and the estimated amortization expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Florist |
|
|
International |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
Goodwill: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
$ |
178,141 |
|
|
$ |
158,518 |
|
|
$ |
|
|
|
$ |
336,659 |
|
Acquisition of Interflora |
|
|
|
|
|
|
|
|
|
|
76,124 |
|
|
|
76,124 |
|
Impact of foreign exchange |
|
|
|
|
|
|
|
|
|
|
1,393 |
|
|
|
1,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006 |
|
$ |
178,141 |
|
|
$ |
158,518 |
|
|
$ |
77,517 |
|
|
$ |
414,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Florist |
|
|
International |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
Trademark: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
$ |
67,842 |
|
|
$ |
53,735 |
|
|
$ |
|
|
|
$ |
121,577 |
|
Acquisition of Interflora |
|
|
|
|
|
|
|
|
|
|
61,764 |
|
|
|
61,764 |
|
Impact of foreign exchange |
|
|
|
|
|
|
|
|
|
|
1,130 |
|
|
|
1,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006 |
|
$ |
67,842 |
|
|
$ |
53,735 |
|
|
$ |
62,894 |
|
|
$ |
184,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, 2006 |
|
|
June 30, 2006 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net Carrying Amount |
|
|
Amount |
|
|
Amortization |
|
|
Net Carrying Amount |
|
Amortizable Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
$ |
14,579 |
|
|
$ |
6,679 |
|
|
$ |
7,900 |
|
|
$ |
12,836 |
|
|
$ |
5,940 |
|
|
$ |
6,896 |
|
Non-compete agreements |
|
|
100 |
|
|
|
61 |
|
|
|
39 |
|
|
|
100 |
|
|
|
53 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,679 |
|
|
$ |
6,740 |
|
|
$ |
7,939 |
|
|
$ |
12,936 |
|
|
$ |
5,993 |
|
|
$ |
6,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
For the remaining nine-month period ending June 30, 2007 |
|
$ |
2,386 |
|
For the year ending June 30, 2008 |
|
$ |
3,162 |
|
For the year ending June 30, 2009 |
|
$ |
2,314 |
|
For the year ending June 30, 2010 |
|
$ |
77 |
|
Note 4. Financing Arrangements
On July 28, 2006, in connection with the Interflora acquisition, the Company entered into a
new senior secured credit facility consisting of a $150.0 million term loan and a $75.0 million
revolving credit facility (the 2006 Credit Agreement). Borrowings under the 2006 Credit Agreement
bear interest based on a margin over, at FTD Inc.s option, either the base rate or the London Bank
Offered Rate (LIBOR). The applicable margin for borrowings varies based on the Companys
consolidated leverage ratio, as defined in the 2006 Credit Agreement. The interest rate at
September 30, 2006 on the term loan was 7.41%. The Credit Agreement also requires the Company to
pay commitment fees on the unused portion of the revolving credit facility. For the three-month
period ended September 30, 2006, the commitment fees totaled $0.1 million. The 2006 Credit
Agreement also includes covenants that, among other things, require that the Company maintain a
ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and
amortization (subject to certain adjustments) of no more than 5.75 to 1.00 and a fixed charge ratio
of no less than 1.30 to 1.00. Such ratios adjust quarterly in accordance with the terms of the 2006
Credit Agreement. FTD, Inc. was in compliance with all debt covenants as of September 30, 2006.
The 2006 Credit Agreement imposes various restrictions on the Company, including restrictions
that limit FTD, Inc.s ability to incur liens or encumbrances, make investments or acquisitions,
incur additional debt, enter into sale leaseback transactions, incur certain contingent
liabilities, make certain restricted junior payments and other similar distributions, enter into
mergers, consolidations and similar combinations, sell assets or engage in similar transfers,
7
amend
certain material agreements, including the indenture governing the 7.75% Senior Subordinated Notes
(the Notes), make capital expenditures and engage in transactions with affiliates.
In conjunction with the consummation of the 2004 Going Private Transaction, FTD, Inc. entered
into a senior secured credit facility (the 2004 Credit Agreement). There was $50.0 million in
outstanding debt at June 30, 2006 under the 2004 Credit Agreement, which was subsequently paid off
on July 28, 2006. As a result of repaying the 2004 Credit Agreement, the Company wrote off $1.8
million of deferred financing costs, net of accumulated amortization, during the first quarter of
fiscal year 2007. This expense is recorded in interest expense in the accompanying Condensed
Consolidated Statements of Operations and Comprehensive Income. In connection with the 2006 Credit
Agreement, the Company incurred $1.4 million of deferred financing costs, which were allocated, pro
rata, to the six-year revolving credit facility and the seven-year term loan and are being
amortized using the effective interest method.
At
September 30, 2006, the Company had $156.0 million outstanding
under the 2006 Credit Agreement and $24.7 million in outstanding letters of credit, $23.3
million of which related to the notes payable from the acquisition of Interflora, and, as a result,
the revolving credit facility had availability of approximately $44.3 million.
Note 5. Net Income Per Common Share
The computations of basic and diluted net income per common share for the three-month periods
ended September 30, 2006 and 2005 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
5,443 |
|
|
$ |
3,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding basic |
|
|
28,232 |
|
|
|
29,454 |
|
Effect of dilutive securities stock options |
|
|
1,237 |
|
|
|
1,088 |
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding diluted |
|
|
29,469 |
|
|
|
30,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of Common Stock basic |
|
$ |
0.19 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of Common Stock diluted |
|
$ |
0.18 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
For the three-month period ended September 30, 2006 there were 1,027,717 options that were not
included in the computation of diluted earnings per share because the exercise prices of the
options were greater than the average market prices of the Companys Common Stock during the
periods and therefore, were anti-dilutive. For the three-month period ended September 30, 2005,
there were 90,000 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
The Companys defined benefit pension plan and post-retirement benefit plans relate to a
limited number of employees and retirees. Such plans were frozen in 1997. The table below provides
the components of pension expense for the defined benefit plan for the three month periods ended
September 30, 2006 and 2005 (in thousands):
8
|
|
|
|
|
|
|
|
|
|
|
Salaried
Employees Pension Plan |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands) |
|
Service cost |
|
$ |
13 |
|
|
$ |
14 |
|
Interest cost |
|
|
26 |
|
|
|
28 |
|
Expected return on assets |
|
|
(23 |
) |
|
|
(23 |
) |
Amortization |
|
|
1 |
|
|
|
9 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
17 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
The following table provides the components of net periodic post-retirement benefit costs for
the three-month periods ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical Plan |
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands) |
|
Interest cost |
|
$ |
22 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
22 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
Note 7. Stock-Based Compensation
The Company adopted SFAS 123 (R), Share-Based Payment (SFAS 123 (R)) on July 1, 2005 using
the modified prospective method and Black-Scholes as the option valuation model. During the
three-month periods ended September 30, 2006 and 2005, the Company granted 1,367,717 options and
55,000 options, respectively, to various employees and directors of the Company. Outstanding
non-qualified stock options have an expiration date ten years from the date of grant and begin
vesting as early as the date of grant, dependent upon the individual agreements. All stock options
were granted with an exercise price equal to the fair market value of the Companys stock on the
date of grant.
During the three-month period ended September 30, 2006, 116,666 options were forfeited. No
options were forfeited during the three-month period ended September 30, 2005. During the
three-month periods ended September 30, 2006 and 2005, 140,780 and 4,835 options, respectively,
were exercised.
Stock-based compensation expense was $0.6 million and $0.2 million for the three-month periods
ended September 30, 2006, and 2005, respectively. Stock-based compensation expense for the
three-month period ended September 30, 2006 may not be indicative of the expense for the entire
fiscal year.
Note 8. Segment Information
Operating segments are components of the business for which separate financial information is
available that is regularly reviewed by the enterprises chief operating decision maker to make
decisions about resources to be allocated to each segment and to assess its performance. Revenue
and expenses earned and charged between segments are eliminated in consolidation.
For purposes of managing the Company, management reviews segment financial performance to the
operating income level for each of its reportable segments. As such, interest income, interest
expense and tax expense are recorded on a consolidated corporate basis.
9
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.
The florist segment includes all services and products sold to FTD members and other retail
locations offering floral products. Services include clearinghouse, membership, technology access
and support and online services. Products include containers, technology systems and fresh flowers.
The
international segment includes Interflora and Interflora, Inc.
Interflora, which has both a florist business and consumer
business, provides products and services to enable its members to send and deliver
floral orders. Interflora is also an Internet and telephone marketer of flowers and specialty gift
items to consumers, operating primarily through the www.interflora.co.uk Web site and a toll-free
telephone number.
The corporate segment includes costs related to corporate headquarters, including accounting,
legal, facilities, information technology and credit and collections. Costs related to facilities,
information technology and credit and collections are allocated to the consumer and florist
segments.
Of the Companys assets totaling $746.6 million at September 30, 2006, the assets of the
Companys consumer segment totaled approximately
$264.3 million, the assets of the Companys international segment totaled
$176.4 million and the assets of the Companys florist segment and corporate headquarters totaled
$305.9 million.
The following tables report the Companys operating results by reportable segment for the
three-month periods ended September 30, 2006 and 2005:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
Gross Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
$ |
50,868 |
|
|
$ |
(3,475 |
) |
|
$ |
47,393 |
|
|
$ |
44,950 |
|
|
$ |
(3,391 |
) |
|
$ |
41,559 |
|
Florist segment |
|
|
43,881 |
|
|
|
(60 |
) |
|
|
43,821 |
|
|
|
44,355 |
|
|
|
(45 |
) |
|
|
44,310 |
|
International segment |
|
|
17,524 |
|
|
|
33 |
|
|
|
17,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
112,273 |
|
|
|
(3,502 |
) |
|
|
108,771 |
|
|
|
89,305 |
|
|
|
(3,436 |
) |
|
|
85,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Products Sold and
Services Provided: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
33,905 |
|
|
|
(458 |
) |
|
|
33,447 |
|
|
|
30,877 |
|
|
|
(419 |
) |
|
|
30,458 |
|
Florist segment |
|
|
15,291 |
|
|
|
(827 |
) |
|
|
14,464 |
|
|
|
15,683 |
|
|
|
(845 |
) |
|
|
14,838 |
|
International segment |
|
|
12,012 |
|
|
|
(16 |
) |
|
|
11,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
516 |
|
|
|
|
|
|
|
516 |
|
|
|
562 |
|
|
|
|
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,724 |
|
|
|
(1,301 |
) |
|
|
60,423 |
|
|
|
47,122 |
|
|
|
(1,264 |
) |
|
|
45,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
16,963 |
|
|
|
(3,017 |
) |
|
|
13,946 |
|
|
|
14,073 |
|
|
|
(2,972 |
) |
|
|
11,101 |
|
Florist segment |
|
|
28,590 |
|
|
|
767 |
|
|
|
29,357 |
|
|
|
28,672 |
|
|
|
800 |
|
|
|
29,472 |
|
International segment |
|
|
5,512 |
|
|
|
49 |
|
|
|
5,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(516 |
) |
|
|
|
|
|
|
(516 |
) |
|
|
(562 |
) |
|
|
|
|
|
|
(562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
50,549 |
|
|
|
(2,201 |
) |
|
|
48,348 |
|
|
|
42,183 |
|
|
|
(2,172 |
) |
|
|
40,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and Selling: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
4,886 |
|
|
|
|
|
|
|
4,886 |
|
|
|
4,532 |
|
|
|
|
|
|
|
4,532 |
|
Florist segment |
|
|
12,724 |
|
|
|
(2,249 |
) |
|
|
10,475 |
|
|
|
15,291 |
|
|
|
(2,172 |
) |
|
|
13,119 |
|
International segment |
|
|
1,246 |
|
|
|
(43 |
) |
|
|
1,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,856 |
|
|
|
(2,292 |
) |
|
|
16,564 |
|
|
|
19,823 |
|
|
|
(2,172 |
) |
|
|
17,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
4,940 |
|
|
|
(462 |
) |
|
|
4,478 |
|
|
|
3,655 |
|
|
|
(427 |
) |
|
|
3,228 |
|
Florist segment |
|
|
2,265 |
|
|
|
|
|
|
|
2,265 |
|
|
|
2,284 |
|
|
|
|
|
|
|
2,284 |
|
International segment |
|
|
3,023 |
|
|
|
136 |
|
|
|
3,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
6,046 |
|
|
|
462 |
|
|
|
6,508 |
|
|
|
5,990 |
|
|
|
427 |
|
|
|
6,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16,274 |
|
|
|
136 |
|
|
|
16,410 |
|
|
|
11,929 |
|
|
|
|
|
|
|
11,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
before Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
7,137 |
|
|
|
(2,555 |
) |
|
|
4,582 |
|
|
|
5,886 |
|
|
|
(2,545 |
) |
|
|
3,341 |
|
Florist segment |
|
|
13,601 |
|
|
|
3,016 |
|
|
|
16,617 |
|
|
|
11,097 |
|
|
|
2,972 |
|
|
|
14,069 |
|
International segment |
|
|
1,243 |
|
|
|
(44 |
) |
|
|
1,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(6,562 |
) |
|
|
(462 |
) |
|
|
(7,024 |
) |
|
|
(6,552 |
) |
|
|
(427 |
) |
|
|
(6,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15,419 |
|
|
|
(45 |
) |
|
|
15,374 |
|
|
|
10,431 |
|
|
|
|
|
|
|
10,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
817 |
|
|
|
|
|
|
|
817 |
|
|
|
735 |
|
|
|
|
|
|
|
735 |
|
Florist segment |
|
|
2,392 |
|
|
|
|
|
|
|
2,392 |
|
|
|
2,813 |
|
|
|
|
|
|
|
2,813 |
|
International segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(3,209 |
) |
|
|
|
|
|
|
(3,209 |
) |
|
|
(3,548 |
) |
|
|
|
|
|
|
(3,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
|
6,320 |
|
|
|
(2,555 |
) |
|
|
3,765 |
|
|
|
5,151 |
|
|
|
(2,545 |
) |
|
|
2,606 |
|
Florist segment |
|
|
11,209 |
|
|
|
3,016 |
|
|
|
14,225 |
|
|
|
8,284 |
|
|
|
2,972 |
|
|
|
11,256 |
|
International segment |
|
|
1,243 |
|
|
|
(44 |
) |
|
|
1,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
(3,353 |
) |
|
|
(462 |
) |
|
|
(3,815 |
) |
|
|
(3,004 |
) |
|
|
(427 |
) |
|
|
(3,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,419 |
|
|
$ |
(45 |
) |
|
$ |
15,374 |
|
|
$ |
10,431 |
|
|
$ |
|
|
|
$ |
10,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer segment |
|
$ |
940 |
|
|
$ |
|
|
|
$ |
940 |
|
|
$ |
617 |
|
|
$ |
|
|
|
$ |
617 |
|
Florist segment |
|
|
834 |
|
|
|
|
|
|
|
834 |
|
|
|
868 |
|
|
|
|
|
|
|
868 |
|
International segment |
|
|
576 |
|
|
|
|
|
|
|
576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
966 |
|
|
|
|
|
|
|
966 |
|
|
|
964 |
|
|
|
|
|
|
|
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,316 |
|
|
$ |
|
|
|
$ |
3,316 |
|
|
$ |
2,449 |
|
|
$ |
|
|
|
$ |
2,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
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. These forward looking statements
include statements regarding the Companys outlook, anticipated revenue growth and profitability;
anticipated benefits of its acquisition of Interflora Holdings Limited, anticipated benefits of
investments in new products, programs and offerings and opportunities and trends within both the
domestic and international floral businesses, including opportunities to expand these businesses
and capitalize on growth opportunities or increase penetration of service offerings. These
forward-looking statements are based on managements current expectations, assumptions, estimates
and projections about the Company and the Companys industry. Investors are cautioned that actual
results could materially differ from those contained in any forward-looking statements as a result
of: the Companys ability to acquire and retain FTD and Interflora members and continued
recognition by members of the value of the Companys products
and services; the acceptance by members of new or modified service offerings recently introduced;
the Companys ability to sell additional products and services to members; the Companys ability to
expand existing marketing partnerships and secure new marketing partners within the domestic and
international consumer businesses; the success of the Companys marketing campaigns; the ability to
retain customers and maintain average order value within the domestic and international consumer
businesses; the existence of failures in the Companys computer systems; competition from existing
and potential new competitors; levels of discretionary consumer purchases of flowers and specialty
gifts; the Companys ability to manage or reduce its level of expenses within both the domestic and
international businesses; actual growth rates for the markets in which the Company competes
compared with forecasted growth rates; the Companys ability to increase capacity and introduce
enhancements to its Web sites; the Companys ability to integrate Interflora and additional
partners or acquisitions, if any are identified; and other factors described in this quarterly
report on form 10-Q and in the Companys annual report on Form 10-K, including under Item 1A
Risk Factors, as well as other potential risks and uncertainties, which are discussed in the
Companys other reports and documents filed with the SEC. The Company expressly disclaims any
obligation to update its forward-looking statements.
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 materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to any differences include, but
are not limited to, those discussed under the captions Forward-Looking Information, Risk
Factors and elsewhere in this Form 10-Q.
Overview
FTD Group, Inc. is a leading global provider of floral products and services to consumers and
retail florists, as well as other retail locations offering floral products, in the U.S., Canada,
the U.K. and the Republic of Ireland. The business utilizes the highly recognized FTD and
Interflora brands, supported by the Mercury Man logo, which is displayed in approximately 50,000
floral shops globally. Throughout the fiscal year 2006, the Company conducted its business through
two operating segments, the consumer segment and the florist segment. Beginning in the first
quarter of fiscal year 2007, the Company began conducting business through a third operating
segment relating to its international operations, which includes the operations of Interflora
Holdings Limited (Interflora).
Please refer to The Overview section of Managements Discussion and Analysis of Financial
Condition and Results of Operations in FTD Group, Inc.s Annual Report on form 10-K for the year
ended June 30, 2006, which was filed with the Securities and Exchange Commission (SEC) on
September 13, 2006. Except as discussed in this Item 2, the Company is not aware of any material
changes to such information.
Consumer Segment. The consumer segment is 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.
Florist Segment. The florist segment markets floral products and services to FTD members and
other retail locations offering floral products in the U.S. and Canada.
12
International Segment. The international segment, a new segment in fiscal year 2007, is
primarily comprised of Interflora, a U.K. based provider of floral and gift products and services
to consumers and retail floral locations in the U.K. and the Republic of Ireland, which was
acquired by the Company on July 31, 2006.
Corporate Segment. The corporate segment includes costs related to corporate headquarters,
including accounting, legal, facilities, information technology and credit and collections. Costs
related to facilities, information technology and credit and collections are allocated to the
consumer and florist segments.
Three Months Ended September 30, 2006 compared to the Three Months Ended September 30, 2005
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Consumer segment |
|
$ |
47,393 |
|
|
$ |
41,559 |
|
|
|
14.0 |
% |
Florist segment |
|
|
43,821 |
|
|
|
44,310 |
|
|
|
(1.1 |
%) |
International segment |
|
|
17,557 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
108,771 |
|
|
$ |
85,869 |
|
|
|
26.7 |
% |
|
|
|
|
|
|
|
|
|
|
First quarter fiscal year 2007 consolidated revenue grew $22.9 million, or 26.7%, to
$108.8 million, compared to revenue of $85.9 million for the same period of fiscal year 2006. The
Company acquired Interflora on July 31, 2006, and, as a result, two months of Interfloras
financial results are included in the first quarter. Interflora, which is reported as the Companys
new international segment, accounted for $17.6 million of this increase in revenue. Growth in the
Companys consumer and florist segments contributed the remaining $5.3 million increase.
The consumer segment achieved revenues of $47.4 million in the first quarter of fiscal year
2007, compared to revenues of $41.6 million in the same period of fiscal year 2006, representing a
14.0% increase. Growth was driven by an 11.5% increase in order volumes, which totaled 768,000
during the first quarter of fiscal year 2007 compared to 689,000 orders in the same period of
fiscal year 2006. Average order value increased slightly to $60.52 for the first quarter of fiscal
year 2007, compared to $60.31 for the same period of fiscal year 2006. The percentage of Internet
orders increased slightly to 88.1% from 88.0% in the first quarter of fiscal year 2006. In
addition, the consumer segment revenues include advertising revenues, which are related to a
program the Company initiated in December 2005.
Florist segment revenues are comprised of products and service offerings to FTD members and
other retail locations offering floral products. The florist segment achieved revenues of $43.8
million in the first quarter of fiscal year 2007, compared to revenues of $44.3 million in the same
period of fiscal year 2006. Revenues in the first quarter of the prior fiscal year included
approximately $2.1 million of revenue related to Renaissance Greetings Cards, Inc. (Renaissance).
The Company sold substantially all the assets and certain liabilities of Renaissance in December
2005. Excluding $2.1 million of revenue in the prior year related to Renaissance, revenues from the
florist segment grew 3.9% over the same period of the prior year
primarily as a result of an increase in the number of technology
systems sold and an increase in sales related to the Companys online services.
The international segment achieved revenues of $17.6 million in the first quarter of fiscal
year 2007, driven by sales volume in Interfloras consumer and florist businesses. Consumer orders
in the international segment totaled 229,000 with an average order value of $62.84. Internet orders
comprised 69.7% of the total order volume.
13
Total gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Consumer segment |
|
$ |
13,946 |
|
|
$ |
11,101 |
|
|
|
25.6 |
% |
Florist segment |
|
|
29,357 |
|
|
|
29,472 |
|
|
|
(0.4 |
%) |
International segment |
|
|
5,561 |
|
|
|
|
|
|
|
N/A |
|
Corporate |
|
|
(516 |
) |
|
|
(562 |
) |
|
|
(8.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
48,348 |
|
|
$ |
40,011 |
|
|
|
20.8 |
% |
|
|
|
|
|
|
|
|
|
|
Gross profit increased by $8.3 million, or 20.8% to $48.3 million for the first quarter
of fiscal year 2007, compared to gross profit for the first quarter of fiscal year 2006 of $40.0
million. Total gross margin decreased to 44.4% for the first quarter of fiscal year 2007 from 46.6%
for the same period in fiscal year 2006.
Gross profit associated with the consumer segment increased by $2.8 million, or 25.6%, to
$13.9 million for the first quarter of fiscal year 2007, compared to $11.1 million for the first
quarter of fiscal year 2006. Gross margin for the consumer segment increased to 29.4% for the first
quarter of fiscal year 2007, compared to 26.7% for same period in fiscal year 2006, primarily due
to an increase in advertising revenue.
Gross profit associated with the florist segment decreased by $0.1 million, or 0.4%, to $29.4
million for the first quarter of fiscal year 2007, compared to $29.5 million for the first quarter
of fiscal year 2006. Gross margin for the florist segment increased to 67.0% for the first quarter
of fiscal year 2007, compared to 66.5% for the same period in fiscal year 2006, primarily due to
the sale of Renaissance, a lower margin business.
For the first quarter of fiscal year 2007, gross profit associated with the international
segment was $5.6 million and gross margin for the international segment was 31.7%.
Gross profit related to corporate activities remained relatively consistent at $0.5 million
for the first quarter of fiscal year 2007, compared to $0.6 million for the first quarter of fiscal
year 2006. These costs are related to the development and maintenance of internal corporate
technology platforms supporting the florist and consumer segments.
Advertising and selling costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Consumer segment |
|
$ |
4,886 |
|
|
$ |
4,532 |
|
|
|
7.8 |
% |
Florist segment |
|
|
10,475 |
|
|
|
13,119 |
|
|
|
(20.2 |
%) |
International segment |
|
|
1,203 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Total advertising and selling costs |
|
$ |
16,564 |
|
|
$ |
17,651 |
|
|
|
(6.2 |
%) |
|
|
|
|
|
|
|
|
|
|
Advertising and selling costs decreased $1.1 million, or 6.2%, to $16.6 million for the
first quarter of fiscal year 2007, compared to $17.7 million for the first quarter of fiscal year
2006. As a percentage of revenue, advertising and selling costs decreased to 15.2% for the first
quarter of fiscal year 2007 compared to 20.6% for the first quarter of fiscal year 2006.
Advertising and selling costs associated with the consumer segment increased $0.4 million, or
7.8%, to $4.9 million for the first quarter of fiscal year 2007, compared to $4.5 million for the
first quarter of fiscal year 2006. However, advertising and selling costs as a percentage of
revenue associated with the consumer segment decreased to 10.3% for the first quarter of fiscal
year 2007 compared to 10.9% for the first quarter of fiscal year 2006. This decrease was primarily
due to a decrease in online marketing costs per order.
14
Advertising and selling costs associated with the florist segment decreased $2.6 million, or
20.2%, to $10.5 million for the first quarter of fiscal year 2007 compared to $13.1 million for the
first quarter of fiscal year 2006. The decrease in advertising and selling costs was primarily due
to the sale of Renaissance and planned cost reductions related to more efficient member marketing
programs.
Advertising and selling costs associated with the international segment totaled $1.2 million,
or 6.9% of revenue for the first quarter of fiscal year 2007.
General and administrative costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Consumer segment |
|
$ |
4,478 |
|
|
$ |
3,228 |
|
|
|
38.7 |
% |
Florist segment |
|
|
2,265 |
|
|
|
2,284 |
|
|
|
(0.8 |
%) |
International segment |
|
|
3,159 |
|
|
|
|
|
|
|
N/A |
|
Corporate |
|
|
6,508 |
|
|
|
6,417 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative costs |
|
$ |
16,410 |
|
|
$ |
11,929 |
|
|
|
37.6 |
% |
|
|
|
|
|
|
|
|
|
|
General and administrative costs increased by $4.5 million, or 37.6%, to $16.4 million
for the first quarter of fiscal year 2007, compared to $11.9 million for the first quarter of
fiscal year 2006.
General and administrative costs associated with the consumer segment increased by $1.3
million, or 38.7%, to $4.5 million for the first quarter of fiscal year 2007, compared to $3.2
million for the first quarter of fiscal year 2006. This increase is primarily due to technology
costs, primarily related to amortization expense associated with technology improvements put in
service over the last year and increased headcount in technology areas, as well as customer service
costs, primarily related to an increase in order volume.
General and administrative costs associated with the florist segment remained consistent at
$2.3 million for the first quarters of fiscal years 2007 and 2006.
General and administrative costs associated with the international segment were $3.2 million
for the first quarter of fiscal year 2007.
Corporate general and administrative costs remained consistent at $6.5 million for the first
quarter of fiscal year 2007, compared to $6.4 million for the first quarter of fiscal year 2006.
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
|
Interest income |
|
$ |
(298 |
) |
|
$ |
(166 |
) |
|
|
79.5 |
% |
Interest expense |
|
|
8,226 |
|
|
|
4,781 |
|
|
|
72.1 |
% |
Other income, net |
|
|
(1,544 |
) |
|
|
(44 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) and expenses |
|
$ |
6,384 |
|
|
$ |
4,571 |
|
|
|
39.7 |
% |
|
|
|
|
|
|
|
|
|
|
Interest income increased to $0.3 million for the first quarter of fiscal year 2007
compared to $0.2 million for the first quarter of fiscal year 2006 primarily due to increased cash
balances.
Interest expense increased by $3.4 million, or 72.1%, to $8.2 million for the first quarter of
fiscal year 2007, compared to $4.8 million for the first quarter of fiscal year 2006. The increase
related to the $1.8 million write-off of unamortized deferred financing costs associated with the
refinancing of the Companys existing credit facility in
15
connection with the Interflora
acquisition, whereby the Company entered into a new senior secured credit facility, as well as an
increase in outstanding indebtedness during the current year period.
Other income increased to $1.5 million for the first quarter of fiscal year 2007, compared to
$44,000 for the first quarter of fiscal year 2006, which primarily related to recognized gains on
foreign currency contracts the Company entered into in connection with the Interflora acquisition.
Liquidity and Capital Resources
As of September 30, 2006, the Companys debt balance totaled $349.5 million, including notes
payable of $23.3 million related to the Interflora acquisition, up from $220.1 million as of June
30, 2006. The Companys principal sources of liquidity are cash from operations and funds available
for borrowing under FTD, Inc.s senior secured credit facility (the 2006 Credit Agreement) that
was entered into on July 28, 2006, which replaced the 2004 senior secured credit facility (the 2004 Credit Agreement) and provides for aggregate
borrowings of up to $225 million, consisting of a seven-year $150.0 million term loan and a
six-year $75.0 million revolving credit facility. As of September 30, 2006, the balance of the term
loan under the 2006 Credit Agreement was $150.0 million. At September 30, 2006, the Company had
$156.0 million outstanding under the 2006 Credit Agreement and $24.7 million of outstanding letters of credit, $23.3 million of which are related to the notes
payable the company entered into in conjunction with the Interflora acquisition. 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 had availability of $44.3 million at September 30, 2006. The
remaining portion of the 2006 Credit Agreement revolving credit facility is available as a letter
of credit sub-facility and as a swing-line facility.
Cash and cash equivalents increased by $2.3 million to $13.3 million at September 30, 2006
from $11.0 million at June 30, 2006.
Net cash used in operating activities was $5.5 million for the three-month period ended
September 30, 2006 and $8.0 million for the three-month period ended September 30, 2005. Net
income, adjusted for non-cash items, continues to be a primary source of funds to finance operating
needs and capital expenditures, repay indebtedness and make other strategic investments.
Net cash used in investing activities was $98.5 million for the three-month period ended
September 30, 2006, which included $96.7 million related to the Interflora acquisition and $1.9
million of capital expenditures, primarily related to continued technology developments and
improvements.
Net cash used in investing activities was $3.3 million for the three-month period ended
September 30, 2005, which related to capital expenditures primarily related to a new call center
which was opened in October 2005 and other technology developments and improvements.
Net cash provided by financing activities was $105.6 million for the three-month period ended
September 30, 2006, which primarily consisted of $150.0 million of proceeds from the 2006 Credit
Agreement, $6.0 million of net proceeds from the revolving credit facility, which was used to fund
working capital needs, primarily offset by $50.0 million of repayments under the 2004 Credit
Agreement.
Net cash provided by financing activities was $4.8 million for the three-month period ended
September 30, 2005, which consisted of net proceeds from the revolving credit facility, which was
used to fund working capital needs, partially offset by scheduled principal repayments under the
2004 Credit Agreement.
On October 25, 2005, the Companys Board of Directors authorized a share repurchase program
totaling $30 million, effective through September 30, 2007. These purchases may be made from time
to time in both open markets and private transactions, dependent upon market and other conditions.
The Company may repurchase shares pursuant to a 10b5-1 plan, which would generally permit the
Company to repurchase shares at times when it might otherwise be prevented from doing so under U.S.
federal securities laws. No shares were repurchased under this program during the first quarter of
fiscal year 2007.
16
Critical Accounting Policies and Estimates
The Companys consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the
reporting period.
Management bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities. Actual results may
differ from these estimates under different assumptions or conditions.
See the information concerning the Companys critical accounting policies included under Note
1 and Item 7 in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2006 as
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 September 30, 2006, $156.0 million of debt was outstanding under the
2006 Credit Agreement and is subject to variable interest rates. Borrowings under the 2006 Credit
Agreement are secured by first priority security interests in, and mortgages on, substantially all
of the Companys tangible and intangible assets. The Companys results of operations are affected
by changes in market interest rates on these borrowings. Approximately 44.6% (or $156.0 million
aggregate principal amount) of the Companys $349.5 million aggregate principal amount of
indebtedness as of September 30, 2006 bore interest at variable rates. A 1% increase in the
variable interest rate would result in additional annual interest expense of approximately $1.6
million.
Through the first quarter of fiscal year 2007, the Company was exposed to foreign currency
exchange rate risk with respect to the British pound, the Canadian dollar and the Euro. The
resulting foreign currency exchange adjustments are included in the other comprehensive income
caption on the consolidated statements of operations and comprehensive income.
In conjunction with the acquisition of Interflora, the Company entered into forward exchange
contracts totaling £61.8 million to hedge the acquisition price. A contract in the amount of £51.0
million was settled on July 28, 2006 and resulted in a gain of $1.4 million, which has been
recorded in other income, net within the Condensed Consolidated Statements of Operations and
Comprehensive Income. The remaining forward contracts include a contract for £10 million, expected
to be settled during the fourth quarter of fiscal year 2007 and a contract for £0.8 million,
expected to be settled during the first quarter of fiscal year 2008. The settlement of these
contracts coincide with the due dates of the notes payable related to the acquisition of
Interflora.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation for the period covered by this Quarterly Report on Form 10-Q, the
Chief Executive Officer and the Chief Financial Officer of FTD Group, Inc. have concluded that, as
of the end of such period, FTD Group, Inc.s disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Exchange Act) are effective to ensure that information
required to be disclosed by FTD Group, Inc. in the reports that it files or submits under the
Exchange Act are recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms.
Changes in Internal Control over Financial Reporting
The Company acquired Interflora on July 31, 2006. As a result of the acquisition, the
Companys internal controls over financial reporting with respect to the consolidation of its
financial statements has changed. Management of the Company expects that ongoing processes and
controls related to consolidation will continue to be modified during fiscal year 2007. There are
no other changes in internal control over financial reporting that occurred during the period that
have materially affect or are reasonably likely to materially affect the Companys internal control
over financial reporting.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various claims and lawsuits and other matters arising in the normal
course of business. In the opinion of management of the Company, although the 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
The Companys business, financial condition, results of operations or cash flows can be
impacted by a number of factors, any one of which could cause actual results to vary materially
from anticipated future results. See the discussion in Forward-Looking Information, Risk
Factors and elsewhere in the most recent Annual Report on Form 10-K and in Forward-Looking
Information and elsewhere in this Quarterly Report on Form 10-Q. There have been no material
changes to such risk factors since June 30, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) On July 31, 2006, in connection with the acquisition of Interflora, the Company sold 216,374
shares of its common stock (from its treasury), to certain senior managers of Interflora, in
exchange for shares of common stock of FTD, Inc. These shares of common stock of FTD, Inc. were
acquired by the Interflora senior managers in exchange for 216,374 preferred shares of FTD UK
Holdings Limited. These preferred shares of FTD UK Holdings Limited were acquired by the Interflora
senior managers as partial consideration for their equity securities in Interflora.
The 216,374 shares of common stock of FTD Group, Inc. were valued at $14.77 per share,
representing the closing price of such shares on the New York stock exchange on July 28, 2006, for
aggregate consideration of $3.2 million.
These shares of common stock of FTD Group, Inc. were issued in reliance upon the exemption
contained in Section 4(2) of the Securities Act of 1933, as amended, in reliance, among other
factors, upon various representations and warranties made by the senior managers of Interflora with
respect to their investment intentions, investment experience, financial capabilities and other
matters.
(c) On October 25, 2005, the Companys Board of Directors authorized a share repurchase program
totaling $30.0 million, effective through September 30, 2007. These purchases may be made from time
to time in both open market and private transactions, dependent upon market and other conditions.
The Company may repurchase shares pursuant to a 10b5-1 plan, which would generally permit the
Company to repurchase shares at times when it might otherwise be prevented from doing so under U.S.
federal securities laws. There were no purchases made by, or on behalf of, the Company, or shares
of the Companys common stock during the three-month period ended September 30, 2006.
Item 6. Exhibits
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
|
|
32 |
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FTD Group, Inc.
|
|
Date: November 8, 2006 |
By: |
/S/ BECKY A. SHEEHAN
|
|
|
|
Becky A. Sheehan |
|
|
|
Chief Financial Officer
(principal financial officer) |
|
|
19
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description of Document |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002. |
|
|
|
32
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
20