<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission File Number
33-88628
FLORISTS' TRANSWORLD DELIVERY, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-0546960
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
29200 NORTHWESTERN HIGHWAY
SOUTHFIELD, MICHIGAN 48034
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(Address of Principal Executive Offices) (Zip Code)
(810) 355-9300
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(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Action
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 X No
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As of November 8, 1996, there were outstanding 100 shares of the
Registrant's common stock, par value $.01 per share, which is the only class of
common stock of the Registrant.
1
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FLORISTS' TRANSWORLD DELIVERY, INC.
INDEX
PAGE
----
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Financial Position at
September 30, 1996 and June 30, 1996 3
Consolidated Financial Statements for the Three Months
Ended September 30, 1996 and 1995:
Consolidated Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
September 30,
1996 June 30,
(Unaudited) 1996
----------- ------------
ASSETS (In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $26,585 $26,536
Accounts receivable, less allowance for doubtful
accounts of $1,536 at September 30, 1996 and
$1,412 at June 30, 1996 25,145 24,068
Inventories, principally finished goods, net 13,903 12,467
Other current assets 9,275 7,286
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Total current assets 74,908 70,357
Property and equipment, less accumulated depreciation
of $17,687 at September 30, 1996 and $15,158 at
June 30, 1996 33,817 35,328
Other noncurrent assets:
Other noncurrent assets 6,673 6,856
Goodwill and other intangible assets, less accumulated
amortization of $5,719 at September 30, 1996 and
$4,874 at June 30, 1996 82,569 83,414
------- -------
Total other noncurrent assets 89,242 90,270
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Total assets $197,967 $195,955
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $9,739 $8,496
Accounts payable 28,155 28,357
Accrued member incentive programs 12,947 12,949
Accrued severance and related costs 1,008 1,319
Other accrued liabilities 10,732 8,339
Unearned income and members' deposits 12,279 10,584
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Total current liabilities 74,860 70,044
Long-term debt 85,113 87,781
Employee benefit obligations 11,619 11,223
Minority interest in subsidiary 159 171
Stockholder's equity:
Common stock
Paid-in capital 33,000 33,000
Retained deficit (6,784) (6,264)
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Total stockholder's equity 26,216 26,736
------- -------
Total liabilities and stockholder's equity $197,967 $195,955
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
(In Thousands)
Revenues:
Marketplace $13,639 $14,900
Clearinghouse 6,627 7,307
Mercury Network 8,497 7,221
Other 8,305 7,108
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Total revenues 37,068 36,536
----------- -----------
Costs:
Products and distribution 9,461 10,002
Floral order transmissions and
processing services 7,081 6,660
Member programs 6,811 6,309
----------- -----------
Total costs of goods
sold & services provided 23,353 22,971
Selling, general and administrative 11,278 9,908
----------- -----------
Income from operations 2,437 3,657
Interest (income) (344) (289)
Interest expense 3,283 3,449
----------- -----------
Income (loss) before income
taxes and minority interest (502) 497
Income taxes 32 404
Minority interest in loss of
subsidiary (11) (7)
----------- -----------
Net income (loss) ($523) $100
=========== ===========
See accompanying notes to consolidated financial statements.
4
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FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
------------ ------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $2,935 $720
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,386) (495)
-------- -------
Net cash used in investing activities (1,386) (495)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,503) (1,001)
-------- -------
Net cash used in financing activities (1,503) (1,001)
Effect of exchange rate changes on cash 3 10
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NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 49 (766)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 26,536 24,375
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END OF PERIOD $26,585 $23,609
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $931 $1,010
======== =======
Income taxes paid $100 $75
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
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FLORISTS' TRANSWORLD DELIVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information pursuant to the rules and
regulations of the Securities and Exchange Commission and do not contain all
information included in the audited consolidated financial statements and
notes for the year ended June 30, 1996. In the opinion of Company
management, all adjustments necessary for a fair presentation of the
financial position and results of operations have been included (and any
such adjustments are of a normal, recurring nature, except as disclosed
herein). Due to seasonal variations in the Company's business, operating
results for the three month period ended September 30, 1996 are not
necessarily indicative of the results that might be expected for the year
ended June 30, 1997.
Certain amounts in the September 30, 1995 consolidated condensed financial
statements have been reclassified to conform to the current year
presentation.
NOTE 2. Accrued Severance and Related Costs
The following table reflects the changes to the severance reserve for
the three months ended September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Remaining
Balance at Liability as of
June 30, 1996 Costs Paid September 30, 1996
------------- ---------- ------------------
<S> <C> <C> <C>
Severance
benefits $ 1,050 $ 310 $ 740
Relocation costs 79 0 79
Other 190 1 189
------------- ---------- ------------------
Total $ 1,319 $ 311 $ 1,008
============= ========== ==================
</TABLE>
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause actual
results to differ materially from these forward-looking statements,
including, without limitation, the effect of economic and market conditions
and the impact of competitive activities.
The following is a discussion of changes in the Company's financial
condition and results of operations for the three month period ended
September 30, 1996 compared with the corresponding period of fiscal 1996.
The Company generates its revenue from four principal areas of operation.
Marketplace is the Company's wholesale supplier of non-perishable hardgoods to
retail florists in North America. The Company's Clearinghouse operation provides
order billing and collection services to sending and receiving florists, and the
Company receives a percentage of the sales price for the service. Mercury
Network is the Company's proprietary telecommunications network used by florists
to transmit floral orders through Florists' Transworld Delivery, Inc. or
competing clearinghouses. Other revenue is derived from the Direct Access
direct marketing business, Advantage software, credit card authorization and
processing, publications and an after hours order taking service.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue increased by $0.5 million, or 1.5%, to $37.0 million for the
three months ended September 30, 1996, compared to $36.5 million for the
three months ended September 30, 1995. Mercury Network revenue increased
$1.3 million due to increased console rental, order transmissions revenue
and Advantage floral business systems sales. Other revenue experienced a
net increase of $1.2 million as a result of increased Direct Access order
volume and additional listings in the FTD Directory. Marketplace revenue
experienced a net decrease of $1.3 million primarily due to lower sales of
holiday containers and non-branded everyday products offset by sales of gourmet
foods and imprinted products. Clearinghouse revenue decreased by $0.7 million
as a result of a decline in the volume of floral orders cleared through FTD.
The cost of goods sold and services provided increased by $0.4 million,
or 1.7%, to $23.4 million for the three months ended September 30, 1996 from
$23.0 million for the three months ended September 30, 1995. The change
resulted primarily from increased costs associated with the sale of Advantage
floral business systems. Lower costs of products and distribution
corresponding to the decline in Marketplace sales partially offsets this
increase. As a percent of revenue, cost of goods sold and services provided
was 63.0% and 62.9% for the three month periods ended September 30, 1996 and
1995, respectively.
7
<PAGE> 8
Selling, general and administrative expenses increased by $1.4 million,
or 13.8%, to $11.3 million for the three months ended September 30, 1996
from $9.9 million for the three months ended September 30, 1995.
Advertising and promotional expenditures increased by $0.8 million for the
three months ended September 30, 1996 over the same period in the prior year
as a result of the Company's advertising activities related to its member
incentive program, which did not commence until the second quarter of fiscal
1996. In addition, general and administrative expenses increased by $0.6
million for the three months ended September 30, 1996 over the same period
in the prior year primarily due to expenses resulting from the Company's
relocation and/or consolidation efforts, recruiting fees and other costs.
Interest expense for the three months ended September 30, 1996 was $3.3
million as compared to $3.4 million for the comparable period in the prior
year. The decrease was attributable to lower interest rates and scheduled
principal payments which reduced the debt outstanding in accordance with the
terms of the Company's debt agreements.
Income taxes for the three months ended September 30, 1996 were $32
thousand compared to $0.4 million for the comparable period in the prior
year. The decrease in tax expense resulted from the decrease in taxable
income.
Net loss was $0.5 million for the three months ended September 30, 1996
compared to net income of $0.1 million for the three months ended September
30, 1995. The change is primarily attributable to the increased advertising
expenditures and lower gross profit from Marketplace product sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company has two sources of long-term debt consisting of a bank
credit agreement and senior subordinated notes. The bank credit agreement
consists of $45.0 million in term loans and a $25.0 million undrawn
revolving credit facility. The term loans bear interest at floating rates
and are to be repaid over five years. The Company has repaid $1.5 million
of these loans in the three months ended September 30, 1996 and $7.7 million
since January 1, 1995. No borrowings were made under the
revolving credit facility during the three months ended September 30, 1996.
The Company has funded the interest and debt repayments for the bank debt
and the notes through cash flow from operations. The Company has obtained a
waiver under the bank credit agreement deferring compliance with certain
covenants at September 30, 1996. The Company is currently in discussions
with its lenders under the bank credit agreement regarding changes to
certain covenants. Management expects that the Company and such lenders
will enter into an amendment to the bank credit agreement amending such
covenants.
For the three months ended September 30, 1996, cash flow reflected a
net increase in cash of $49 thousand, as compared to a $0.8 million decrease
in cash for the three months ended September 30, 1995.
8
<PAGE> 9
Cash provided by operating activities was $2.9 million for the three
months ended September 30, 1996 compared to $0.7 million for the three
months ended September 30, 1995. The increase resulted primarily from the
timing of receivables settlement due to the timing of the quarter end.
Depreciation and amortization, excluding amortization of deferred financing
costs, was $3.6 million for the three months ended September 30, 1996 and $3.5
million for the three months ended September 30, 1995.
Cash used in investing activities, consisting solely of capital
expenditures, was $1.4 million for the three months ended September 30, 1996
compared to $0.5 million for the three months ended September 30, 1995.
Cash used in financing activities, reflecting the payment of principal on
the term loans, was $1.5 million for the three months ended September 30,
1996 compared to $1.0 million for the three months ended September 30, 1995.
In September 1996, based on a preliminary study of the Company's
defined benefit pension plan, the Company determined that it will
discontinue accruing benefits under the plan effective December 31, 1996.
The Company expects to replace benefits under the current plan with a
program which partially matches employees' contributions to a 401(k)
program. While the impact of this change has not been fully determined, it
is anticipated that implementation of the new plan will: (i) reduce
operating expenses; (ii) reduce accrued pension obligations; and (iii)
reduce cash payments required to fund the retirement benefit plan.
9
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On September 25, 1996, the following people were elected as directors of the
Company by stockholder written consent: Richard C. Perry (Chairman),
Margaret C. Whitman, Richard W. Boyce, Veronica K. Ho, Gary K. Silberberg,
Gary Claar, William P. Phelan, Mark B. Wolpow, Catherine A. Hickman and
Anthony P. Thonnerieux.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10 Waiver to Credit Agreement, dated as of
September 12, 1996, among FTD Corporation,
the Company, the various lending institutions
party thereto and Bankers Trust Company, as Agent.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1996.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 8th day of November, 1996.
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ Douglas L. Hagemann
------------------------------------
Douglas L. Hagemann
Vice President Finance and Stockholder Relations
(Principal financial officer authorized to sign on
behalf of registrant)
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Paper (P)
or
Exhibit Description Electronic (E)
- ------- ----------- --------------
<S> <C> <C>
10 Waiver to Credit Agreement, dated as of
September 12, 1996, among FTD Corporation,
the Company, the various lending institutions
party thereto and Bankers Trust Company, as Agent. E
27 Financial Data Schedule E
</TABLE>
12
<PAGE> 1
EXHIBIT 10
WAIVER TO CREDIT AGREEMENT
WAIVER (this "Waiver"), dated as of September 12, 1996, among FTD
Corporation ("Holdings"), Florists' Transworld Delivery, Inc. (the
"Borrower"), the lenders party to the Credit Agreement referred to below
(the "Banks"), and Bankers Trust Company, as Agent (in such capacity, the
"Agent"). Unless otherwise defined herein, capitalized terms used herein
shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to
a Credit Agreement, dated as of December 19, 1994 (as amended, modified or
supplemented through the date hereof, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Banks grant the waiver
provided for herein, and the Banks party hereto have agreed to grant the
waiver provided for herein on the terms and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. Effective from and including September 30, 1996 through and
including November 22, 1996, (the "Waiver Termination Date"), the Banks
hereby waive compliance by Holdings and the Borrower with the provisions of
Sections 8.10, 8.11 and 8.14 of the Credit Agreement with respect to the
Test Period ending on September 30, 1996. This Waiver shall be effective
only for the period from September 30, 1996 to and including the Waiver
Termination Date (the "Waiver Period") and shall be of no force or effect at
any other time (it being understood that to the extent any Default or Event
of Default would have arisen under Sections 8.10, 8.11 or 8.14 for the Test
Period ending on September 30, 1996 but for the provisions of this Waiver,
such Default or Event of Default will exist after the Waiver Termination
Date).
2. In order to induce the Banks to enter into this Waiver, each of
Holdings and the Borrower (x) represents and warrants that no Default or
Event of Default exists on the Waiver Effective Date (as defined below),
both before and after giving effect to this Waiver and (y) makes each of the
representations, warranties and agreements contained in the Credit Agreement
or the other Credit Documents on the Waiver Effective Date, both before and
after giving effect to this Waiver (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such date).
<PAGE> 2
3. This Waiver is limited as specified and shall not constitute the
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This waiver may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Credit Parties and the Agent.
5. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE
OF NEW YORK.
6. This Waiver shall become effective on the date (the "Waiver
Effective Date") when each of Holdings, the Borrower and the Required Banks
shall have signed a copy hereof (whether the same or different copies) and
shall have delivered (including by way of telecopier) the same to the Agent
at its Notice Office.
7. At all times during the Waiver Period, all references in the Credit
Agreement and each of the other Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement after giving effect
to this Waiver.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date
first above written.
FTD CORPORATION
By /s/ Scott D. Levin
------------------------------------
Title: Vice President and Secretary
FLORISTS' TRANSWORLD
DELIVERY, INC.
By /s/ Scott D. Levin
-------------------------------------
Title: Vice President, General Counsel
and Secretary
<PAGE> 3
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Christopher Kinslow
----------------------------
Title: Vice President
MICHIGAN NATIONAL BANK
By /s/ Jeffrey W. Billig
----------------------------
Title: Relationship Manager
NBD BANK
By /s/ Teresa A. Kalil
----------------------------
Title: Vice President
COMERICA BANK
By /s/ Phyllis D. McCann
----------------------------
Title: Vice President
HARRIS TRUST AND
SAVINGS BANK
By /s/ Peter J. Dancy
----------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO
By
----------------------------
Title:
CAISSE NATIONAL DE
CREDIT AGRICOLE
By /s/ David Bouhl
----------------------------
Title: First Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATON EXTRACTED FROM (a) FTD INC
SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (b) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,585
<SECURITIES> 0
<RECEIVABLES> 26,681
<ALLOWANCES> 1,536
<INVENTORY> 13,903
<CURRENT-ASSETS> 74,908
<PP&E> 51,504
<DEPRECIATION> 17,687
<TOTAL-ASSETS> 197,967
<CURRENT-LIABILITIES> 74,860
<BONDS> 94,852
0
0
<COMMON> 0
<OTHER-SE> 26,216
<TOTAL-LIABILITY-AND-EQUITY> 197,967
<SALES> 13,639
<TOTAL-REVENUES> 37,068
<CGS> 9,461
<TOTAL-COSTS> 34,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,283
<INCOME-PRETAX> (502)
<INCOME-TAX> 32
<INCOME-CONTINUING> (523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
