<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
June 30, 1996 33-88628
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Florists' Transworld Delivery, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-0546960
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29200 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices)
Registrant's telephone number, including area code (810) 355-9300
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
None
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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 X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
None of the registrant's voting stock was held by nonaffiliates of the
registrant as of September 25, 1996. As of September 25, 1996, 100 shares of
the registrant's Common Stock were outstanding.
<PAGE> 2
PART I
ITEM 1. BUSINESS
OVERVIEW
Florists' Transworld Delivery, Inc. (the "Company" or "FTD") is the
world's largest floral services organization based on number of members and
affiliated organizations, as well as the total number of floral orders cleared.
FTD has a membership of approximately 22,000 retail florist shops primarily
in the U.S. and Canada and, through affiliated or related organizations,
approximately 31,000 additional retail florist shops in approximately 140 other
countries. Through these members FTD offers consumers same-day delivery of
high-quality FTD-branded products in the U.S. and Canada and non-branded floral
products throughout most of the world.
FTD is primarily a marketing and technology organization. FTD promotes a
worldwide brand based on the FTD Mercury Man logo, one of the most recognized
corporate logos in the world according to consumer recognition studies, on
behalf of member florists through extensive marketing and advertising programs
on both the national and local level. See "- Marketing and Advertising."
FTD's marketing and advertising programs are primarily funded by revenues from
FTD's Clearinghouse operations. A significant portion of FTD's revenues,
operating income and competitive advantage is derived from FTD's technology
based transaction processing businesses, which include the Mercury Network,
Clearinghouse, Advantage Software and Direct Access. In addition to the
foregoing, FTD's operations include Marketplace and other businesses which
support and enhance the retail florist industry. See "- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
FTD is the successor to the first flowers-by-wire organization founded by
a group of retail florists in the United States in 1910. The Company was the
surviving corporation after the acquisition (the "Acquisition") on December 19,
1994 by FTD Corporation, a Delaware corporation ("FTD Corporation"), of all of
the outstanding equity of Florists' Transworld Delivery Association, a Michigan
non-profit cooperative association (the "Old Association" or the "Acquired
Company"), pursuant to an Agreement and Plan of Merger, dated August 2, 1994
(the "Merger Agreement"), among FTD Corporation, FTD Acquisition Corporation, a
Delaware corporation, and the Old Association. Upon consummation of the
Acquisition, the Company became a wholly-owned subsidiary of FTD Corporation.
Immediately following the Acquisition, the Acquired Company was converted from
a non-profit corporation to a for-profit corporation and renamed "Florists'
Transworld Delivery, Inc."
The Company operates all of the businesses conducted by the Old
Association prior to the Acquisition except for certain trade association
activities which are being conducted by FTD Association, an Ohio non-profit
corporation organized in connection with the Acquisition and structured as a
member-owned trade association ("FTD Association"). Neither FTD Corporation
nor the Company has any ownership interest in FTD Association; however, as
provided in the Merger
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Agreement, the Company and FTD Association have entered into the Mutual Support
Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), which
governs the relationship between the Company and FTD Association. Pursuant to
the Mutual Support Agreement, among other things: (i) existing and future FTD
Association members have the exclusive right, subject to execution of a
Trademark Membership License Agreement with the Company, to use the FTD logo
and other FTD trademarks in connection with retail florist industry operations
in a public area; (ii) all FTD Association members in good standing are
provided access to FTD's Clearinghouse, Mercury Network and certain other FTD
services and products; (iii) the Company's prices to FTD Association members
for specified services will not be increased above those charged on July 1,
1994 for the three years after the Acquisition (except for adjustments for
inflation); (iv) payments by the Company equal to a percentage of the value of
every floral order cleared through FTD's Clearinghouse will be made to FTD
Association; and (v) the Company and FTD Association may designate up to 20%
but not fewer than two individuals to be elected to the other's board of
directors. Unless the context indicates otherwise, all references herein to
"members" or "membership" refer to members of the Old Association prior to
consummation of the Acquisition and, following the Acquisition, the members of
the FTD Association.
In order to partially finance the Acquisition, on December 19, 1994, the
Company sold $60.0 million aggregate principal amount of 14% Senior
Subordinated Notes due 2001 (the "Old Notes"). The Old Notes were exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4 (2) of the Securities Act. The Old Notes were
subsequently exchanged by their holders for identical notes which were
registered under the Securities Act (the "Notes"). Also in connection with the
Acquisition, the Company and FTD Corporation entered into a credit agreement,
dated December 19, 1994 as amended, (the "Bank Credit Agreement"), with Bankers
Trust Company and certain other lenders which provided for $45.0 million in
aggregate principal amount of term loans and a revolving credit facility which
permits the Company to borrow up to $25.0 million to finance working capital
and letter of credit needs.
MARKETING AND ADVERTISING
FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (via television, radio,
magazines and Sunday newspaper supplements) generally promotes FTD florists,
FTD-branded products and Direct Access. FTD coordinates cooperative
advertising on a local basis with participating florists. FTD also provides
member florists with advertising tools such as billboard paper, slicks for
print advertising and television and radio tapes to be tagged with individual
shop information. In addition, FTD provides members with customized direct
mail pieces, in-shop merchandising materials and FTD Floral Selections, a
counter display catalog featuring FTD products for all occasions.
FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements which FTD members clear
through Clearinghouse and components of which are Marketplace's FTD-branded
hardgoods; (ii) feature the FTD Mercury Man logo; and (iii) support the FTD
retail florists generally by encouraging consumers to associate FTD
professional florists with high-quality floral goods and outstanding customer
service.
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OPERATIONS
A typical flowers-by-wire transaction cleared by FTD occurs as follows:
(i) a customer orders flowers through the Sending Florist to be delivered
outside the local delivery area of the Sending Florist; (ii) the Sending
Florist collects payment for the order from the customer; (iii) the Sending
Florist selects the Receiving Florist within the desired locale to fill the
order; (iv) the Sending Florist communicates the order to the Receiving Florist
via telephone, facsimile or the Mercury Network, FTD's proprietary computerized
order transmission system; and (v) the Receiving Florist fills the order by
delivering the requested flowers. Clearinghouse collects the billing
information from either the Mercury Network or the Receiving Florist if the
Mercury Network has not been used and allocates funds among FTD, the Sending
Florist and the Receiving Florist. Generally, orders received by the Receiving
Florist by 2:00 p.m. will be delivered to the recipient the same day. Floral
orders between FTD members are transmitted primarily by FTD's Mercury Network.
FTD was initially formed to encourage flowers-by-wire transactions between
its member florists, but over time FTD has developed a number of additional
services and products that support and enhance the retail floral operations of
its members. Currently, FTD's primary operations are Marketplace,
Clearinghouse, Mercury Network and Other (including Direct Access).
The following table illustrates the percentage of total revenue generated
by FTD's major businesses as a percentage of total revenue for the three fiscal
years ended June 30, 1996:
<TABLE>
<CAPTION>
Revenue: 1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Marketplace 35.4% 37.3% 34.8%
Clearinghouse 25.4 23.8 22.3
Mercury Network 18.1 18.3 20.5
Other (including
Direct Access) 21.1 20.6 22.4
----- ----- -----
Total Revenue 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Marketplace. The Company believes that Marketplace is one of the
largest wholesale suppliers of hardgoods to retail florists in the U.S. based
on total sales. Marketplace products include both FTD-branded and non-branded
holiday and everyday floral arrangement containers and products, as well as
packaging, promotional products and a wide variety of other floral-related
supplies. By capitalizing on FTD's sourcing expertise and volume purchases,
Marketplace is able to provide members with a broad selection of products at
attractive prices.
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Marketplace also enters into promotional partnerships to design, promote
and sell FTD-branded products. To date, FTD has participated in partnerships
with companies such as Gerber Products Company and M&M Mars. For example,
Gerber baby products are included in a baby congratulatory floral arrangement,
and M&M candy is included in a Sweet Surprise floral arrangement. The Company
believes that FTD's large supplier network and brand name recognition make it a
valuable corporate partner for such ventures.
Through Renaissance Greeting Cards, Inc. ("Renaissance"), a subsidiary of
FTD acquired in 1992, FTD produces greeting cards for special occasions and
holidays which are sold in over 7,900 retail outlets nationwide. Renaissance
cards are made using only recycled paper.
Clearinghouse. FTD's Clearinghouse provides billing and collection
services to both the Sending Florist and the Receiving Florist in
flowers-by-wire transactions. In fiscal 1996, FTD cleared floral orders
aggregating in excess of $530 million in retail sales. Revenue from FTD's
Clearinghouse is generated by FTD retaining a percentage of the sales price of
orders sent through Clearinghouse.
FTD is a joint venture participant in Interflora, Inc., a flowers-by-wire
service organization with non-FTD member florists, which allows FTD members to
transmit and receive flowers-by-wire orders outside the Americas.
Mercury Network. The Company believes that FTD's Mercury Network is one
of the largest proprietary telecommunications networks in the world, based on
the total number of participating retail outlets, linking together FTD and
approximately 16,200 of its 22,000 members. FTD's on-line members may use the
Mercury Network to transmit orders cleared through FTD or through competing
clearinghouses and to send messages. In fiscal 1996, the Mercury Network
transmitted approximately 15.5 million orders among U.S. and Canadian members.
The Mercury Network provides FTD with three primary sources of revenue.
First, FTD leases to its subscribers the computer hardware necessary for
network access. Second, FTD charges its subscribers a flat monthly fee for
access to the network. Third, FTD receives a fee (unrelated to Clearinghouse
fees) for each order transmitted over the network.
The Mercury Network is a mainframe based transaction processing system.
FTD also provides Mercury Network subscribers technical support, and, through a
third party, repair and maintenance services.
Direct Access. The Direct Access business offers retail customers the
opportunity to place flowers-by-wire orders directly with FTD by dialing a toll
free number (1-800-SEND-FTD) or through online services such as Compuserve or
the Internet. Revenue from the Direct Access business is generated by FTD's
receipt of a percentage of the sales price for originating the order and a
service charge from the consumer.
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OTHER BUSINESSES
FTD has developed several other businesses to support and enhance its
members' retail floral operations, including computer software, publications,
and credit card authorization and processing services.
Advantage Software. FTD offers members computer software, which operates
on the Mercury computer system, that is customized to the needs of retail
florists. The Advantage Plus software package provides a comprehensive range
of payroll and accounting functions for the retail florist. In addition, the
package was expanded in 1996 with modules which streamline the delivery
process. These modules automatically calculate delivery rates, confirm
accuracy of addresses, build efficient delivery routes, print delivery maps and
capture recipient data for future marketing.
FTD Directory & Toll Free Listings. FTD produces the FTD Directory &
Toll Free Listings ("FTD Directory"), a directory of all current members,
their locations, product ordering information and minimum order amounts. In a
typical flowers-by-wire transaction, the Sending Florist is responsible for
selecting the Receiving Florist within the desired locale. Unless the Sending
Florist has already established a relationship with a particular florist in
that locale, the Sending Florist typically consults FTD Directory to identify a
Receiving Florist. FTD Directory is published five times per year and is
supplied to members in printed form. FTD Directory is also available on
CD-ROM.
Credit Card Authorization and Processing. FTD offers processing of credit
card transactions to participating members. By pooling the credit card
transactions of the participating members, FTD is able to secure more favorable
terms on credit card transactions than members could secure individually.
Credit card authorizations can be obtained by telephone, with a dedicated
authorization terminal, or by using the accounting software offered to retail
florists by FTD. FTD also provides an address verification system to minimize
fraud, as well as statement and adjustment services. Revenue from FTD's credit
card program is generated by a monthly subscriber fee and discounts charged for
transactions.
SEASONALITY
FTD generated 22%, 28%, 27% and 23% of total revenue in the quarters ended
September 30, December 31, March 31 and June 30 of fiscal 1996, respectively.
FTD's revenue typically exhibits a modest degree of seasonality as demonstrated
in fiscal 1996, however, FTD's operating income fluctuates more dramatically
over the course of the fiscal year, with FTD generating substantially all of
its operating income in the fiscal quarters ended September 30 and March 31.
This fluctuation is primarily attributable to (i) increased advertising and
promotional expenditures during the holiday seasons in the fiscal quarters
ending December 31 and June 30 and (ii) a Clearinghouse volume incentive
program, which experiences higher expenses as a result of increased volume
during these quarters. FTD's working capital, cash and short-term borrowings
also fluctuate during the year as a result of the factors set forth above.
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TRADEMARKS
The FTD Mercury Man logo is a registered trademark which distinguishes
FTD's flowers-by-wire services from services offered by others and appears on
the shop window or door of each member. FTD also owns the rights to a number
of other trademarks, including "FTD," "FTDA" and "Florists' Transworld
Delivery" and trademarks for certain floral products, including "Chicken Soup,"
"Especially For You," "Big Hug," "Basket of Love" and "Pick-Me-Up." FTD has
licensed certain of its trademarks, including the FTD Mercury Man logo, to FTD
Association for use with its trade association activities and to the members
who have executed a Trademark Membership License Agreement with FTD.
COMPETITION
There are approximately 47,000 retail florists in the U.S. and Canada.
Because most of these florists are members of at least two of the
flowers-by-wire services operated by FTD and its competitors, competition is
intense. FTD believes that retail florists join clearinghouses and use their
services based on the ability of a service to provide the following benefits:
(i) assistance in building their businesses via national and local marketing
programs; (ii) consumer brand name recognition; (iii) ability to generate a
substantial volume of incoming flowers-by-wire orders and a high-quality
membership to fill orders; (iv) availability of direct financial benefits
including rebates and competitive credit card processing fees; (v) quality and
reliability of clearinghouse and other services; (vi) quality and selection of
attractive branded floral products; and (vii) selection of non-floral products
which allow the florists to provide greater value to consumers. The Company
believes that it competes favorably with other flowers-by-wire services based
on the above criteria.
FTD's Clearinghouse operation has three primary competitors: American
Floral Services, Inc., Teleflora (a division of Roll International, Inc.) and
National Florist Directory, Inc. d/b/a Redbook Florist Services. Each of these
competing services offers some products and services which are comparable to
those offered by FTD. As of the end of fiscal 1996, FTD was the
flowers-by-wire leader based upon total industry clearings.
FTD's Marketplace operation competes in an extremely fragmented industry
against a large number of wholesalers and against Teleflora primarily with
respect to holiday branded products. The Company believes that it has a
competitive advantage in this segment due to its multi-faceted relationship
with retail florists, its depth of product line and its ability to offer
discounted pricing because of FTD's substantial volume purchases.
The primary competitor for the Direct Access business is 800-Flowers.
Several other less significant companies operate in the toll free and online
services markets.
The Company currently is subject to certain operating restrictions
pursuant to the Modified Final Judgment, dated November 13, 1990, of the United
States District court for the Eastern District of Michigan in United States of
America v. Florists' Telegraph Delivery Association, Civ. No. 56-15748, and
United States if America v. Florists' Transworld Delivery Association, Civ. No.
66-28784 (collectively referred to as the "Consent Order"). Among its terms,
the Consent Order
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prohibits the Company from restricting its membership to florists who are not
members of any other clearinghouse. On December 14, 1995, the Consent Order
was modified to provide for, among other things, the extension of the term of
the Consent Order from November 13, 2000 to August 1, 2005.
EMPLOYEES
As of June 30, 1996, FTD employed approximately 515 full-time employees.
FTD considers its relations with its employees to be good. FTD employees are
not currently covered by any collective bargaining agreement.
ITEM 2. PROPERTIES
FTD's principal executive offices, consisting of approximately 126,000
square feet of office space, are owned by FTD and are located in Southfield,
Michigan. FTD also owns approximately 120,000 square feet of office space in
Downers Grove, Illinois where the Mercury Network operations are located. FTD
leases office space through a subsidiary in Sanford, Maine and leases office
space in Boston, Massachusetts. FTD uses independent warehouse and
distribution facilities in California, Ohio and Ontario, Canada for product
distribution.
ITEM 3. LEGAL PROCEEDINGS
FTD is involved in various lawsuits and other matters arising in the
normal course of business. In the opinion of the management of FTD, although
the outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on FTD's financial condition, liquidity or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for the Company's common
equity. As of September 25, 1996, all 100 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), were held by FTD
Corporation.
Prior to the Acquisition, the Acquired Company operated as a non-profit
cooperative association. Under its bylaws the Acquired Company was required
to declare a patronage dividend each year for all of its annual net income
derived from business done with or for members based on
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the quantity or value of business done with each member. Patronage dividends
were distributed in a combination of cash and/or qualified written notice of
allocation. Patronage dividends declared in the period from July 1, 1994 to
the date of the Acquisition amounted to $8,799,296. From the date of the
Acquisition through June 30, 1995, and for the year ended June 30, 1996, the
Company declared and paid no dividends.
Under the terms of its borrowings, the Company may not declare or pay
any dividend or make any distribution (other than dividends or
distributions payable solely in capital stock of the Company) on shares of its
common stock to holders of such common stock if at the time of such proposed
dividend, or immediately after giving effect thereto, certain financial
conditions are not satisfied. Notwithstanding the foregoing, the following,
among other things, is permitted: (1) payments by the Company to or on behalf
of FTD Corporation to fund certain operating expenses of FTD Corporation; (2)
payments by the Company to FTD Corporation pursuant to a tax sharing agreement
between such parties as in effect on December 19, 1994 or any amendment thereto
or replacement agreement thereof; (3) payments by the Company to FTD
Corporation to fund payments by FTD Corporation for management services
provided to the Company; (4) payments of dividends from the proceeds of a
public equity offering by the Company or FTD Corporation (if the proceeds are
distributed to the Company), subject to restrictions; and (5) payments by the
Company to FTD Corporation to effect certain stock repurchases by FTD
Corporation.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical data of the Acquired
Company for each fiscal year in the three year period ended June 30, 1994 and
the period from July 1, 1994 to December 18, 1994 and of FTD for the period
December 19, 1994 to June 30, 1995 and the year ended June 30, 1996. The
selected historical balance sheet and statement of operations data as of and
for each fiscal year in the three year period ended June 30, 1994 were derived
from the audited consolidated financial statements of the Acquired Company.
The Acquisition was consummated on December 19, 1994. The selected historical
statement of operations data for the period from July 1, 1994 to December 18,
1994 and the period from December 19, 1994 to June 30, 1995, the year ended
June 30, 1996, and the balance sheet data as of June 30, 1996 and 1995 were
derived from the audited consolidated financial statements of FTD. The
information contained in this table should be read in conjunction with Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the year ended June
30, 1994 and the period July 1, 1994 through December 18, 1994 of FTD (Acquired
Company) and for the period December 19, 1994 through June 30, 1995, and for
the year ended June 30, 1996, of FTD, including the notes thereto, appearing
elsewhere in this Form 10-K.
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<TABLE>
<CAPTION>
Acquired Company
-------------------------------------------------
December 19,
July 1 1994
through through Year ended
Year ended June 30, December June June
----------------------------------- 18, 30, 30,
1992 1993 1994 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Statement of Operations Data:
Marketplace. ........................... $ 56,194 $ 63,606 $ 58,987 $ 28,556 $ 35,460 $ 57,924
Clearinghouse .......................... 46,090 44,717 42,386 16,093 24,738 37,070
Mercury Network 22,465 27,596 30,113 13,865 17,618 34,138
Other .................................. 30,751 33,276 35,074 16,818 18,702 37,123
-------- -------- -------- ------- -------- --------
Total revenue ......................... 155,500 169,195 166,560 75,333 96,518 166,255
Cost of goods sold and services
provided .............................. 96,446 103,622 102,260 49,109 58,567 104,386
Selling, general and administrative .... 53,290 61,073 57,625 28,684 30,669 58,337
-------- -------- -------- ------- -------- --------
Income (loss) from operations ......... 5,764 4,500 6,675 (2,460) 7,282 3,532
Interest (income) ...................... (1,808) (1,236) (2,046) (1,095) (1,710) (1,418)
Interest expense(1) .................... 1,636 2,414 2,841 1,172 7,546 13,498
Income taxes (benefit)(2) .............. 169 42 92 35 1,020 (1,806)
Minority interest ...................... 8 (33)
Cumulative effect of accounting
change(3) 6,277
-------- -------- -------- ------- -------- --------
Net income (loss) ..................... $ 5,767 $ 3,280 $ (488) $(2,572) $ 17 $ (6,709)
======== ======== ======== ======= ======== ========
Other Data:
Depreciation and amortization .......... $ 6,566 $ 9,043 $ 10,144 $ 4,911 $ 6,525 $ 14,231
Capital expenditures ................... 20,153 18,200 8,134 1,413 3,082 4,950
Ratio of earnings to fixed charges(4) .. 3.4x 2.0x 2.9x -- 1.2x --
Operating Data (end of period):
Number of member locations ............. 24,672 24,072 23,218 22,828 22,007
Number of Mercury Network
terminals installed ................... 16,669 16,698 16,648 16,859 16,238
Balance Sheet Data (end of period):
Working capital ........................ $ 14,343 $ 12,581 $ 16,918 $ 4,906 $ 314
Total assets ........................... 115,230 125,816 135,506 203,681 195,955
Long-term debt, including current
portion ............................... 24,887 33,746 33,463 100,757 96,277
Total equity ........................... 40,642 40,521 36,216 33,440 26,736
</TABLE>
- ------------------------
(1) Interest expense in fiscal 1992 and 1993 is net of $179 and $185 of
interest capitalized as construction in progress, respectively.
(2) Taxes on income for the fiscal years ended June 30, 1992 through June 30,
1994 and the period July 1 through December 18, 1994 are generally
applicable to the Acquired Company's Canadian operations. During these
periods, the Acquired Company conducted substantially all of its business
activities as a member-owned non-profit cooperative association and,
accordingly, no provision for U.S. income taxes was required. Taxes on
income for the period December 19, 1994 through June 30, 1995 and for the
year ended June 30, 1996 represent operations after conversion from a
cooperative association to a for-profit corporation, which resulted in
greater U.S. taxable income (loss).
(3) Effective July 1, 1993, the Acquired Company and its consolidated
subsidiaries adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
for its unfunded post-retirement health care program. See note 8 to the
consolidated financial statements of the Company.
(4) In calculating the ratio of earnings to fixed charges, earnings consists
of net income prior to income taxes, minority interest and cumulative
effect of accounting change, plus fixed charges. Fixed charges consist of
interest expense and the component of rental expense believed by
management to be representative of the interest factor thereon. Earnings
for the period July 1 through December 18, 1994 were insufficient to cover
fixed charges by $2,537. Earnings for the year ended June 30, 1996 were
insufficient to cover fixed charges by $8,547.
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ITEM 7. 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.
EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS
The Acquisition was consummated on December 19, 1994. Accordingly, the
results of operations from December 19, 1994 through June 30, 1995 and for the
year ended June 30, 1996 represent those of FTD and its consolidated
subsidiaries. Results of operations prior to December 19, 1994 are those of the
Acquired Company. The Acquisition generally affected FTD's results of
operations as follows: (i) certain trade association activities previously
conducted by FTD are being conducted by FTD Association; (ii) immediately
following the consummation of the Acquisition, the Company was converted from a
non-profit cooperative association owned by its members to a for-profit
corporation; (iii) in connection with the Acquisition, FTD recorded a $3.9
million liability for the costs of termination benefits and other expenses
associated with FTD's employee headcount reduction and the planned
consolidation of FTD's data processing facilities; (iv) as a result of the
Acquisition, FTD's balance sheet carries significant goodwill; (v) certain
provisions of the Mutual Support Agreement may impact, among other things,
product pricing in transactions with FTD Association members and national
advertising expenditures; and (vi) the Company has implemented or plans to
implement several cost reduction strategies, including a reduction in costs
related to the Company's Board of Directors, the elimination of costs
associated with trade activities of the Old Association and a reduction in
various general and administrative expenses of the Old Association (offset by
additional costs related to the new management team and out-sourcing certain
functions). Because of the elements of uncertainty inherent in any future event
and the possibility of reevaluation and alteration as elements of the Company's
cost reduction strategy are implemented, there can be no assurance that such a
cost reduction strategy will be successfully implemented, in whole or in part,
or that such cost reductions will be achieved in the time frame expected, if at
all. Finally, the Company expects to utilize any reduced costs discussed
above, along with plans to increase consumer demand through a strengthened FTD
brand, to offset certain increased annual costs related to the Acquisition,
including increased interest expense, amortization of deferred financing costs
and original issue discount, amortization of goodwill and other intangible
assets, and management fees and other expenses that were not incurred
historically.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Revenue decreased by $5.6 million, or 3.3%, to $166.3 million for the
year ended June 30, 1996, compared to $171.9 million for the year ended June
30, 1995. The decline in revenue was partly due to the elimination of $2.7
million in revenue from trade association activities in the prior
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<PAGE> 12
comparable period which, since the Acquisition, have no longer been conducted
by the Company. The balance of the decline in revenue was the net result of
decreases in Marketplace and Clearinghouse, partially offset by Mercury Network
and Other revenue.
Marketplace revenue decreased by $6.1 million, or 9.5%, to $57.9
million for the year ended June 30, 1996 compared to $64.0 million for the year
ended June 30, 1995. The decrease from the prior year was the result of lower
sales of holiday, seasonal and non-branded everyday containers. This was
partially offset by increased sales of the expanded perishables product line
and FTD branded everyday products. Marketplace revenue was 34.8% and 37.3% of
total revenue for the years ended June 30, 1996 and 1995, respectively.
Clearinghouse revenue decreased by $3.7 million, or 9.2%, to $37.1
million for the year ended June 30, 1996 from $40.8 million for the year ended
June 30, 1995. This was the net result of a decline in the volume of floral
orders cleared through FTD and a 3.1% increase in the average revenue per order
in accordance with overall industry trends. The Company believes the decline
in the volume of orders cleared by FTD is due to competition from other
clearinghouse services, and the general decline in industry clearings which has
resulted from the general decline in the market share of retail florists.
Clearinghouse revenue was 22.3% and 23.8% of total revenue for the years ended
June 30, 1996 and 1995, respectively.
Mercury Network revenue increased by $2.6 million, or 8.4%, to $34.1
million for the year ended June 30, 1996 from $31.5 million for the year ended
June 30, 1995. An increase in terminal leasing revenue, order transmission
income and equipment sales were the major factors in the revenue increase.
Mercury Network revenue was 20.5% and 18.3% of total revenue for the years
ended June 30, 1996 and 1995, respectively.
Excluding the trade association related revenues from the prior year
discussed above, Other revenue experienced a net increase of $4.3 million, or
13.1%, to $37.1 million for the year ended June 30, 1996 from $32.8 million
for the year ended June 30, 1995. This increase was primarily due to growth in
the order volume of the Direct Access business and in the volume of listings in
the FTD Directory. Other revenue was 22.4% and 20.6% of total revenue for the
year ended June 30, 1996 and 1995, respectively.
The cost of goods sold and services provided decreased by $3.3 million,
or 3.1%, to $104.4 million for the year ended June 30, 1996 from $107.7 million
for the year ended June 30, 1995. The decrease in cost of goods sold and
services provided is primarily due to a $6.2 million reduction in costs for
products and distribution related to the lower Marketplace sales volume and a
$1.8 million decrease due to lower costs of member programs which have not been
conducted by the Company since the Acquisition. Offsetting these decreases was
a depreciation expense increase of $1.1 million from the prior year primarily
due to computer hardware and software acquisitions. Other offsetting cost
increases resulted from the increase in Direct Access order volume, additional
FTD Directory costs, field service costs and Mercury Network product and other
costs. As a percentage of revenue, cost of goods sold and services provided
remained relatively constant, with an increase to 62.8% for the year ended June
30, 1996 from 62.7% for the year ended June 30, 1995.
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<PAGE> 13
Selling, general and administrative expenses decreased by $1.0 million,
or 1.7%, to $58.3 million for the year ended June 30, 1996 from $59.3 million
for the year ended June 30, 1995. Several factors contributed to the net
decrease: (i) non-recurring Acquisition related costs of $4.1 million were
incurred by the Company during the year ended June 30, 1995; (ii) the
elimination of approximately $1.3 million in costs of certain trade association
activities in fiscal 1995 which, since the Acquisition, have not been conducted
by the Company; (iii) various overhead reductions of $0.8 million affecting
promotional costs; (iv) advertising activities related to the Company's member
incentive program which was implemented during the year ended June 30, 1996
which amounted to $4.7 million; and (v) amortization of goodwill and other
intangibles increased by $1.8 million for the year ended June 30, 1996 from the
prior comparable period which included a partial year of amortization. Selling,
general and administrative expenses increased, as a percent of revenue, to
35.1% from 34.5% for the year ended June 30, 1996 compared to the comparable
period in 1995.
Interest income for the year ended June 30, 1996 and 1995 was $1.4
million and $2.8 million, respectively. The decrease is attributable to lower
average invested cash due to cash utilized to effect the Acquisition. Interest
expense for the year ended June 30, 1996 was $13.5 million as compared to $8.7
million in the prior year. The increase of $4.8 million resulted from a full
year of interest on the debt in fiscal 1996 versus a partial year of interest
on the debt in fiscal 1995. See "- Liquidity and Capital Resources."
Income taxes for the year ended June 30, 1996 reflect a benefit of $1.8
million compared to an expense of $1.1 million for the comparable period in the
prior year. The expense in the prior year was due to the Company's conversion
from a cooperative association to a for-profit corporation on December 19,
1994, the date of the Acquisition, resulting in recognition of primarily
deferred tax expense for the period from December 19, 1994 through June 30,
1995. Income tax expense prior to December 19, 1994 was entirely related to
the Old Association's Canadian operations. The tax benefit for the year ended
June 30, 1996 represents the amount of deferred tax benefit recognized as a
result of the pretax loss incurred for the year.
As a result of the factors described above, a net loss of $6.7 million
resulted for the year ended June 30, 1996, an increase of $4.5 million from a
net loss of $2.2 million for the year ended June 30, 1995. The change is
primarily attributable to increases in interest expense, goodwill and other
intangibles amortization and an offsetting tax benefit.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Revenue increased by $5.3 million, or 3.2%, to $171.9 million for the
year ended June 30, 1995, compared to $166.6 million for the year ended June
30, 1994. The increase in revenue was a result of increases in Marketplace,
Mercury Network and Other revenue, partially offset by a decline in
Clearinghouse revenue.
Marketplace revenue increased by $5.0 million, or 8.5%, to $64.0
million for the year ended June 30, 1995 compared to $59.0 million for the year
ended June 30, 1994. The increase in revenue was primarily the result of
increased sales of non-branded holiday seasonal containers and other utility
containers and goods. Marketplace revenue was 37.3% and 35.4% of total revenue
for the years ended June 30, 1995 and 1994, respectively.
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<PAGE> 14
Clearinghouse revenue decreased by $1.6 million, or 3.7%, to $40.8
million for the year ended June 30, 1995 from $42.4 million for the year ended
June 30, 1994. This was the result of a decline in the volume of floral orders
cleared through FTD partially offset by a 3.6% increase in the average revenue
per order, in accordance with overall industry trends. The Company believes
the decline in the volume of orders cleared by FTD is due to the general
decline in industry clearings (which is attributable to the general decline in
the market share of retail florists), as well as competition from other
clearinghouse services. Clearinghouse revenue was 23.8% and 25.4% of total
revenue for the years ended June 30, 1995 and 1994, respectively.
Mercury Network revenue increased by $1.4 million, or 4.5%, to $31.5
million for the year ended June 30, 1995 from $30.1 million for the year ended
June 30, 1994. An increase in terminal leasing revenue was the major factor in
the revenue increase. Mercury Network revenue was 18.3% and 18.1% of total
revenue for the years ended June 30, 1995 and 1994, respectively.
Other revenue increased by $0.4 million, or 1.3%, to $35.5 million for
the year ended June 30, 1995 from $35.1 million for the year ended June 30,
1994. The increase was primarily due to growth in the order volume of the
Direct Access business. The increase in Other revenue was partially offset by
reduced revenues from trade association activities, which have been conducted
by FTD Association since the Acquisition. Other revenue was 20.6% and 21.1% of
total revenue for the year ended June 30, 1995 and 1994, respectively.
The cost of goods sold and services provided increased by $5.4 million,
or 5.3%, to $107.7 million for the year ended June 30, 1995 from $102.3 million
for the year ended June 30, 1994. The increase in cost of goods sold primarily
corresponds to the increase in revenue compared to the prior year. Components
of the fluctuation of cost of goods sold over the prior period include: (i)
Marketplace costs increased $4.6 million due to higher product sales; (ii)
higher sales volume for the Direct Access business increased costs by $1.8
million over the prior year; (iii) Publication costs decreased $0.6 million due
to a decrease in the production of the FTD News by one volume for the year
ended June 30, 1995; and (iv) there was a slight decrease in the costs of
certain trade association activities which are being conducted by FTD
Association subsequent to the Acquisition. As a percent of revenue, cost of
goods sold and services provided increased to 62.7% for the year ended June 30,
1995 from 61.4% for the year ended June 30, 1994. Factors contributing to this
change were: (i) a change in the Marketplace product sales mix to a higher
percentage of lower margin, non-branded products; (ii) an increase in member
incentive program costs of $0.7 million due to implementation of enhancements
in September 1993 which were effective for only ten of the twelve months during
fiscal 1994 but for all twelve months in fiscal 1995; and (iii) the reversal
of member incentive program accruals for terminated members totaling $0.4
million during the year ended June 30, 1994.
Selling, general and administrative expenses increased by $1.7
million, or 3.0%, to $59.3 million for the year ended June 30, 1995 from $57.6
million for the year ended June 30, 1994. Several factors account for this
change. First, the Company incurred $4.1 million in non-recurring expenses for
consulting, legal, accounting and other services related to the Acquisition in
the first six months of fiscal 1995. Second, the year ended June 30, 1994
included a reduction in expenses of $0.6 million due to the reversal of
accruals for retiree medical and dental benefits under the Company's
self-funded insurance plan, which were no longer necessary following the
Company's adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-
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<PAGE> 15
Retirement Benefits Other Than Pensions" ("SFAS 106"). Third, $1.0 million of
management fees and performance incentives were accrued in the last six months
of fiscal 1995 which also increased costs from the comparable period in 1994.
A reduction in advertising expense in fiscal 1995 partially offset these
expenses as management of the Old Association lowered advertising spending
prior to the Acquisition. Selling, general and administrative expenses
decreased, as a percent of revenue, to 34.5% from 34.6% for the year ended
June 30, 1995 compared to the comparable period in 1994.
Interest expense for the year ended June 30, 1995 was $8.7 million as
compared to $2.8 million in the prior year. The increase of $5.9 million was
mainly due to the debt incurred at the date of Acquisition. See "Liquidity and
Capital Resources."
Income taxes for the year ended June 30, 1995 were $1.1 million as
compared to $92,000 for the comparable period in the prior year. The increase
was due to the Company's conversion from a cooperative association to a
for-profit corporation on December 19, 1994, the date of the Acquisition,
resulting in recognition of primarily deferred tax expense for the period from
December 19, 1994 through June 30, 1995. Income tax expense prior to December
19, 1994 was entirely related to the Old Association's Canadian operations.
As a result of the factors described above, a net loss of $2.2 million
resulted for the year ended June 30, 1995, a decrease of $8.0 million from
income of $5.8 million, before the cumulative effect of the adoption of SFAS
106, for the year ended June 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes and interest and principal payments on
obligations under the Bank Credit Agreement represent significant liquidity
requirements for FTD. Borrowings under the Bank Credit Agreement bear interest
at floating rates and require interest payments on varying dates depending on
the interest rate option selected by FTD. Borrowings available under the Bank
Credit Agreement consist of a $45.0 million term loan facility and a $25.0
million revolving credit facility to finance working capital and letter of
credit needs. FTD has repaid $6.2 million of the term loans through June 30,
1996 and is required to repay principal amounts of $8.5 million in fiscal 1997,
$11.4 million in fiscal 1998, $12.4 million in fiscal 1999 and $6.5 million in
fiscal 2000. Loans then outstanding under the revolving credit facility will
mature on the fifth anniversary of the initial borrowings under the Bank Credit
Agreement. Under the terms of the Bank Credit Agreement, borrowings under the
revolving credit facility are required to be reduced to zero for 30 consecutive
days in each annual period. None of the $25.0 million revolving credit
facility available under the Bank Credit Agreement was borrowed from the date
of Acquisition through June 30, 1996. The Company believes, based on current
circumstances, that its cash flow, together with borrowings under the revolving
credit facility, will be sufficient to fund operations, including planned
capital expenditures, and to repay the term loans and make interest payments as
they become due through the term of the Notes and the Bank Credit Agreement.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures and working capital needs.
In the fiscal years ended June 30, 1994, 1995 and 1996, FTD's capital
expenditures were $8.1 million, $4.5 million and $5.0 million, respectively,
related primarily to the upgrade of its Mercury Network communications
facilities
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<PAGE> 16
through the purchase of its new Mercury 3000 terminals that are leased to FTD
members. FTD's expected capital expenditures for fiscal 1997 are estimated to
increase approximately 20% over fiscal 1996 and will primarily be used for
upgrading internal customer service and information systems and the Mercury
Network. The Company believes that cash flow from operations, together with
borrowings available under the revolving credit facility, will be sufficient to
fund anticipated capital expenditures and working capital needs.
For the year ended June 30, 1996, cash flow reflected a net increase in
cash of $2.1 million, compared to a $22.1 million decrease in cash for the year
ended June 30, 1995. The decrease in cash for the year ended June 30, 1995 was
primarily attributable to cash used to effect the Acquisition.
Cash provided by operating activities was $11.9 million for the year
ended June 30, 1996 compared to cash used of $1.2 million for the year ended
June 30, 1995. Factors contributing to this change in cash flow were: (i)
reductions in accounts payable during the year ended June 30, 1995 due to
payment of obligations assumed during the Acquisition; (ii) payment of certain
incentive program obligations to FTD members under the terms of the Merger
Agreement in the year ended June 30, 1995 and the introduction of an expanded
member incentive program which increased these liabilities in the year ended
June 30, 1996; and (iii) net income before depreciation and amortization which
decreased to $8.9 million for the year ended June 30, 1996 from $10.0 million
for the year ended June 30, 1995 primarily due to lower income from operations.
Cash used in investing activities was $5.0 million for the year ended
June 30, 1996 compared to $111.3 million for the year ended June 30, 1995. In
1996, the cash used in investing activities consisted entirely of capital
expenditures. The cash used in the year ended June 30, 1995 reflects the cash
utilized to effect the Acquisition.
Cash used in financing activities was $4.8 million for the year ended
June 30, 1996 compared to cash provided of $90.4 million for the year ended
June 30, 1995. The cash used in the year ended June 30, 1996 reflects the
payment of principal on the term loans and the cash provided in the year ended
June 30, 1995 reflects the receipt of proceeds from the sale of the Notes and
the term loans under the Bank Credit Agreement, the repayment of debt of the
Old Association and the equity contributions received from FTD Corporation.
In September 1996, based on a preliminary study of the Company's
defined benefit pension plan, the Company anticipates that it will freeze
benefits under the plan effective December 31, 1996. The Company expects to
replace benefits under the current pension 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.
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<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-20 and the related schedule is set forth on page F-22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
During the year ended June 30, 1996, there were no disagreements with
KPMG Peat Marwick LLP on any matter of accounting principles or practices,
financial statement disclosures, or auditing scope or procedures.
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<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the current directors and executive
officers of the Company. All directors are elected annually to serve until the
next annual meeting of stockholders and until their successors have been
elected and qualified. All executive officers of FTD serve at the pleasure of
the Board of Directors of FTD.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard C. Perry 41 Chairman of the Board of Directors
Margaret C. Whitman 40 President and Chief Executive Officer and Director
Douglas L. Hagemann 59 Vice President Finance and Stockholder Relations
William P. Phelan 40 Vice President Technology Business and Director
Scott D. Levin 34 Vice President, General Counsel and Secretary
Rock A. Davis 41 Vice President Direct Access
Louis E. Nagy, Jr. 41 Vice President Marketing and Product
Diane E. Forese 30 Vice President Product Design, Sourcing and New Business
Development
Scott M. Hyde 34 Vice President Sales
Robert W. Collins, Jr. 42 Vice President Human Resources
Richard W. Boyce 42 Vice Chairman of the Board of Directors
Catherine A. Hickman 45 Director
Anthony P. Thonnerieux 49 Director
Veronica K. Ho 36 Director
Gary K. Silberberg 36 Director
Marc B. Wolpow 38 Director
Gary Claar 30 Director
</TABLE>
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<PAGE> 19
The principal stockholders of FTD Corporation, the parent of the
Company, are Perry Acquisition Partners L.P. ("Perry"), a group of five
investment funds (the "Bain Funds") controlled by Bain Capital, Inc. ("Bain"),
and three investment funds (the "Fleet Funds") controlled by Fleet Financial
Group, Inc. ("FFG"), employees of FFG subsidiaries or an entity controlled by
an affiliate of an FFG subsidiary. Perry, the Bain Funds and the Fleet Funds
are collectively referred to herein as the "Sponsors".
FTD Corporation and the Sponsors have entered into a stockholders'
agreement, dated December 19, 1994 (the "Stockholders' Agreement"), which
provides, among other things, for the composition of the Board of Directors of
the Company. The Board of Directors of the Company consists of ten directors,
of which Perry is entitled to nominate six, the Bain Funds are entitled to
nominate two and FTD Association is entitled to nominate two. Each of the
Sponsors has agreed to take all actions necessary, including voting all of the
securities owned by it, to cause such nominees to be elected to the Board of
Directors of the Company.
Mr. Perry, Ms. Whitman, Mr. Boyce, Ms. Ho, Mr. Silberberg and Mr.
Claar were elected to the Board of Directors as designees of Perry. Mr. Phelan
and Mr. Wolpow were elected to the Board of Directors as designees of the Bain
Funds. Ms. Hickman and Mr. Thonnerieux were elected to the Board of Directors
as designees of FTD Association.
Directors' Fees. Each non-employee director who is not affiliated with
any of the Sponsors receives $1,000 for each Board of Directors meeting
attended. All directors are reimbursed for the reasonable expenses incurred
in connection with each meeting attended.
Set forth below is certain biographical information about each of the
Company's directors and executive officers:
RICHARD C. PERRY
Chairman of the Board of Directors
Mr. Perry has been Chairman of the Board of Directors of the Company
since December 1994. Mr. Perry is also Chairman of the Board of Directors of
FTD Corporation. Mr. Perry is the President and founder of Perry Corp., a
private money management firm. Prior to forming Perry Corp. in 1988, Mr. Perry
was with Goldman, Sachs & Co. where he was involved in developing and
implementing investment strategies in the trading and arbitrage area. Mr.
Perry is an Adjunct Associate Professor at the New York University Stern School
of Business Administration, where he has taught a course in Domestic Arbitrage
since 1984. He is also a director of Radio & Records, Inc. and a trustee of
the Allen Stevenson School and the New York Advisory Board of Facing History
and Ourselves. Mr. Perry received a B.S. from the Wharton School of the
University of Pennsylvania in 1977 and an M.B.A. from New York University
Graduate School of Business Administration in 1980.
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<PAGE> 20
MARGARET C. WHITMAN
President and Chief Executive Officer and Director
Ms. Whitman joined the Company as President in February 1995. Ms.
Whitman was appointed Chief Executive Officer effective March 31, 1995. Ms.
Whitman is also President and Chief Executive Officer of FTD Corporation. Ms.
Whitman has been a Director of the Company since June 1995. Ms. Whitman is also
a director of FTD Corporation. Prior to joining the Company, Ms. Whitman was
President, Stride Rite Division at The Stride Rite Corporation, a casual shoe
manufacturer, from February 1994 to February 1995, Executive Vice President,
Keds Division, from August 1993 to February 1994, Vice President, Product and
Marketing, Keds Division, from February 1993 to August 1993 and Vice President,
Strategic Planning, from October 1992 to February 1993. Prior to joining
Stride Rite Corporation, Ms. Whitman was Senior Vice President,
Marketing--Consumer Products Division at The Walt Disney Company, a diversified
entertainment corporation, from May 1991 to October 1992 and Vice President,
Strategic Planning from May 1989 to May 1991. Ms. Whitman received a B.A. in
Economics from Princeton University in 1977 and an M.B.A. from the Harvard
Graduate School of Business Administration in 1979.
DOUGLAS L. HAGEMANN
Vice President Finance and Stockholder Relations
Mr. Hagemann was appointed Vice President Finance and Stockholder
Relations of the Company in April 1995. Mr. Hagemann is also Director of
Finance and Treasurer of FTD Corporation. Prior thereto, Mr. Hagemann was the
Director of Finance of the Old Association and, following the Acquisition, the
Company, since 1981. He is responsible for finance functions and for providing
management with financial information for strategic planning and general
stockholder relations. Mr. Hagemann received a B.S. in Accounting from Ferris
State University.
WILLIAM P. PHELAN
Vice President Technology Business and Director
Mr. Phelan joined the Company as Vice President Technology Business in
February 1996 and has been a Director of the Company since December 1994. Mr.
Phelan has been President of Chatham Capital Management, Inc., a private equity
capital firm, since January 1995. Mr. Phelan has also been a limited partner
in Fleet Equity Partners, a private equity capital firm, since January 1995.
From January 1992 through December 1994, Mr. Phelan was a partner in Fleet
Equity Partners. From 1988 through December 1991, Mr. Phelan was a Senior Vice
President at Cowen & Company, an investment banking firm specializing in
healthcare and technology-related investment banking. He is a member of the
Board of Directors of FTD Corporation and Cryenco Sciences, Inc. Mr. Phelan
received a B.B.A. in Accounting from Siena College in 1978 and his M.S. in
Taxation from City College of New York in 1983.
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<PAGE> 21
SCOTT D. LEVIN
Vice President, General Counsel and Secretary
Mr. Levin joined the Company as Vice President, General Counsel and
Secretary in May 1996. Mr. Levin is also Vice President and Secretary of FTD
Corporation. Prior to joining the Company, Mr. Levin practiced law with
Schulte Roth & Zabel specializing in corporate and securities transactions from
April 1989 to April 1996. Mr. Levin received a B.A. in Political Science and
Philosophy from Boston College in 1984 and a J.D. from The National Law Center
of the George Washington University in 1987.
ROCK A. DAVIS
Vice President Direct Access
Mr. Davis joined the Company as Vice President Direct Access in April 1995.
Previously, Mr. Davis was Senior Vice President of The Signature Group, a
consumer credit marketing company, from June 1982 to July 1994. His
responsibilities included sales and marketing for all third party clients and
customer service operations. Prior to joining The Signature Group, Mr. Davis
was in the Audit Division of Arthur Andersen & Company. Mr. Davis received a
B.S. in General Management from Purdue University in 1977 and a Masters of
Management from Northwestern University in 1986. Mr. Davis is also a Certified
Public Accountant.
LOUIS E. NAGY, JR.
Vice President Marketing and Product
Mr. Nagy joined the Company as Vice President Marketing and Product in
March 1995. Prior to that time, from June 1989 to March 1995, Mr. Nagy was
Vice President, Marketing at Stride Rite Children's Group, Inc., a division of
Stride Rite Corp. where his responsibilities included brand and retail
marketing initiatives, and product marketing strategies. Mr. Nagy received a
B.S. in Marketing from Central Connecticut State College in 1977.
DIANE E. FORESE
Vice President Product Design, Sourcing and New Business Development
Ms. Forese joined the Company as Vice President Product Design,
Sourcing and New Business Development in August 1995. Before joining the
Company, Ms. Forese was Director, Strategic Planning and Acquisitions of The
Stride Rite Corporation from 1994 to 1995. From 1993 through 1994, Ms. Forese
was the Director Women's Keds Category of The Stride Rite Corporation - Keds
Division. From 1992 to 1993, Ms. Forese was Product Manager - Women's Keds at
The Stride Rite Corporation - Keds Division. From 1988 through 1990, Ms.
Forese specialized in Mergers and Acquisitions at Goldman, Sachs & Company.
Ms. Forese received a degree in Civil Engineering and Management Systems from
Princeton University in 1988 and an M.B.A. from Harvard Graduate School of
Business Administration in 1992.
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<PAGE> 22
SCOTT M. HYDE
Vice President Sales
Mr. Hyde joined the Company as Vice President Sales in December 1995.
From 1994 through December 1995, Mr. Hyde was the U.S. Communications Industry
Field Marketing Manager at the Hewlett-Packard Company, an electronic product
company. From 1986 to 1994, Mr. Hyde was a Field Sales Engineer with the
Hewlett-Packard Company. Mr. Hyde received a B.S. in Electrical Engineering
from Northeastern in 1986 and a graduate degree in business administration from
Harvard Graduate School of Business Adminstration in 1991.
ROBERT W. COLLINS, JR.
Vice President Human Resources
Mr. Collins joined the Company as Vice President Human Resources in
July 1996. Prior to joining the Company, Mr. Collins was Vice President Human
Resources at Holson Burnes Group, a distributor of picture frames and photo
albums, from 1993 until 1996. From 1992 through July 1993, Mr. Collins served
as Director of Human Resources at Holson Burnes Group. From March 1989 through
August 1992 Mr. Collins served as Manager of Human Resources at Crystal Brands
Jewelry Group's Sales, Marketing and Product Development Division. Mr. Collins
received a B.S. in Business from University of Massachusetts Boston in 1976.
RICHARD W. BOYCE
Vice Chairman of the Board of Directors
Mr. Boyce has been Vice Chairman of the Board of Directors of the
Company since April 1995. Mr. Boyce is Senior Vice President, Chief Financial
Officer at PepsiCo, Inc., a consumer products company. From December 1994 to
March 1995, Mr. Boyce was Chief Executive Officer of the Company. Prior to
joining the Company, Mr. Boyce had been the Senior Vice President, Chief
Financial Officer at PepsiCo, Inc. since February 1994. From August 1992 to
February 1994, Mr. Boyce was Senior Vice President of Strategic Planning for
PepsiCo, Inc. From 1985 to August 1992, Mr. Boyce was a Vice President at Bain
& Company, a management consulting firm, concentrating on clients in the
consumer products sector. Mr. Boyce received a B.S.E. in Engineering from
Princeton University in 1976 and an M.B.A. from Stanford University Graduate
School of Business in 1980.
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<PAGE> 23
CATHERINE A. HICKMAN
Director
Ms. Hickman has been a Director of the Company since December 1994.
Ms Hickman currently serves as the President and is a member of the Board of
Trustees of FTD Association. Ms. Hickman has owned and operated retail florist
businesses in California, for the past 25 years. She was a member of the Board
of Directors of the Old Association from August 1990 until the Acquisition. Ms.
Hickman was elected Vice President of the Old Association in August 1994 and
served in that capacity until the consummation of the Acquisition. She earned
a vocational teaching certificate from State University at Long Beach.
ANTHONY P. THONNERIEUX
Director
Mr. Thonnerieux has been a Director of the Company since December 1994.
Mr. Thonnerieux currently serves as the Vice President and is a member of the
Board of Trustees of FTD Association. Mr. Thonnerieux has been an active
partner in a retail florist business in Newton, New Jersey, for the past 25
years. Mr. Thonnerieux was a member of the Board of Directors of the Old
Association from August 1992 until the Acquisition. He received a B.S. degree
from Rider University in 1969.
VERONICA K. HO
Director
Ms. Ho has been a Director of the Company since December 1994. Ms. Ho
is a Vice President and member of the Board of Directors of FTD Corporation.
Ms. Ho is also a Managing Director of Perry Corp. Before joining Perry Corp.
in April 1993, Ms. Ho was Chief Financial Officer of Whitehall Corporation, a
producer of defense, electronics, and technology systems, from April 1991 to
March 1993. From 1986 to 1991, she was with several private merchant banking
firms specializing in management buyouts. Ms. Ho is also a member of the
Board of Directors of Radio & Records, Inc. and the New York Advisory Board of
Facing History and Ourselves. She received an B.A. from Brown University in
Economics and Applied Mathematics in 1982 and an M.B.A. from the Harvard
Graduate School of Business Administration in 1986. Ms. Ho is married to Mr.
Silberberg.
23
<PAGE> 24
GARY K. SILBERBERG
Director
Mr. Silberberg has been a director of the Company since December 1994.
Mr. Silberberg is a member of the Board of Directors of FTD Corporation. Mr.
Silberberg is also a Managing Director of Perry Corp. Prior to joining Perry
Corp. in April 1994, Mr. Silberberg was a principal of Baker Nye Investments,
where he managed an investment portfolio for seven years. Before that time,
Mr. Silberberg practiced corporate law with Skadden, Arps, Slate, Meagher &
Flom, where he worked on a variety of transactions, including strategic mergers
and restructurings. Mr. Silberberg received an Sc.B. in Economics and Applied
Mathematics from Brown University in 1982 and a J.D. from Yale Law School in
1985. Mr. Silberberg is married to Ms. Ho.
MARC B. WOLPOW
Director
Mr. Wolpow has been a Director of the Company since December 1994. Mr.
Wolpow has been a Managing Director of Bain since January 1993 and was a
Principal of Bain Venture Capital from May 1990 through December 1992. From
1986 to February 1990, Mr. Wolpow was a Vice President in the corporate finance
department of Drexel Burnham Lambert, Incorporated. Mr. Wolpow is a Director
of FTD Corporation, The Holson Burnes Group, Inc. and Waters, Inc. Mr. Wolpow
received a B.S. from the Wharton School of the University of Pennsylvania, an
M.B.A. from the Harvard Graduate School of Business Administration and a J.D.
from Harvard Law School.
GARY CLAAR
Director
Mr. Claar has been a Director of the Company since June 1995. Mr.
Claar is General Counsel of Perry Corp. Prior to joining Perry Corp. in May
1995, Mr. Claar practiced law with Schulte Roth & Zabel specializing in
corporate and securities transactions and private investment fund services from
January 1992 to April 1995. Mr. Claar received a B.S. in Finance from the
Wharton School of the University of Pennsylvania in 1988 and a J.D. from New
York University School of Law in 1991.
24
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last two fiscal
years, the compensation of those persons who were, at June 30, 1996, the chief
executive officer and the other four most highly compensated executive officers
of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
------
All Other
Securities Compen-
Underlying sation
Name and Principal Position Year Salary Bonus Options (#) ($)
- --------------------------- ---- ------ ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Margaret C. Whitman 1996 $258,038 -- -- $100,517(1)
President and Chief Executive Officer 1995 85,600 $100,000 255,000 7,018(2)
Douglas L. Hagemann
Vice President Finance and Stockholder 1996 149,730 -- -- 2,859(3)
Relations 1995 144,422 16,500 -- 17,136(4)
Rock A. Davis 1996 125,288 6,000 30,000 2,693(3)
Vice President Direct Access 1995 2,404 11,000 -- 52(3)
Louis E. Nagy, Jr 1996 125,192 -- 30,000 14,246(5)
Vice President Marketing and Product 1995 40,866 17,500 -- 777(3)
Paul A. Luck(6)
Former Vice President and Chief Financial 1996 150,000 -- 30,000 2,887(3)
Officer 1995 8,653 -- -- 167(3)
</TABLE>
- ----------------------
(1) Reflects $3,461 for flexible dollars for use in connection with FTD's
benefit plans and $97,056 for the forgiveness of debt used to purchase
shares of FTD Corporation stock.
(2) Reflects $1,370 for flexible dollars for use in connection with FTD's
benefit plans and $5,648 for the forgiveness of debt used to purchase
shares of FTD Corporation stock.
(3) Represents flexible dollars for use in connection with FTD's benefit
plans.
(4) Reflects $14,327 for Universal life Insurance and $2,809 for flexible
dollars for use in connection with FTD's benefit plans.
(5) Reflects $2,963 for flexible dollars for use in connection with FTD's
benefit plans and $11,553 for moving expenses.
(6) Mr. Luck was Vice President and Chief Financial Officer from June 1995
until his resignation effective August 31, 1996.
25
<PAGE> 26
The following table sets forth individual grants of stock options made
to the Named Officers during the fiscal year ended June 30, 1996. Options are
exercisable for Class A Common Stock, par value $.01 per share, of FTD
Corporation.
<TABLE>
<CAPTION>
OPTIONS GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
-------------------------------- ----------------------
Number of Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees in Price
Name Granted(#)(1) Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
---- ------------- ------------- -------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Rock A. Davis 15,000 8.57% $5.35 July 7, 2005 $94,274 $185,019
15,000 8.57% $21.40 July 7, 2005 - -
Louis E. Nagy, Jr. 15,000 8.57% $5.35 July 7, 2005 $94,274 $185,019
15,000 8.57% $21.40 July 7, 2005 - -
Paul A. Luck(2) 15,000 8.57% $5.35 - - -
15,000 8.57% $21.40 - - -
</TABLE>
(1) Options granted under the FTD Corporation 1994 Stock Award and Incentive
Plan. Such options vest and become exercisable in four equal, cumulative
installments commencing February 25, 1997 for Mr. Nagy and April 1, 1997
for Mr. Davis.
(2) All of the options granted to Mr. Luck were forfeited upon the effective
date of Mr. Luck's resignation as Vice President and Chief Financial
Officer on August 31, 1996.
26
<PAGE> 27
The following table sets forth the June 30, 1996 aggregate value of
unexercised options held by each of the Named Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value
Underlying of Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End ($)
(#) Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
---- -------------------- ------------------
<S> <C> <C>
Margaret C. Whitman 51,000/204,000 $71,145/$284,580
Rock A. Davis 0/30,000 $0/$32,250
Louis E. Nagy, Jr. 0/30,000 $0/$32,250
Paul A. Luck (2) 0/30,000 $0/$32,250
</TABLE>
- -------------------
(1) Because no established public trading market exists for the underlying
securities, fiscal year-end option values were based on an assumed stock
price of $7.50 per share, which price is currently used by FTD Corporation
for purposes of granting additional options under the FTD Corporation 1994
Stock Award and Incentive Plan. There can be no assurance that such price
per share represents the actual fair market value of a share.
(2) All of the options granted to Mr. Luck were forfeited upon the effective
date of Mr. Luck's resignation as Vice President and Chief
Financial Officer on August 31, 1996.
No options were exercised during the fiscal year ended June 30, 1996.
27
<PAGE> 28
Pension Plan. The following table shows the estimated annual pension
benefits payable to a covered participant upon normal retirement at age 65
under the Company's qualified defined benefit pension plan (the "Pension
Plan"), based on the remuneration that is covered under the Pension Plan and
years of service with the Company and its subsidiaries:
<TABLE>
<CAPTION>
Years of Service
Renumeration 5 10 15 20 25 30
------------ - -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 4,150 8,300 12,450 16,600 20,750 24,900
60,000 5,025 10,050 15,075 20,100 25,125 30,150
70,000 5,900 11,800 17,700 23,600 29,500 35,400
80,000 6,775 13,550 20,325 27,100 33,875 40,650
90,000 7,650 15,300 22,950 30,600 38,250 45,900
100,000 8,625 17,050 25,575 34,100 42,625 51,150
110,000 9,400 18,800 28,200 37,600 47,000 56,400
120,000 10,275 20,550 30,825 41,100 51,375 61,650
130,000 11,150 22,300 33,450 44,600 55,750 66,900
140,000 12,025 24,050 36,075 48,100 60,125 72,150
150,000
to
270,000 12,900 25,600 38,700 51,600 64,500 77,400
</TABLE>
The Pension Plan covers all employees who receive a regular stated
salary and who do not work a varied schedule for purposes of meeting the peak
demand requirements of the Company's business (provisional employees).
Pension Plan benefits as shown above, are calculated based upon total
years of services to a maximum of 30 years and the average of the five highest
consecutive calendar years' salary, bonus and certain elements of other
compensation and assume that participants have contributed all years to the Tax
Deferred Account-Mandatory under the Company's 401(k) Retirement Savings Plan.
The annual pension benefits shown are computed as a straight life annuity with
ten years certain period beginning at age 65, and assume that participants will
transfer the balance of the Tax Deferred Account-Mandatory from the 401(k)
Retirement Savings Plan to the Pension Plan. The amounts paid under the
Pension Plan are not offset by any social security payments. Covered
compensation and the estimated years of service for each of the Named Officers
as of December 31, 1995 is as follows: Ms. Whitman, $ 319,936, .90 years; Mr.
Hagemann, $163,578, 14.85 years; Mr. Davis, $102,145, .75 years; Mr. Nagy,
$117,944, .82 years; and Mr. Luck, $80,217, .55 years. Mr. Hagemann is the
only Named Officer eligible to receive benefits under the Pension Plan. Mr.
Luck resigned from the Company prior to his becoming eligible to receive
benefits under the Pension Plan.
28
<PAGE> 29
Whitman Employment Agreement. FTD Corporation and the Company have
entered into an employment agreement, dated as of March 31, 1995 (the "Whitman
Employment Agreement"), with Ms. Whitman to serve as President and Chief
Executive Officer of the Company. The term of the Whitman Employment Agreement
expires on June 30, 2000, subject to automatic annual renewals thereafter. The
Whitman Employment Agreement provides for an initial base salary of $250,000
per year plus an annual bonus based on performance criteria to be established
by the Company's Board of Directors.
Pursuant to the Whitman Employment Agreement, Ms. Whitman purchased
127,500 shares of FTD Corporation Class A Common Stock, par value $.01 per
share (the "Class A Common Stock") on April 25, 1995 at a price of $4.71 per
share. One hundred thousand dollars of such purchase price was financed by
means of a one-year, interest-free loan from FTD Corporation (the "Whitman
Note"). The Whitman Note was forgiven in its entirety in accordance with its
terms as of June 30, 1996. In addition, $150,000 of such purchase price was
financed by means of an interest bearing, recourse note (the "Short-Term
Note"). The Short-Term Note bears interest at 9% per annum. At August 31,
1996, $105,229 in principal and interest was outstanding from the Short-Term
Note. The shares acquired by Ms. Whitman are subject to certain restrictions
on transfer. The Whitman Employment Agreement also provided for the issuance
to Ms. Whitman of options (the "Options") to purchase, (i) at an exercise price
equal to $4.71 per share, 127,500 shares of Class A Common Stock and (ii) at an
exercise price of $18.84 per share, 127,500 shares of Class A Common Stock,
which vest and become exercisable in five equal annual installments, commencing
March, 1996.
The Whitman Employment Agreement may be terminated by the Company at
any time prior to June 30, 2000. If, however, the Company terminates the
Whitman Employment Agreement other than for Cause (as defined in the Whitman
Employment Agreement), or, if Ms. Whitman terminates the Whitman Employment
Agreement for Good Reason (as defined in the Whitman Employment Agreement), the
Company will be obligated to pay Ms. Whitman severance compensation equal to
minimum of eighteen months' base salary or, if certain performance criteria
have been met, up to a maximum of thirty-six months' base salary. In the event
of a Change of Control (as defined in the Whitman Employment Agreement), of FTD
Corporation's stockholders, under certain conditions, the Options shall become
fully vested and immediately exercisable.
Severance Arrangement. The Company has agreed with Mr. Hagemann that
he will be entitled to receive, among other things, salary continuation for a
period of 18 months if his employment with the Company were terminated by the
Company for any reason other than cause (as defined in the Merger Agreement).
In no event will such benefits be paid beyond age 65. Mr. Hagemann's severance
benefit currently would equal approximately $224,600.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors of FTD Corporation, which was
established April 25, 1995 and is charged with administering FTD Corporation's
1994 Stock Award and Incentive Plan (under which
29
<PAGE> 30
the Company's employees are eligible to receive stock options and other
awards), is comprised of Mr. Perry and Mr. Wolpow. As more fully described in
Item 13, Mr. Perry and Mr. Wolpow will receive indirectly a portion of the
management fees payable by FTD under the Management Consulting Services
Agreement (as defined), to affiliates of the Sponsors as a result of their
ownership interest in or other relationship with such entities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FTD Corporation owns 100% of the Common Stock of the Company. In
connection with the Bank Credit Agreement, the Company, FTD Corporation certain
other direct and indirect subsidiaries of the Company and Bankers Trust
Company, as Agent for the lenders party to the Bank Credit Agreement, entered a
pledge agreement, dated December 19, 1994, pursuant to which FTD Corporation
pledged all of the Common Stock to Bankers Trust Company as collateral security
for FTD Corporation's obligations under the Bank Credit Agreement. Upon the
occurrence of a continuing event of default under the Bank Credit Agreement,
Bankers Trust Company would, in certain circumstances, have the right to sell
or exercise the voting rights of the pledged Common Stock, thereby effecting a
change in control of the Company.
The following table sets forth certain information concerning the
ownership of FTD Corporation common stock as of September 25, 1996, by each
director and each of the Named Officers owning equity securities of FTD
Corporation and all executive officers and directors of the Company as a group.
To the knowledge of the Company, each of such stockholders has sole voting and
dispositive power as to the shares beneficially owned unless otherwise noted.
30
<PAGE> 31
<TABLE>
<CAPTION>
Class A Class B Percent
Common Stock Common Stock of
------------ (nonvoting) Total
Number of Percent Number of Percent Voting
Shares of Class Shares of Class Power
--------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
Richard Perry(1) 3,729,431 60.54 - - 60.54
Marc B. Wolpow(2) 1,339,808 21.75 21.75
William P. Phelan(3) 13,247 * 25,625 1.64% *
Richard W. Boyce(4) 19,436 * - - *
Catherine A. Hickman(5) 79 * - - *
Anthony P. Thonnerieux(6) 2,000 * - - *
Margaret Whitman(7) 167,618 1.89 - - 1.89
Rock A. Davis(4) 5,000 * - - *
Louis E. Nagy(4) 5,000 * - - *
All executive officers and
directors of FTD as a group 5,286,549 84.76 25.625 1.64 84.76
(17 people) (8)
</TABLE>
- -------------
* Represents less than 1%
(1) The address of Mr. Perry is c/o the Company, 29200 Northwestern Highway,
Southfield Michigan 48034. Significantly all of the shares shown are held
by Perry. Mr. Perry has a controlling interest in Perry Investors,
L.L.C., the general partner of Perry. Accordingly, Mr. Perry may be
deemed to have voting and dispositive power with respect to the shares
held by Perry. Mr. Perry disclaims beneficial ownership of such shares.
(2) The address of Mr. Wolpow is c/o Bain Capital, Inc. Two Copley Place,
Boston, Massachusetts 02116. All of the shares shown are owned by the
Bain Funds, Mr. Wolpow is a Managing Director of Bain, which is a general
partner of the Bain Funds. Accordingly, Mr. Wolpow may be deemed to share
voting and dispositive power as to the shares held by the Bain Funds. Mr.
Wolpow disclaims beneficial ownership of such shares. In addition, the
other Managing Directors of Bain, Joshua Bekenstein, Edward Conrad, David
Dominik, Paul Edgerley, Robert Gay, Adam Kirsch, Mark Nunnelly, Geoffrey
Rehnert (a director of FTD Corporation) Mitt Romney, Stephan Pagliuca and
Robert White, may also be deemed to share voting and dispositive power as
to, and also disclaim beneficial ownership of such shares.
(3) The address of Mr. Phelan is c/o the Company, 29200 Northwestern Highway,
Southfield, Michigan 48034. All of the shares shown are owned by
Turnberry Partners, L.P. Mr. Phelan is the President and sole stockholder
of Chatham Capital Management, Inc., the general partner of Turnberry
Partners, L.P.,and is deemed to have voting and dispositive power as to
the shares held by Turnberry Partners, L.P.
(4) The address of Mr. Boyce, Mr. Davis and Mr. Nagy is c/o the Company,
29200 Northwestern Highway, Southfield, MI 48034. The shares issued to
Mr. Boyce, Mr. Davis and Mr. Nagy are subject to certain restrictions on
transfer.
(5) The address of Ms. Hickman is A Beautiful California Florist, 455 Atlantic
Avenue, Long Beach, CA 90802.
(6) The address of Mr. Thonnerieux is Ward's Flowers Gifts and Greenhouse, P.O.
Box 336, Route 206, Newton, NJ 07860.
(7) The address of Ms. Whitman is c/o the Company, 29200 Northwestern
Highway, Southfield, Michigan 48034. The shares beneficially owned by Ms.
Whitman include 116,618 shares which were purchased by Ms. Whitman
pursuant to the terms of the Whitman Employment Agreement and 51,000
shares issuable upon exercise of outstanding options which are currently
exercisable. Such shares are subject to certain restrictions on
transfer, and the Company and Ms. Whitman have agreed to enter into
additional agreements setting forth appropriate "piggyback" registration
rights and certain other rights and obligations with respect to such
shares.
(8) Includes 51,000 shares issuable upon exercise of outstanding options which
are currently exercisable.
31
<PAGE> 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Services Agreement. Parties related to each of
the Sponsors have entered into an agreement for management consulting services
(the "Management Consulting Services Agreement") with FTD Corporation pursuant
to which they will make available to Company management, financial and other
corporate advisory services. Subject to certain limitations contained in the
Bank Credit Agreement and the Indenture with respect to the Notes, for each
fiscal year of the Company ended after June 30, 1995, the Company will pay
dividends to FTD Corporation sufficient to allow FTD Corporation to pay such
affiliates an annual fee of $400,000 per year plus an additional $1.6 million
per year conditioned upon the achievement of certain levels of operating
income, and reimbursement of reasonable out-of-pocket expenses. Subject to
certain conditions, such fee will be shared by the parties thereto in
proportion to their relative ownership interests in FTD Corporation. The
Sponsors received $1.0 million for the year ended June 30, 1996.
Certain directors of FTD will receive indirectly a portion of the
management fee as a result of their ownership interest in or other relationship
with the entities providing services to FTD. Mr. Wolpow, a director of the
Company designated by the Bain Funds, is a Managing Director of Bain Capital,
Inc. Mr. Phelan, a director of the Company designated by the Bain Funds, is
entitled to receive a portion of the fees to be paid by the Company under the
Management Consulting Services Agreement to Fleet Growth Resources, Inc.
pursuant to an agreement with such entity, so long as Mr. Phelan remains a
director of the Company. Mr. Perry, Ms. Ho, and Mr. Silberberg, directors of
the Company designated by Perry, have an interest in Perry Investors, LLC.
Assuming the relative ownership interest among the Sponsors remains unchanged,
Bain Capital, Inc., Fleet Growth Resources, Inc. and Perry Investors, LLC will
be entitled to 23.33%, 11.67% and 65%, respectively, of the fees to be paid by
the Company under the Management Consulting Services Agreement. The portion of
such fee each of such directors will receive, if any, is discretionary.
Stockholders' Agreement. Pursuant to the Stockholders' Agreement among
the Company and the Sponsors, each of the Sponsors has agreed, among other
things, (i) to vote its shares of common stock in order to elect and maintain a
board of directors of FTD Corporation and each of its subsidiaries (including
the Company) which consists of a designated number of nominees of Perry and the
Bain Funds and, in the case of FTD Corporation's subsidiaries, FTD Association
nominees as well, (ii) that certain actions taken by the Company require the
approval of two of the directors nominated by Perry and two of the directors
nominated by the Bain Funds and (iii) to certain restrictions and to grant the
other Sponsors certain rights with respect to the sale of its common stock of
FTD Corporation.
32
<PAGE> 33
Business with Directors. Ms. Hickman has an ownership interest in
three retail florist businesses: A Beautiful California Florist in Long Beach,
California, Fifth Avenue Florist in Huntington Beach, California and Los Altos
Florist in Long Beach, California. Mr. Thonnerieux has an ownership interest
in Wards Flowers & Gifts, a retail florist business in Newton, New Jersey. Each
of these businesses use the Company's services in the normal course of
business. In fiscal 1996, the aggregate amount of revenues recorded by the
Company from business done with Ms. Hickman's and Mr. Thonnerieux's businesses
was $37,900 and $41,400, respectively.
Mutual Support Agreement. For the fiscal year ended June 30, 1996, an
amount equal to approximately $665,000 was paid by the Company to FTD
Association pursuant to the Mutual Support Agreement. See Item 1 - "Business -
The Acquisition and Relationship with FTD Association." Ms. Hickman is
President and Mr. Thonnerieux is Vice President of FTD Association and both are
members of the FTD Association Board of Trustees.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedule which are filed with this Form
10-K are set forth in the Index to Consolidated Financial Statements and
Schedule at Page F-1 which immediately precedes such documents.
EXHIBITS
The following exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the Securities and Exchange Commission under
the Securities Act and are referred to and incorporated herein by reference to
such filings.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1 Restated Articles of Incorporation of the Registrant. (In-
corporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 33-88628).)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's Annual Report on Form 10-K
for fiscal year ended June 30, 1995.)
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
4.1 Indenture, dated as of December 1, 1994
(the "Indenture"), by and between the Registrant and First
Trust of New York, National Association, as Trustee. (In-
corporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-1 (File No. 33-88628).)
4.2 Supplemental Indenture, dated as of December 19, 1994
to the Indenture. (Incorporated by reference to Exhibit 4.3 of
the Registrant's Registration Statement on Form S-1
(File No. 33-88628).)
10.1(a) Credit Agreement, dated as of December 19, 1994,
among the Registrant, FTD Corporation, the various
lending institutions party thereto and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Registration Statement on
Form S-1 (File No. 33-88628).)
10.1(b) First Amendment to Credit Agreement, dated as of
August 30, 1995, among the Registrant, FTD Corporation,
the lending institutions party to the Credit Agreement and
the Bankers Trust Company, as Agent. (Incorporated by
reference to Exhibit 10.1(b) of the Florists' Transworld Delivery
Inc. Annual Report on Form 10-K for fiscal year ended June 30, 1995.)
10.1(c) Second Amendment to Credit Agreement, dated as of
June 11, 1996, among the Registrant, FTD Corporation,
the lending institutions party to the Credit
Agreement and Bankers Trust Company, as Agent. (In-
corporated by reference to Exhibit I(d) of the FTD
Corporation Registration Statement on Form 8-A filed
August 28, 1996.)
10.2 Pledge Agreement, dated December 1, 1994, by and among
the Registrant, FTD Corporation, FTD Holdings
Incorporated, FTD Direct Access, Inc., Directory Advertising, Inc.
and Bankers Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Registration Statement on Form S-1
(File No. 33-88628).)
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
10.3 Security Agreement, dated December 19, 1994, by and
among the Registrant, FTD Corporation., certain
subsidiaries of the Registrant and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.3 of the Registrant's registration Statement on Form S-1
(File No. 33-88628).)
10.4 Consultation Agreement and Covenant Not to Compete,
dated as of August 2, 1994, by and between the Registrant and
John A. Borden. (Incorporated by reference to
Exhibit 10.8 of the Registrant's Registration Statement on Form S-1
(File No 33-88628).)
10.5 Mutual Support Agreement, dated as of December 18,
1994, by and between the Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.9 of the Registrant's
Registration Statement on Form S-1 (File No, 3-88628).)
10.6 Trademark License Agreement, dated as of December 18,
1994, by and between the Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.10 of the Registrant's
Registration Statement on Form S-1 (File No. 33-88628).)
10.7 Registration Rights Agreement, dated as of December 19,
1994, among the Registrant, FTD Corporation., BT
Securities Corporation and Montgomery Securities.
(Incorporated by reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-1 (File No. 33-88628).)
10.8 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and FTD Corporation.
(Incorporated by reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-1 (File No. 33-88628).)
10.9 Employment Agreement, dated March 31, 1995, among
Margaret C. Whitman, the Registrant and FTD Corporation.
(Incorporated by reference to Exhibit 10.10 of the
FTD Corporation Registration Statement on Form S-1
(File No. 33-91582).)
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.10 FTD Corporation 1994 Stock Award and Incentive Plan.
(Incorporated by reference to Exhibit 10.14 of the
FTD Corporation Registration Statement on
Form S-1 (File No. 33-91582).)
21.1 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 21.1 of the Registrant's Annual Report on Form 10-K
for fiscal year ended June 30, 1995.)
27 Financial Data Schedule.
</TABLE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.4 Consultation Agreement and Covenant Not to Compete
dated as of August 2, 1994, by and between the
Registrant and John A. Borden.
10.9 Employment Agreement, dated March 31, 1995,
among Margaret C. Whitman, the Registrant
and FTD Corporation.
10.10 FTD Corporation 1994 Stock Award and Incentive Plan.
</TABLE>
36
<PAGE> 37
REPORTS ON FORM 8-K
No forms 8-K were filed by the Company during the fourth quarter of
fiscal 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No annual report covering the registrant's last fiscal year has been
sent to security-holders of the registrant.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ Margaret C. Whitman
-----------------------
Margaret C. Whitman
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
---- --------- -----
<S> <C> <C>
9/25/96 /s/ Richard C. Perry Chairman of the Board of
- -------- ------------------------------ Directors
Richard C. Perry
9/25/96 /s/ Margaret C. Whitman President, Chief Executive
- -------- ------------------------------ Officer and Director
Margaret C. Whitman
9/25/96 /s/ Richard W. Boyce Vice Chairman of the Board of
- -------- ------------------------------ Directors
Richard W. Boyce
9/25/96 /s/ Gary Claar Director
- -------- ------------------------------
Gary Claar
9/25/96 /s/ Catherine A. Hickman Director
- -------- ------------------------------
Catherine A. Hickman
9/25/96 /s/ Veronica K. Ho Director
- -------- ------------------------------
Veronica K. Ho
9/25/96 /s/ William P. Phelan Vice President Technology Business
- -------- ------------------------------ and Director
William P. Phelan
9/25/96 /s/ Gary K. Silberberg Director
- -------- ------------------------------
Gary K. Silberberg
9/25/96 /s/ Anthony P. Thonnerieux Director
- -------- ------------------------------
Anthony P. Thonnerieux
9/25/96 /s/ Marc B. Wolpow Director
- -------- ------------------------------
Marc B. Wolpow
9/25/96 /s/ Douglas L. Hagemann Vice President Finance and Stockholder
- -------- ------------------------------ Relations (Principal Financial Officer
Douglas L. Hagemann and Principal Accounting Officer)
</TABLE>
38
<PAGE> 39
Page
Independent Auditors' Reports F - 2
Consolidated Statements of Financial Position as of June 30, 1996
and 1995 F - 4
Consolidated Financial Statements for the year ended June 30, 1996,
the periods December 19, 1994, through June 30, 1995,
July 1, 1994 through December 18, 1994, and the year
ended June 30, 1994:
Statements of Operations F - 6
Statements of Stockholder's Equity F - 7
Statements of Cash Flows F - 8
Notes to Consolidated Financial Statements F - 10
Independent Auditors' Report on Financial Statement Schedule F - 21
Schedule II - Valuation and Qualifying Accounts F - 22
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and therefore have been omitted.
F-1
<PAGE> 40
Independent Auditors' Report
Board of Directors
Florists' Transworld Delivery, Inc.
Southfield, Michigan:
We have audited the accompanying consolidated statements of financial position
of Florists' Transworld Delivery, Inc., as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year ended June 30, 1996 and for the periods July 1, 1994 through
December 18, 1994, and December 19, 1994 through June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of Florists' Transworld
Delivery Association (Predecessor Company) for the year ended June 30, 1994
were audited by other auditors, whose report dated July 28, 1994, on those
statements included an explanatory paragraph which described the changes in
1994 to the method of accounting for income taxes and postretirement benefits
other than pensions as discussed in notes 7 and 8 to the consolidated financial
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the June 30, 1996 and 1995, consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Florists' Transworld Delivery, Inc., as of June 30, 1996
and 1995 and the results of its operations and its cash flows for the year
ended June 30, 1996 and for the periods July 1, 1994 through December 18, 1994,
and December 19, 1994 through June 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, effective
December 19, 1994, FTD Corporation acquired all of the outstanding equity of
Florists' Transworld Delivery Association in a business combination accounted
for as a purchase. As a result of the acquisition, the accompanying
consolidated financial information for the periods after the acquisition are
presented on a different cost basis than that for the periods prior to the
acquisition and, therefore, are not comparable.
KPMG PEAT MARWICK LLP
Detroit, Michigan
July 31, 1996
F-2
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statements of operations,
Members' equity, and cash flows of Florists' Transworld Delivery Association
for the year ended June 30, 1994. These financial statements are the
responsibility of the Association's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated results of operations, Members' equity and cash
flows of Florists' Transworld Delivery Association for the year ended June 30,
1994 in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 8 to the consolidated financial statements, in 1994
the Association changed its method of accounting for income taxes and its
method of accounting for postretirement benefits other than pensions.
DELOITTE & TOUCHE LLP
Detroit, Michigan
July 28, 1994
(December 19, 1994 as to Note 2)
F-3
<PAGE> 42
FLORISTS' TRANSWORLD DELIVERY, INC.
(A wholly owned Subsidiary of FTD Corporation)
Consolidated Statements of Financial Position
As of June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,535,560 24,375,090
Accounts receivable, less allowance for doubtful accounts ($1,412,000 in
1996 and $1,589,000 in 1995) 24,067,862 20,784,420
Inventories, principally finished goods, net 12,467,390 13,019,003
Deferred income taxes 5,569,000 6,830,000
Other current assets 1,717,334 1,558,984
------------ -----------
Total current assets 70,357,146 66,567,497
Property and equipment:
Land and improvements 2,500,000 2,500,000
Building and improvements 13,168,949 12,682,199
Mercury consoles 23,186,780 22,705,868
Furniture and equipment 11,629,881 10,774,754
------------ -----------
Total 50,485,610 48,662,821
Less accumulated depreciation 15,157,865 4,961,620
------------ -----------
Property and equipment, net 35,327,745 43,701,201
Other noncurrent assets:
Deferred financing costs, less accumulated amortization ($1,648,000 in
1996 and $572,000 in 1995) 4,470,435 5,546,578
Deferred income taxes 193,779 -
Other noncurrent assets 2,191,612 827,329
Goodwill and other intangibles, less accumulated amortization ($4,874,000 in
1996 and $1,523,000 in 1995) 83,414,093 87,038,048
------------ -----------
Total other noncurrent assets 90,269,919 93,411,955
------------ -----------
Total assets $195,954,810 203,680,653
============ ===========
</TABLE>
F-4
<PAGE> 43
FLORISTS' TRANSWORLD DELIVERY, INC.
(A wholly owned subsidiary of FTD Corporation)
Consolidated Statements of Financial Position
As of June 30, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities and Stockholder's Equity 1996 1995
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 8,496,171 4,704,322
Accounts payable 30,764,694 28,340,350
Accrued member incentive programs 12,948,754 6,754,496
Accrued severance costs 1,318,946 5,961,033
Other accrued liabilities 5,930,811 5,875,088
Unearned income and members' deposits 10,583,981 10,026,403
-------------- -----------
Total current liabilities 70,043,357 61,661,692
Long-term debt, less current maturities 87,781,270 96,052,186
Postretirement benefits, less current portion 7,162,379 7,326,820
Accrued pension obligations 4,061,212 2,924,871
Deferred income taxes - 2,072,000
Minority interest in subsidiary 170,163 202,786
Stockholder's equity:
Preferred stock, 30,000 shares authorized, no shares issued, par value $0.01 - -
Common stock, 30,000 shares authorized, 100 shares issued and outstanding,
par value $0.01 1 1
Paid-in capital 32,999,999 32,999,999
Retained earnings (deficit) (6,263,571) 440,298
-------------- -----------
Total stockholder's equity 26,736,429 33,440,298
-------------- -----------
Total liabilities and stockholder's equity $ 195,954,810 203,680,653
============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
FLORISTS' TRANSWORLD DELIVERY, INC.
(A wholly owned subsidiary of FTD Corporation)
Consolidated Statements of Operations
Year ended June 30, 1996, periods December 19, 1994, through June 30, 1995 and
July 1, 1994, through December 18, 1994, and year ended June 30, 1994
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------
December 19, July 1, 1994
1994 Through
Year ended Through December 18, Year ended
June 30, 1996 June 30, 1995 1994 June 30, 1994
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Marketplace $ 57,924,154 35,459,629 28,556,327 58,987,168
Clearinghouse 37,070,125 24,737,704 16,093,327 42,385,743
Mercury Network 34,137,480 17,618,169 13,865,158 30,113,349
Other 37,123,123 18,702,424 16,817,960 35,073,802
------------ ---------- ---------- -----------
Total revenues 166,254,882 96,517,926 75,332,772 166,560,062
Costs:
Products and distribution 41,208,597 25,735,921 21,638,828 41,866,845
Floral order transmissions and processing services 30,562,101 14,922,606 11,571,643 23,785,559
Member programs 32,615,322 17,908,313 15,898,769 36,607,835
------------ ---------- ---------- -----------
Total cost of goods sold and services
provided 104,386,020 58,566,840 49,109,240 102,260,239
Selling, general and administrative expense 58,336,873 30,668,699 28,683,737 57,624,475
------------ ---------- ---------- -----------
Income (loss) from operations 3,531,989 7,282,387 (2,460,205) 6,675,348
Interest (income) (1,418,475) (1,709,984) (1,095,289) (2,045,674)
Interest expense 13,498,270 7,546,459 1,171,732 2,840,613
------------ ---------- ---------- -----------
Income (loss) before income taxes (benefit),
minority interest, and cumulative
effect of accounting change (8,547,806) 1,445,912 (2,536,648) 5,880,409
Income taxes (benefit) (1,806,500) 1,020,000 35,000 92,000
Minority interest in earnings (loss) of subsidiary (32,623) 8,452 - -
------------ ---------- ---------- -----------
Income (loss) before cumulative
effect of accounting change (6,708,683) 417,460 (2,571,648) 5,788,409
Cumulative effect of accounting change - - - 6,276,560
------------ ---------- ---------- -----------
Net income (loss) $ (6,708,683) 417,460 (2,571,648) (488,151)
============ ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 45
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Consolidated Statements of Stockholder's Equity
Year ended June 30, 1996, periods December 19, 1994, through June 30, 1995 and
July 1, 1994, through December 18, 1994, and year ended June 30, 1994
<TABLE>
<CAPTION>
Credit Retained
Deposit Cooperative Earnings
Predecessor Company Fund Fund (Deficit) Total
------------------- ---- ---- ------- -----
<S> <C> <C> <C> <C>
Balance, July 1, 1993 $2,265,556 39,771,942 (1,516,528) 40,520,970
Distribution of operating margin, net of income taxes - 2,023,491 (2,511,642) (488,151)
Minority interest - - (19,156) (19,156)
Adjustment to patronage distribution payable - (85,807) - (85,807)
Additional credit deposits 87,444 - - 87,444
Redemption of ex-members' credit deposits and patronage
equities (161,878) (2,273,852) - (2,435,730)
Foreign currency translation adjustment - - (54,128) (54,128)
Patronage distribution payable in fiscal 1995, relating
to year ended June 30, 1994 - (1,309,172) - (1,309,172)
---------- ---------- --------- ----------
Balance, July 1, 1994 2,191,122 38,126,602 (4,101,454) 36,216,270
Distribution of operating margin, net of income taxes - (1,180,722) (1,390,926) (2,571,648)
Minority interest - - 16,976 16,976
Additional credit deposits 39,958 - - 39,958
Redemption of ex-members' credit deposits and patronage
equities (58,296) (862,294) - (920,590)
Foreign currency translation adjustment - - 17,067 17,067
---------- ---------- --------- ----------
Balance, December 18, 1994 $2,172,784 36,083,586 (5,458,337) 32,798,033
========== ========== ========= ==========
<CAPTION>
Number of Retained
Shares Common Paid-in Earnings
Outstanding Stock Capital (Deficit) Total
----------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 19, 1994 100 $ 1 32,999,999 - 33,000,000
Net income - - - 417,460 417,460
Foreign currency translation adjustment - - - 22,838 22,838
------- ---------- ---------- --------- ----------
Balance, June 30, 1995 100 1 32,999,999 440,298 33,440,298
Net loss - - - (6,708,683) (6,708,683)
Foreign currency translation adjustment - - - 4,814 4,814
------- ---------- ---------- --------- ----------
Balance, June 30, 1996 100 $ 1 32,999,999 (6,263,571) 26,736,429
======= ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 46
FLORISTS' TRANSWORLD DELIVERY, INC.
(A wholly owned subsidiary of FTD Corporation)
Consolidated Statements of Cash Flows
Year ended June 30, 1996, periods December 19, 1994, through June 30, 1995 and
July 1, 1994, through December 18, 1994, and year ended June 30, 1994
<TABLE>
<CAPTION>
Predecessor Company
-------------------
December 19, July 1, 1994
1994 Through
Year ended Through December 18, Year ended
June 30, 1996 June 30, 1995 1994 June 30, 1994
------------- ------------- ---- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,708,683) 417,460 (2,571,648) (488,151)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 14,231,089 6,524,931 4,911,344 10,143,598
Amortization of deferred financing costs and
original issue discount 1,359,335 708,188 - -
Postretirement benefits 401,681 361,222 504,836 6,821,231
Pension (119,625) - - -
Minority interest in earnings (loss) of subsidiary (32,623) 8,452 - -
Undistributed (earnings) losses of unconsolidated affiliate (66,774) (54,022) - -
Loss on disposal of assets 663,253 - - -
Increase (decrease) in cash due to change in:
Accounts receivable (3,283,103) 12,918,431 (13,788,264) 4,264,548
Inventories 1,027,373 1,523,824 (2,915,952) 1,741,669
Deferred income taxes (2,035,129) 507,000 - -
Other current assets (158,688) 2,336,379 (1,706,759) 305,190
Accounts payable 1,668,843 (28,722,532) 18,749,608 5,327,083
Accrued member incentive programs 6,194,258 (2,819,035) (1,699,638) 1,128,335
Accrued severance costs (1,504,086) (1,074,967) - -
Other accrued liabilities, unearned income,
and members' deposits 224,270 1,891,028 2,747,381 (1,018,229)
----------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 11,861,391 (5,473,641) 4,230,908 28,225,274
Cash flows from investing activities:
Additional restricted cash related to credit deposit
fund investments - - (58,550) (158,973)
Release of restricted cash related to credit deposit
fund investments - 2,172,784 83,174 233,407
Cash utilized to effect merger - (109,028,269) - -
Capital expenditures (4,950,398) (3,081,540) (1,413,181) (8,133,650)
----------- ---------- ---------- ----------
Net cash used in investing activities (4,950,398) (109,937,025) (1,388,557) (8,059,216)
Cash flows from financing activities:
Additions to deferred financing costs - (126,000) - -
Proceeds from long-term debt - 95,435,768 - 12,000,000
Repayments of long-term debt (4,762,259) (35,101,480) (1,884,636) (10,282,945)
Issuance of common stock - 30,000,000 - -
Equity contribution from parent - 3,000,000 - -
Additional credit deposits - - 39,958 87,444
Return of members' equity - - (920,590) (3,830,709)
----------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (4,762,259) 93,208,288 (2,765,268) (2,026,210)
Effect of foreign exchange rate changes on cash 11,736 - - -
----------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 2,160,470 (22,202,378) 77,083 18,139,848
Cash and cash equivalents at beginning of period 24,375,090 46,577,468 46,500,385 28,360,537
----------- ---------- ---------- ----------
Cash and cash equivalents at end of period $26,535,560 24,375,090 46,577,468 46,500,385
=========== ========== ========== ==========
</TABLE>
F-8
<PAGE> 47
FLORISTS' TRANSWORLD DELIVERY, INC.
(A wholly owned subsidiary of FTD Corporation)
Consolidated Statements of Cash Flows, Continued
Year ended June 30, 1996, periods December 19, 1994, through June 30, 1995 and
July 1, 1994, through December 18, 1994, and year ended June 30, 1994
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------
December 19, July 1, 1994
1994 Through
Year ended Through December 18, Year ended
June 30, 1996 June 30, 1995 1994 June 30, 1994
------------- ------------- ---- -------------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $12,113,803 6,704,045 1,249,086 2,874,507
=========== ========= ========= =========
Income taxes paid $ 200,978 260,391 241,783 364,060
=========== ========= ========= =========
Supplemental disclosure of noncash investing and financing activities:
The Company was acquired by FTD Corporation on December 19, 1994 (see note 2.) The acquisition was effected through a merger
with a subsidiary of FTD Corporation, with the Company surviving the merger as a wholly owned subsidiary of FTD Corporation, as
follows:
Cash utilized to effect merger $109,028,269
Noncash items:
Reduction of proceeds from long-term debt for financing costs 5,992,405
Value ascribed to common stock warrants issued 1,500,000
Reduction in accrued severance costs subsequent to initial purchase price allocation 3,138,000
Other purchase accounting adjustments for assets acquired and liabilities assumed (808,674)
------------
Total purchase price $118,850,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 48
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements
Years ended June 30, 1996 and 1995
(1) Accounting Policies
Principles of Consolidation
The consolidated financial statements at June 30, 1996 and 1995, include
the accounts of Florists' Transworld Delivery, Inc. ("FTD, Inc."), a
wholly owned subsidiary of FTD Corporation, and FTD, Inc.'s wholly owned
subsidiaries- Florists' Transworld Delivery Association of Canada
Limited and FTD Holdings, Inc. ("Holdings"), and its subsidiary,
Renaissance Greeting Cards, Inc. ("Renaissance"), (collectively the
"Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation. The Company's one-third interest in
Interflora, Inc., is accounted for on the equity basis. The Company is a
supplier of non-perishable hardgoods, order clearing services, marketing
support and other services to the retail floral industry in the United
States and Canada.
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation.
Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating
requirements in income-producing investments. The Company considers all
investments purchased with maturities of three months or less at the date
of purchase to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt. At June 30,
1996, because of the short maturity of those instruments, the fair value
of these financial instruments approximates the carrying amount with the
exception of long-term debt as discussed in note 4.
Inventories
Inventories consist principally of finished goods and are stated at the
lower of cost, principally on a first in, first out basis, or market (net
realizable sales) value.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method. Assets
acquired on December 19, 1994 (see note 2), have been recorded at fair
value as of that date.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and
any gain or loss is included as selling, general and administrative
expense in the accompanying consolidated statements of operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which improve or extend the life of existing property and equipment are
capitalized.
Systems Software
Systems software, included in other noncurrent assets, is recorded at
purchase cost and is being amortized over its expected economic life of
five years. Assets acquired on December 19, 1994 (see note 2), have been
recorded at fair value as of that date.
F-10
<PAGE> 49
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(1) Accounting Policies, Continued
Intangibles
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized
over 30 years. Other intangibles consist of trademarks, trained
workforce, and software, and are being amortized over 40, 7, and 5 years,
respectively, using the straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred subsequent to the Merger Date (see note 2) indicate
that the remaining balance of goodwill and other intangibles may not be
recoverable or that the remaining estimated useful lives may warrant
revision. When such factors indicate that goodwill and other intangibles
should be evaluated for possible impairment, the Company uses an estimate
of undiscounted future cash flows to measure whether the goodwill and
other intangibles is recoverable, and over what period.
Income Taxes
The Company files a consolidated federal income tax return with its
subsidiaries and its parent, FTD Corporation. The Company's tax
provision is calculated on a separate return basis. Deferred taxes are
provided on items that result from temporary differences in the
recognition of revenue and expense for tax and financial statement
reporting purposes. The Predecessor Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes, as of July 1, 1993 (see note 7).
Foreign Currency Translation
In accordance with SFAS No. 52, balance sheet accounts of the Company's
foreign operations are translated from Canadian currency into U.S.
dollars at year-end exchange rates, while income and expenses are
translated at the weighted average exchange rates for the year.
Translation gains or losses related to net assets located outside the
United States are included in retained earnings. Gains and losses
resulting from foreign currency transactions are included in net income.
Revenues
Revenues earned for processing floral orders are recorded in the month
the orders are reported to the Company as filled. Revenues for other
services related to the processing of floral orders (including equipment
rentals and transmission charges) are recorded in the period the service
is provided. Sales of products are recorded when the products are
shipped. Revenues relating to publications are recognized in the periods
in which the publications are issued.
Use of Estimates
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and related disclosures to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results may differ from
those estimates.
F-11
<PAGE> 50
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(1) Accounting Policies, Continued
New Accounting Pronouncements
During 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." Effective for
fiscal years beginning after December 15, 1995, Statement No. 123
encourages companies to record the fair value of any stock awards
as compensation expense within the income statement. Companies who
choose to continue accounting for such stock awards in accordance with
Accounting Principles Board Opinion No. 25 must disclose pro forma net
income and earnings per share as if the fair value of the award had been
included as compensation expense. The Company anticipates remaining with
the intrinsic value method. The Company expects the impact of this
statement to be immaterial.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." This Statement
provides guidance for recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill, if any,
related both to assets to be held and assets to be disposed of. The
Company will adopt this Statement in the first quarter of 1997 and
anticipates the effect will be immaterial.
(2) Acquisition
On December 19, 1994 (the "Merger Date"), FTD Corporation, a Delaware
corporation, completed an acquisition of all the outstanding equity of
Florists' Transworld Delivery Association, a Michigan nonprofit
cooperative association (the "Acquired Company" or the "Predecessor
Company"), pursuant to the terms of an Agreement and Plan of Merger (the
"Merger Agreement") dated August 2, 1994. The acquisition was effected
through the merger (the "Merger") of FTD Acquisition Corp., a wholly
owned subsidiary of FTD Corporation, with and into the Predecessor
Company, with the Predecessor Company surviving the Merger as a wholly
owned subsidiary of FTD Corporation. Concurrent with the Merger, the
Predecessor Company was converted from a nonprofit cooperative
association to a for-profit corporation and renamed "Florists' Transworld
Delivery, Inc."
The Company has accounted for the Merger under the purchase method of
accounting, and accordingly, the Company's consolidated financial
statements at June 30, 1996 and 1995, reflect the allocation of the total
purchase price to the tangible and intangible assets acquired and
liabilities assumed of the Predecessor Company as of December 19, 1994,
based on their respective estimated fair values. The preliminary
allocation of the total purchase price to assets acquired and liabilities
assumed as of the Merger Date was as follows:
<TABLE>
<S> <C>
Current assets $ 94,694,000
Goodwill and other intangible assets 88,561,000
Other noncurrent assets 6,633,000
Property and equipment 45,294,000
Liabilities (116,332,000)
-------------
Total purchase price $ 118,850,000
=============
</TABLE>
The statements of financial position of the Company after the Merger are
not comparable to the historical statements of financial position of the
Predecessor Company prior to the Merger, as a result of the Merger and
corresponding allocation of the total purchase price which resulted in a
different cost basis for the statements of financial position. In
addition, in connection with the Merger, certain trade association
activities of the Predecessor Company were separated and are currently
being performed by a separate, nonprofit corporation, FTD Association.
Upon consummation of the acquisition of the Company by FTD Corporation,
management began to assess and formulate a plan to involuntarily
terminate and/or relocate employees of the Company as part of its
relocation and/or consolidation efforts. As of June 30, 1996, management
has completed its assessment. Costs to involuntarily terminate and/or
relocate employees of the Company as a result of the Merger continue to
be incurred.
F-12
<PAGE> 51
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(2) Acquisition, Continued
The initial allocation of the total purchase price referred to above
included a reserve for the estimated cost of planned termination,
severance and relocation. The activity in such reserves during the
period December 19, 1994 through June 30, 1995 and the year ended June 30
1996, can be summarized as follows:
<TABLE>
<CAPTION>
Severance Relocation
Benefits Costs Other Total
-------- ----- ----- -----
<S> <C> <C> <C> <C>
Initial estimate as of December 19, 1994 $5,573,000 600,000 863,000 7,036,000
Costs paid during the period December 19, 1994
through June 30, 1995 843,000 - 232,000 1,075,000
---------- ------- ------- ---------
Remaining liability as of June 30, 1995 4,730,000 600,000 631,000 5,961,000
Costs paid during the year ending June 30, 1996 1,310,000 41,000 153,000 1,504,000
Reduction of accrued liability during the year
ending June 30, 1996 2,370,000 480,000 288,000 3,138,000
---------- ------- ------- ---------
Remaining liability as of June 30, 1996 $1,050,000 79,000 190,000 1,319,000
========== ======= ======= =========
</TABLE>
The amounts included above representing reductions in the accrued
liability during the year ending June 30, 1996 were recorded as
adjustments to the allocation of the purchase price, and therefore,
reductions to goodwill. The remaining liability as of June 30, 1996 will
be utilized to complete the Company's plan of involuntary terminations
and/or employee relocations which is underway.
(3) Intangibles
At June 30, 1996 and 1995, goodwill and other intangible assets consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Goodwill $ 69,187,677 69,460,954
Trademarks 15,000,000 15,000,000
Trained workforce 2,100,000 2,100,000
Software 2,000,000 2,000,000
------------ ----------
Total 88,287,677 88,560,954
Less accumulated amortization 4,873,584 1,522,906
------------ ----------
Total $ 83,414,093 87,038,048
============ ==========
</TABLE>
The Company had no intangibles prior to the Merger Date. The change in
goodwill resulted from adjustments to the reserve for estimated costs of
planned termination, severance and relocation (see note 2), as well as
pension and postretirement obligations (see notes 8 and 9).
F-13
<PAGE> 52
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(4) Financing Arrangements
Long-term Debt
At June 30, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Series B senior subordinated notes, interest payable semiannually at
14%, due December 15, 2001, net of unamortized discount of
$2,580,446 and $2,863,639 at June 30, 1996 and 1995, $ 57,419,554 57,136,361
respectively
Term loans, payable quarterly at various amounts, plus interest at a
weighted average floating Eurodollar rate of 8.5% and 9.2% at
June 30, 1996 and 1995, respectively, due December 15, 1999 38,781,256 43,500,000
Other 76,631 120,147
------------ -----------
Total long-term debt 96,277,441 100,756,508
Less current maturities 8,496,171 4,704,322
------------ -----------
Long-term debt, less current maturities $ 87,781,270 96,052,186
============ ===========
</TABLE>
The principal reductions required for each of the following five years
and thereafter are as follows:
<TABLE>
<S> <C>
1997 $ 8,496,171
1998 11,449,704
1999 12,434,491
2000 6,477,521
2001 -
Thereafter 60,000,000
-----------
Total $98,857,887
============
</TABLE>
The Company's debt agreements include covenants which, among other things,
require that the Company maintain certain financial ratios and a minimum
level of consolidated net worth. The Company was in compliance with all
debt covenants at June 30, 1996. The Company's debt agreements also
include restrictions on the declaration and payment of dividends. The
term loan agreement requires the Company to repay principal of the loans
to the extent cash flow generated in the fiscal year exceeds certain
calculated amounts. As of June 30, 1996 the estimated fair value of
long-term debt, discounted at current rates, was $104,397,000.
Line of Credit
The Company has a $25,000,000 unsecured line of credit, obtained during
fiscal year 1995, with a group of banks at an interest rate varying with
prime or other indices. There were no borrowings on this line during
1996 or 1995. The Company must pay a commitment fee of one-half of 1
percent annually on the unused portion of the commitment.
F-14
<PAGE> 53
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(5) Leases
As Lessor
The Company leases Mercury consoles to members through leases classified
as operating leases for accounting purposes. The net investment in
equipment leased to members under operating leases, including equipment
used for maintenance purposes, was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mercury consoles $ 23,186,780 22,705,868
Less: Accumulated depreciation 10,945,722 3,489,603
---------- ----------
Net investment $ 12,241,058 19,216,265
========== ==========
</TABLE>
As Lessee
The minimum aggregate annual operating lease obligations related to
facilities and equipment are as follows:
<TABLE>
<S> <C>
1997 $ 1,009,200
1998 705,700
1999 510,300
2000 352,000
Thereafter 461,200
-----------
Total $ 3,038,400
===========
</TABLE>
Rental expense with respect to operating leases for the year ended June
30, 1996, the period December 19, 1994 through June 30, 1995, the period
July 1, 1994 through December 18, 1994 and the year ended June 30, 1994
was $802,000, $459,000, $486,000 and $944,000, respectively.
(6) Advertising and Sales Promotion Costs
The Company expenses advertising time and space costs, and related
residual rights and contracts at the time the advertising is broadcast or
displayed. Production and promotion costs are charged to expense when
incurred. Costs of promotional materials and product catalogs
distributed to members or consumers are expensed over the periods to
which the materials relate. Advertising awarded to FTD members under the
Company's incentive program is charged to expense when incurred.
Advertising and sales promotion expense was $31 million, $16 million, $12
million and $30 million for the year ended June 30, 1996, the periods
December 19, 1994, through June 30, 1995, and July 1, 1994, through
December 18, 1994, and the year ended June 30, 1994, respectively.
Advertising and sales promotion expense for the year ended June 30, 1996
includes $3.8 million of accrued advertising costs earned by FTD members
that will be paid in fiscal 1997 under a new incentive program
established in fiscal 1996. No such costs were incurred in prior years.
F-15
<PAGE> 54
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes
As described in note 1, the Predecessor Company adopted SFAS No. 109
effective July 1, 1993. In connection with the Merger and the
Predecessor Company's conversion from a nonprofit cooperative association
to a for-profit corporation for federal income tax purposes, certain
adjustments were recorded as of the Merger Date to the Predecessor
Company's deferred tax assets and liabilities established in accordance
with SFAS No. 109 for temporary differences created through the
allocation of the total purchase price as described in note 2.
At June 30, 1996 and 1995, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued member incentive obligations $3,058 2,341
Accrued severance costs 499 2,206
Allowance for doubtful accounts 518 585
Unearned income 617 559
Inventory 497 500
Accrued vacation 246 279
Other 134 360
------ ------
Current deferred tax assets 5,569 6,830
------ ------
Noncurrent deferred tax assets:
Net operating loss carry forwards 4,844 3,842
Postretirement benefit obligations 2,650 2,711
Accrued pension 1,503 1,082
Other 197 117
------ ------
Noncurrent deferred tax assets 9,194 7,752
Noncurrent deferred tax liabilities--tax over
book depreciation and differences in basis 7,500 8,824
------ ------
Net noncurrent deferred tax assets (liabilities) 1,694 (1,072)
------ ------
Deferred tax assets valuation allowance (1,500) (1,000)
------ ------
Net deferred tax assets $5,763 4,758
====== ======
</TABLE>
The deferred tax assets are subject to certain asset realization tests.
Company management believes that, under the principles of SFAS No. 109,
based on its evaluation of taxable income in future years and the
uncertainty of fully realizing the noncurrent deferred tax assets with
very long lives, a valuation allowance of $1,500,000 and $1,000,000 is
appropriate at June 30, 1996 and 1995, respectively.
F-16
<PAGE> 55
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
The Company's net operating loss carryforwards at June 30, 1996 and 1995,
of approximately $13.1 million and $11.9 million, the tax benefits of
which are included above as noncurrent deferred tax assets, will expire
if unused, as follows: $3.6 million in 2007; $2.3 million in 2008; $0.8
million in 2009; $5.2 million in 2010; and $1.2 million in 2011. In
addition, as a result of the Merger (see note 2), the Company's
pre-Merger net operating loss carryforwards of approximately $6.7 million
available to be utilized in the future are limited to approximately $1.8
million per year.
The provision for income taxes for the year ended June 30, 1996 and the
period December 19, 1994 through June 30, 1995, differs from the amount
computed by applying the U.S. federal income tax rate (35 percent) to
pretax income because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
Period
December 19,
Year 1994
Ended Through
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
Tax (benefit) at U.S. federal income tax rate $ (3,001) 509
State income taxes (benefit), net of federal income tax benefits (172) 29
Taxes on foreign subsidiary in excess of income taxes at statutory rate 23 17
Amortization of goodwill and other intangibles 842 464
Valuation allowance 500 -
Other items, net 1 1
-------- ------
Reported income tax (benefit) expense $ (1,807) 1,020
======== ======
</TABLE>
Prior to the Merger Date, the Company conducted substantially all
business activities as a cooperative and, accordingly, no U.S. income
taxes were provided. The Company's income tax expense for the period
July 1, 1994, through December 18, 1994, and the year ended June 30,
1994, were primarily foreign taxes applicable to operations in Canada.
(8) Postretirement Benefits Other Than Pensions
The Company provides certain postretirement health care benefits to
substantially all employees who retire with a minimum of 10 years of
service and have attained 60 years of age. The plan retirees are
required to share in the cost of the benefit. There are currently no
plans to modify or terminate the plan; however, the Company is under no
obligation to continue the plan under its current form and may modify or
terminate the plan at the discretion of the board of directors.
Effective July 1, 1993, the Predecessor Company adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions,
for its unfunded postretirement health care program. This statement
requires that the expected cost of postretirement benefits be recognized
in the financial statements during the employees' active service period.
The Predecessor Company elected to immediately recognize as a charge to
expense its transition obligation of $6,277,000.
F-17
<PAGE> 56
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(8) Postretirement Benefits Other Than Pensions, Continued
At June 30, 1996 and 1995, the status of the plan consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Retirees $ 4,198,000 4,435,000
Fully eligible active participants 62,000 -
Other Active participants 1,921,000 3,124,000
------------ ---------
Accumulated postretirement benefit obligation 6,181,000 7,559,000
Unrecognized net gain 1,238,000 -
------------ ---------
Accrued postretirement benefit liability $ 7,419,000 7,559,000
============ =========
</TABLE>
At June 30, 1995, the accrued postretirement benefit liability included
employees who were subsequently voluntarily or involuntarily terminated
as part of the Company's plan to relocate and/or consolidate employees.
Upon the completion of the Company's plan, a reduction to the accrued
postretirement benefit liability of $590,000 was recorded to reflect the
impact of this plan.
Net periodic postretirement benefit costs for the year ended June 30,
1996, the periods December 19, 1994, through June 30, 1995 and July 1,
1994, through December 18, 1994 and the year ended June 30, 1994 included
the following components:
<TABLE>
<CAPTION>
Predecessor Company
---------------------------------------
Period Period
December 19, 1994 July 1
Year Ended Through June 30, Through Year Ended
June 30, 1996 1995 December 18, 1994 June 30, 1994
------------- -------------------- --------------------- -------------
<S> <C> <C> <C> <C>
Service cost $ 194,000 168,000 208,400 342,100
Interest cost 438,000 294,000 307,400 522,900
Unrecognized prior
period gain (54,000) - - -
---------- ------- ------- -------
Total $ 578,000 462,000 515,800 865,000
========== ======= ======= =======
</TABLE>
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 8.0 percent through December 18, 1994,
8.5 percent for the period December 19, 1994, through June 30, 1995, 7.75
percent at June 30, 1995 and 7.5 percent at and for the year ended June
30, 1996. The assumed health care cost trend rate used in measuring the
APBO was 10.0 percent and graded down to 5.5 percent over 12 years at
June 30, 1996 and 13.2 percent and graded down to 6.4 percent over 13
years at June 30, 1995. If the current health care cost trend rate
assumption was increased by 1 percent, the APBO as of June 30, 1996,
would increase approximately $1,006,000, or 16 percent, while the
periodic cost for the fiscal year ended June 30, 1996, would have
increased approximately $131,000, or 21 percent.
(9) Pension Plans
The Company has both a defined benefit and a defined contribution plan
which cover substantially all domestic employees. The Company's funding
policy is to contribute annually to the defined benefit plan the amount
deductible for income tax purposes. Contributions of approximately
$1,223,000 were made to the defined benefit plan in 1996. No
contribution was made in 1995. Contributions of approximately $1,195,000
were made to the defined benefit plan in 1994 by the Predecessor Company.
The Company's matching contributions to the defined contribution plan are
determined at the discretion of the board of directors. No matching
contributions have been made in 1996, 1995, or 1994.
F-18
<PAGE> 57
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(9) Pension Plans, Continued
Pension expense, including administrative costs, charged to the Company's
operations for the above-mentioned pension plans amounted to $903,000 for
the year ended June 30, 1996, $507,000 for the period December 19, 1994,
through June 30, 1995, and for the Predecessor Company, $646,000 for the
period July 1 through December 18, 1994, and $931,000 in 1994.
Benefits under the Company's defined benefit plan are based on employee's
age, years of service, and the highest consecutive five-year average
compensation.
Plan assets for the defined benefit plan consist of investments in common
stock, real estate properties, fixed income securities, and short-term
investments. Pension expense for the Company's defined benefit plan was
computed as follows:
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------
Period Period
December 19, July 1
Year ended 1994 Through Through Year ended
June 30, June 30, December 18, June 30,
1996 1995 1994 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost $ 616,000 360,000 458,000 763,000
Interest cost 820,000 387,000 447,000 705,000
Actual (gain) loss on
plan assets (1,434,000) (566,000) (299,000) 115,000
Net amortization and
deferral 901,000 310,000 30,000 (678,000)
------------ ------- ------- -------
Pension expense $ 903,000 491,000 636,000 905,000
============ ======= ======= =======
</TABLE>
At June 30, 1996 and 1995, the funded status of the defined benefit plan
was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligations $ 6,136,000 5,576,000
Nonvested benefit obligations 840,000 800,000
------------ ---------
Accumulated benefit obligations $ 6,976,000 6,376,000
============ =========
Projected benefit obligations $ 10,653,000 9,786,000
Plan assets at fair value (5,780,000) (5,948,000)
------------ ---------
Projected benefit obligations in excess of
plan assets 4,873,000 3,838,000
Unrecognized net gain 212,000 310,000
------------ ---------
Total accrued pension obligations $ 5,085,000 4,148,000
============ =========
</TABLE>
F-19
<PAGE> 58
FLORISTS' TRANSWORLD DELIVERY, INC.
(a wholly owned subsidiary of FTD Corporation)
Notes to Consolidated Financial Statements, Continued
(9) Pension Plans, Continued
For the period July 1, 1995 through March 1, 1996, the weighted average
discount rate was 7.75 percent preretirement and 6 percent postretirement
for those participating in the defined benefit plan on November 1, 1976,
and 7.75 for all others. For any benefits accrued after March 1, 1996,
the weighted average discount rate was 7.75 percent for both
preretirement and postretirement for all plan participants. The weighted
average discount rate was 8.5 percent preretirement and 6 percent
postretirement for those participating in the defined benefit plan on
November 1, 1976, and 8.5 percent for all others for the period December
19, 1994, through June 30, 1995. The weighted average discount rate was 8
percent preretirement and 6 percent postretirement for those
participating in the defined benefit plan on November 1, 1976 for the
period July 1 through December 18, 1994, and in 1994. For all others in
the period July 1 through December 19, 1994, and in 1994, the rate was 8
percent. The discount rate used to calculate the projected benefit
obligation at June 30, 1996, was decreased to 7.5 percent. For all
periods presented, the rate of increase in future compensation levels was
5 percent and the expected long-term rate of return on assets was 9
percent.
At June 30, 1995 the calculated projected benefit obligation assumed that
certain employees of FTD Association, who were formerly employees of the
Company, were active plan participants continuing to earn benefits.
Subsequent to June 30, 1995, the status of FTD Association employees was
changed to vested terminated participants who were due a lump sum under
the plan agreement and, accordingly, the calculated projected benefit
obligation was increased by $734,000.
(10) Related Party Transactions
Operating expenses for the year ended June 30, 1996 and the period
December 19, 1994, through June 30, 1995, include $1,000,000 payable each
period to certain investors of FTD Corporation for management consulting
services.
The Company entered into an employment agreement dated as of March 31,
1995, with its president and chief executive officer (the "CEO") through
June 30, 2000 (the "Employment Agreement"), with automatic one-year
renewals thereafter.
The Employment Agreement provided, among other things, for the sale to
the CEO of 127,500 shares of common stock of FTD Corporation at the
assumed fair market value on the agreement date of $4.71 per share. A
portion of such purchase was financed through (i) a $100,000 one-year,
interest-free loan from FTD Corporation, and (ii) a $150,000
interest-bearing loan from FTD Corporation due June 30, 1996. The
interest-free loan was forgiven in its entirety by June 30, 1996 and was
recorded as compensation expense by the Company in the amount of $97,000
for the year ended June 30, 1996. The outstanding principal balance of
the interest-bearing loan accrued interest at 9 percent per annum. At
June 30, 1996, $128,419 was outstanding from these notes.
(11) Commitments and Contingencies
The Company is involved in various lawsuits and other matters arising in
the normal course of business. In the opinion of the management of the
Company, although the outcomes of these claims and suits are uncertain,
they should not have a material adverse effect on the Company's financial
condition, liquidity, or results of operations.
F-20
<PAGE> 59
Independent Auditors' Report
The Board of Directors
Florists' Transworld Delivery, Inc.:
Under date of July 31, 1996, we reported on the consolidated statements of
financial position of Florists' Transworld Delivery, Inc., as of June 30, 1996
and 1995, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the year ended June 30, 1996 and the periods July 1,
1994, through December 18, 1994 and December 19, 1994, through June 30, 1995,
which are included in the annual report on Form 10-K. In connection with our
audit of the aforementioned consolidated financial statements, we also audited
the related financial statement schedule in the annual report on Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Detroit, Michigan
September 24, 1996
F-21
<PAGE> 60
FLORISTS' TRANSWORLD DELIVERY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
------------------
Balance Charged to Charged Balance
Beginning Cost and to Other at End
of Period Expenses Accounts Deductions of Period
--------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR 1994
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) ......................... $1,075,000 $ 797,128 $38,279(a) $ 635,407(b) $1,275,000
Inventory valuation reserve
(included in Inventories, net in
balance sheet) ................. $ 550,000 $ 470,599 ---- $ 720,599(c) $ 300,000
<CAPTION>
Period July 1, 1994 through December 18, 1994
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) ......................... $1,275,000 $ 113,359 $13,023(a) $ 400,215(b) $1,001,167
Inventory valuation reserve
(included in Inventories, net in
balance sheet) $ 300,000 $ 237,150 ---- $ 137,145(c) $ 400,005
<CAPTION>
Period December 19, 1994 through June 30, 1995
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) $1,583,158(d) $ 563,408 $14,206(a) $ 571,432(b) $1,589,000
Inventory valuation reserve
(included in Inventories, net in
balance sheet) ................. $ 400,005 $ 750,187 --- $ 805,192(c) $ 345,000
YEAR 1996
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) ......................... $1,589,000 $ 895,000 $80,000(a) $1,152,000(b) $1,412,000
Inventory valuation reserve
(included in Inventories, net in
balance sheet) ................. $ 345,000 $1,325,000 --- $1,276,000(c) $ 394,000
</TABLE>
(a) Collection of accounts previously written off
(b) Uncollectible accounts written off
(c) Valuation writedown
(d) Due to the Acquisition, basis of assets between periods may not be
comparable
F-22
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
- ------ -------- --------------
<S> <C> <C>
3.1 Restated Articles of Incorporation
of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No.
33-88628).)
3.2 Bylaws of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's
Annual Report on Form 10-K for fiscal year
ended June 30, 1995.)
4.1 Indenture, dated as of December 1, 1994
(the "Indenture"), by and between the
Registrant and First Trust of New York,
National Association, as Trustee. (In-
corporated by reference to Exhibit 4.1
of the Registrant's Registration
Statement on Form S-1 (File No. 33-88628).)
4.2 Supplemental Indenture, dated as of
December 19, 1994 to the Indenture.
(Incorporated by reference to Exhibit
4.3 of the Registrant's Registration
Statement on Form S-1 (File No. 33-88628).)
10.1(a) Credit Agreement, dated as of December 19,
1994, among the Registrant, FTD
Corporation, the various lending institutions
party thereto and Bankers Trust Company, as
Agent. (Incorporated by reference to Exhibit
10.1 of the Registrant's Registration
Statement on Form S-1 (File No. 33-88628).)
10.1(b) First Amendment to Credit Agreement, dated as
of August 30, 1995, among the Registrant, FTD
Corporation, the lending institutions party
to the Credit Agreement and the Bankers Trust
Company, as Agent. (Incorporated by reference
to Exhibit 10.1(b) of the Florists' Transworld
Delivery Inc. Annual Report on Form 10-K for
fiscal year ended June 30, 1995.)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
- ------ ------- --------------
<S> <C> <C>
10.1(c) Second Amendment to Credit Agreement, dated
as of June 11, 1996, among the Registrant,
FTD Corporation, the lending institutions
party to the Credit Agreement and Bankers
Trust Company, as Agent. (Incorporated by
reference to Exhibit I(d) of the FTD
Corporation Registration Statement on Form
8-A filed August 28, 1996.)
10.2 Pledge Agreement, dated December 1, 1994,
by and among the Registrant, FTD
Corporation., FTD Holdings Incorporated,
FTD Direct Access, Inc., Directory
Advertising, Inc. and Bankers Trust
Company, as Agent. (Incorporated by
reference to Exhibit 10.2 of the
Registrant's Registration Statement on Form
S-1 (File No. 33-88628).)
10.3 Security Agreement, dated December 19,
1994, by and among the Registrant, FTD
Corporation., certain subsidiaries of the
Registrant and Bankers Trust Company, as
Agent. (Incorporated by reference to
Exhibit 10.3 of the Registrant's
registration Statement on Form S-1 (File
No. 33-88628).)
10.4 Consultation Agreement and Covenant Not to
Compete, dated as of August 2, 1994,
by and between the Registrant and John A.
Borden. (Incorporated by reference to
Exhibit 10.8 of the Registrant's
Registration Statement on Form S-1 (File No
33-88628).)
10.5 Mutual Support Agreement, dated as of
December 18, 1994, by and between the
Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.9
of the Registrant's Registration Statement
on Form S-1 (File No, 3-88628).)
10.6 Trademark License Agreement, dated as of
December 18, 1994, by and between the
Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.10
of the Registrant's Registration Statement
on Form S-1 (File No. 33-88628).)
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
- ------ ------- --------------
<S> <C> <C>
10.7 Registration Rights Agreement, dated as of
December 19, 1994, among the Registrant,
FTD Corporation., BT Securities Corporation
and Montgomery Securities. (Incorporated by
reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form
S-1 (File No. 33-88628).)
10.8 Tax Sharing Agreement, dated as of December
19, 1994, between the Registrant and FTD
Corporation. (Incorporated by reference to
Exhibit 10.12 of the Registrant's
Registration Statement on Form S-1 (File
No. 33-88628).)
10.9 Employment Agreement, dated March 31, 1995,
among Margaret C. Whitman, the Registrant
and FTD Corporation. (Incorporated by
reference to Exhibit 10.10 of the FTD
Corporation Registration Statement on Form
S-1 (File No. 33-91582).)
10.10 FTD Corporation 1994 Stock Award and
Incentive Plan. (Incorporated by reference
to Exhibit 10.14 of the FTD Corporation
Registration Statement on Form S-1 (File
No. 33-91582).)
21.1 Subsidiaries of the Registrant.
(Incorporated by reference to Exhibit 21.1
of the Registrant's Annual Report on Form
10-K for fiscal year ended June 30, 1995.)
27 Financial Data Schedule. E
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FTD INC.
JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 26,536
<SECURITIES> 0
<RECEIVABLES> 25,480
<ALLOWANCES> 1,412
<INVENTORY> 12,467
<CURRENT-ASSETS> 70,357
<PP&E> 50,486
<DEPRECIATION> 15,158
<TOTAL-ASSETS> 195,955
<CURRENT-LIABILITIES> 70,043
<BONDS> 96,277
0
0
<COMMON> 0
<OTHER-SE> 26,736
<TOTAL-LIABILITY-AND-EQUITY> 195,955
<SALES> 57,924
<TOTAL-REVENUES> 166,255
<CGS> 41,209
<TOTAL-COSTS> 104,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,498
<INCOME-PRETAX> (8,548)
<INCOME-TAX> (1,807)
<INCOME-CONTINUING> (6,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,709)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
