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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 33-88628
FLORISTS' TRANSWORLD DELIVERY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-054696
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code (630) 719-7800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 August 31, 1998. As of August 31, 1998, 100 shares of the
registrant's Common Stock were outstanding.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Florists' Transworld Delivery, Inc., a Michigan corporation, (the "Company"
or "FTD") is the world's largest floral services organization based on the
number of members of FTD Association (as defined) and affiliated organizations.
FTD Association has a membership of approximately 20,000 retail florist shops
primarily in the U.S. and Canada and, through affiliated or related
organizations, approximately 32,000 additional retail florist shops in
approximately 140 other countries. Through these members FTD offers consumers
expedited delivery of high-quality FTD-branded products in the U.S. and Canada
and non-branded floral products throughout most of the world.
FTD promotes a worldwide brand based on the FTD Mercury Man logo. See "--
Marketing and Advertising." A significant portion of FTD's revenues, operating
income and competitive advantage is derived from FTD's technology based
transaction processing business, which includes the Mercury Network,
Clearinghouse, Advantage Software and Direct Access (1-800-SEND-FTD and
www.ftd.com). In addition to the foregoing, FTD's operations include Marketplace
and other business units which support and enhance the retail floral industry.
See "-- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
The Company is the successor to a non-profit cooperative association
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"), 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 Old Association 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
Agreement, the Company and FTD Association entered into the Mutual Support
Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), and a
Trademark Membership License Agreement, dated December 18, 1994 (the "Trademark
Agreement"; both the Mutual Support Agreement and the Trademark Agreement are
hereinafter referred to as the "Association Agreements"), which governed the
relationship between the Company and FTD Association. Pursuant to the
Association Agreements, among other things: (i) existing and future 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 the operation of a retail florist shop; (ii) all members in good
standing are provided access to FTD's Clearinghouse, Mercury Network and certain
other FTD services and products; (iii) payments by the Company equal to a
percentage of the value of every floral order cleared through FTD's
Clearinghouse are made to FTD Association; and (iv) 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. All references herein to "members"
refer to members of FTD Association. On April 22, 1998, the Company notified the
FTD Association Board of Trustees that FTD Association was failing to comply
with certain obligations under the Association Agreements. FTD Association
failed to cure the deficiencies under the Association Agreements, and the
Company notified FTD Association on May 26, 1998, that the Association
Agreements were terminated. Such termination is currently subject to an
arbitration proceeding in Chicago, Illinois filed by FTD Association on May 28,
1998.
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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 newspaper supplements) generally promotes FTD florists,
FTD-branded products, 1-800-SEND-FTD and FTD Florists' On-line Internet site
(www.ftd.com). FTD coordinates cooperative advertising on a local basis with
participating florists. FTD also provides FTD florists with advertising tools
such as billboard paper, slicks for print advertising and television tapes to be
tagged with individual shop information. In addition, FTD provides FTD Florists
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 florists 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.
OPERATIONS
For each transaction cleared by FTD, FTD's Clearinghouse operations
collects the billing information from either the Mercury Network or the florist
that fills the order locally (the "Receiving Florist") if the Mercury Network
has not been used, and allocates funds among FTD, the florist with whom a
customer places the delivery order (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 in the same postal zip code on the same day.
Floral orders between FTD florists are transmitted primarily by FTD's Mercury
Network.
FTD was initially formed to encourage flowers-by-wire transactions between
member florists, but over time FTD has developed a number of additional services
and products that support and enhance the retail floral operations of FTD
professional florists. Currently, FTD's primary operations are Marketplace,
Clearinghouse, Mercury Network, Direct Access and Publications.
The following table illustrates the percentage of total revenue generated
by the Company's major businesses as a percentage of total revenue for the three
fiscal years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Marketplace................................................. 30.2% 31.0% 35.4%
Clearinghouse............................................... 21.9 22.3 23.4
Mercury Network............................................. 21.9 23.1 20.5
Direct Access, Publications & Other......................... 26.0 23.6 20.7
----- ----- -----
Total Revenue............................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
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Certain amounts in 1997 and 1996 have been reclassified to conform to the
current year presentation.
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 FTD florists with a broad selection of products at attractive
prices.
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 Mars, Inc. and Disney Enterprises, Inc. The Company
believes that FTD's large retail network and brand recognition make it a
valuable corporate partner for such ventures.
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Renaissance Greeting Cards Inc. ("Renaissance"), is included as part of
Marketplace revenue and is a wholly owned subsidiary of the Operating Company.
Renaissance produces greeting cards for special occasions and holidays.
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 1998, FTD cleared floral orders aggregating
approximately $465 million in retail sales. Revenue from FTD's Clearinghouse is
generated by FTD retaining 7% of the sales price of orders sent through
Clearinghouse. The remaining 93% is allocated as follows: 20% to the Sending
Florist and 73% to the Receiving Florist. In addition, the Company provides FTD
Association an amount equal to one-eighth of one percent (.125%) of the value of
every floral order that is cleared or otherwise processed through FTD's
Clearinghouse. See "The Acquisition and Relationship with FTD Association."
FTD is a joint venture participant in Interflora, Inc., a floral services
organization with non-FTD member florists, which enables florists to transmit
and receive orders outside the Americas.
Mercury Network. 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
seventy-five percent of the FTD florists. These florists who are linked by the
Mercury Network are able to transmit orders cleared through FTD or through
competing clearinghouses and are able to send messages.
As part of its Mercury Network, FTD offers FTD florists its Advantage Plus
computer software, which operates on the Mercury Network, and is customized to
fit the needs of retail florists. The Advantage Plus software package provides a
comprehensive range of payroll and accounting functions for the retail florist.
During fiscal 1998, FTD successfully released version 6-1 of its Advantage Plus
Software.
Also included as part of Mercury Network revenue is the processing of
credit card transactions for participating FTD florists. By pooling the credit
card transactions of such florists, FTD is able to secure more favorable terms
on credit card transactions than they could secure individually.
Direct Access, Publications and Other (includes 1-800-SEND-FTD and
www.ftd.com). FTD's Direct Access business offers retail customers the
opportunity to place orders directly with FTD by dialing a toll free number
(1-800-SEND-FTD), or through FTD's Florists' Online Internet site (www.ftd.com)
by utilizing online services such as Compuserve, Netscape and Yahoo. Revenue
from this business unit is generated by FTD's receipt of a percentage of the
sales price as the Sending Florist and a service charge from the consumer.
FTD's Publications business consists of FTD's Directory & Toll Free
Listings ("FTD Directory"), a directory of all current FTD florists, their
locations, product ordering information and minimum order amounts. In a typical
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 the FTD Directory to identify a Receiving Florist.
The FTD Directory is published quarterly and is supplied to FTD florists in
printed form. The FTD Directory is also available on CD-ROM.
FTD's monthly access fee to members is also included in this category as
Other revenue.
SEASONALITY
FTD generated 22.0%, 26.5%, 26.4% and 25.1% of total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 1998,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1998. FTD's operating income also fluctuates over the
course of the fiscal year. In Fiscal 1998, FTD experienced increased operating
income for the fiscal quarters ending September 30 and June 30. This fluctuation
is primarily attributable to: (i) increased advertising and promotional
expenditures during the fiscal quarter ending December 31 relating to the
holiday season; (ii) a decrease in general and administrative costs during the
quarter ending June 30; and (iii) increased Clearinghouse and Direct Access,
Publications and Other revenues during the fourth quarter relating to the Easter
and Mother's Day holidays as well as an increase in the monthly access fee.
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 U.S. trademark which distinguishes
FTD's services and products from those offered by others and appears on the shop
window or door of each FTD florist. 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 the "Chicken Soup
Bouquet," "Thanks a Bunch Bouquet," "Stay in Touch Bouquet," "Pick-Me-Up
Bouquet," "Birthday Party Bouquet," "Anniversary Bouquet" "Puzzle Fun Bouquet"
and "Sweet Dreams Bouquet." 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 FTD florists who have executed a Trademark
Membership License Agreement with the Company.
COMPETITION
FTD competes in the extremely fragmented floral services industry against a
large number of wholesalers and service providers. FTD's primary competitors
are: American Floral Services, Inc. and Teleflora LLC. Both of these competing
services offer some products and services which are comparable to those offered
by FTD and most FTD florists subscribe to at least one of these competing
services. 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
(1-800-SEND-FTD) business is 1-800-FLOWERS, Inc. Several other less significant
companies operate in the toll free and online services markets.
The Company 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
of America v. Florists' Transworld Delivery Association, Civ. No. 66-28784
(collectively referred to as the "Consent Order"). Among its terms, the Consent
Order prohibits restricting FTD Association membership to florists who are not
subscribers to a competing clearinghouse. The Consent Order expires on August 1,
2005.
EMPLOYEES
As of June 30, 1998, FTD employed approximately 430 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 120,000
square feet of office space, are owned by FTD and are located in Downers Grove,
Illinois. FTD leases office space through a subsidiary in Sanford, Maine. 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 other lawsuits and 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 position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
FTD Corporation, the sole stockholder of the Company, approved by written
consent the election of Kenneth M. Coley and Richard B. Heroman as directors of
the Company on June 24, 1998. The remaining directors are Richard C. Perry,
Robert L. Norton, Veronica K. Ho, Gary K. Silberberg, William P. Phelan and
Habib Gorgi.
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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 15, 1998, all 100 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), were held by FTD Corporation.
The Company has not paid any dividends on its Common Stock for the fiscal
years ended June 30, 1997 and 1998. 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, are permitted: (1) payments by the Company to FTD
Corporation to pay management fees in an amount not to exceed $2.0 million in
any one fiscal year pursuant to the Management Consulting Services Agreement (as
hereinafter defined); (2) payments by the Company to FTD Corporation for the
reimbursement of reasonable out-of-pocket expenses permitted pursuant to the
Management Consulting Services Agreement; and (3) 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 Old
Association for the fiscal year 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 fiscal years ended June 30, 1996, 1997 and 1998. The selected
historical balance sheet and statement of operations data as of and for the
fiscal year ended June 30, 1994 were derived from the audited consolidated
financial statements of the Old Association. 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 were derived from the audited
consolidated financial statements of the Old Association. The selected
historical statement of operating data for the period from December 19, 1994 to
June 30, 1995, and for the years ended June 30, 1996, 1997 and 1998, and the
balance sheet data as of June 30, 1996, 1997 and 1998 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 of FTD for the years ended June 30, 1996, 1997
and 1998, including the notes thereto, appearing elsewhere in this Form 10-K.
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<TABLE>
<CAPTION>
FLORISTS' TRANSWORLD DELIVERY INC. OLD ASSOCIATION
--------------------------------------------- -------------------------
DECEMBER 19, JULY 1,
1994 1994
FOR THE YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED
------------------------------ JUNE 30, DECEMBER 18, JUNE 30,
1998 1997 1996 1995 1994 1994(1)
---- ---- ---- ------------ ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue........................... $161,325 $162,537 $166,642 $ 96,572 $75,341 $166,560
Cost of goods sold and services
provided.............................. 94,083 97,395 104,386 59,368 49,489 102,260
Selling, general and administrative..... 54,461 54,565 58,724 29,922 28,312 57,625
-------- -------- -------- -------- ------- --------
Income (loss) from operations........... 12,781 10,577 3,532 7,282 (2,460) 6,675
Other expense, net...................... 9,503 11,842 12,080 5,836 77 795
Income taxes (benefit)(2)............... 2,165 410 (1,807) 1,020 35 92
Minority Interest(3).................... (1) (14) (33) 8
Cumulative effect of accounting
change(4)............................. -- -- -- -- -- 6,277
-------- -------- -------- -------- ------- --------
Net Income (loss) before extraordinary
item.................................. $ 1,114 $ (1,661) $ (6,708) $ 418 $(2,572) $ (489)
Extraordinary item(5):
Loss on extinguishment of debt (net of
$490 income tax benefit)............ (835) -- -- -- -- --
-------- -------- -------- -------- ------- --------
Net income (loss)....................... $ 279 $ (1,661) $ (6,708) $ 418 $(2,572) $ (489)
======== ======== ======== ======== ======= ========
OTHER DATA:
Depreciation and amortization........... $ 9,570 $ 15,606 $ 14,231 $ 6,525 $ 4,911 $ 10,144
Capital expenditures, net............... 1,942 2,614 4,950 3,082 1,413 8,134
Ratio of earnings to fixed charges(6)... 1.3X -- -- 1.2x -- 2.9X
BALANCE SHEET DATA:
(at end of period)
Working capital (deficit)............... $ (6,723) $ 3,363 $ 314 $ 4,906 $ -- $ 16,918
Total assets............................ 154,486 181,724 195,955 203,681 -- 135,506
Long-term debt, including current
portion............................... 58,130 82,400 96,277 100,757 -- 33,463
Total equity............................ $ 25,286 $ 25,069 $ 26,736 $ 33,440 $ -- $ 36,216
</TABLE>
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(1) Fiscal 1994 has not been restated to conform to current year presentation of
FTD Floral Selections revenue, credit card interest, and Canadian exchange
due to unavailability of information relating to operations prior to the
Acquisition. The restatements to fiscal 1997, 1996, and 1995 in order to
conform to the current year presentation were between revenue, cost of goods
sold and services provided, and selling, general and administrative
expenses. Income (loss) from operations was not affected by the
reclassifications.
(2) Taxes on income for the fiscal year ended June 30, 1994 and for the period
July 1 through December 18, 1994 are generally applicable to the Old
Association's Canadian operations. During these periods, the Old Association
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 fiscal years ended June 30, 1996, 1997 and
1998 represent operations after conversion from a cooperative association to
a for-profit corporation, which resulted in a provision for U.S. income tax
liabilities to be recorded.
(3) Represents FTD's interest in Renaissance. In fiscal 1998, the remaining
minority interest was purchased for cash by FTD.
(4) Effective July 1, 1993, the Old Association 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.
(5) In November 1997, FTD entered into a new credit agreement with First Chicago
Capital Markets, Inc. As a result of entering into the new credit agreement,
unamortized deferred financing costs associated with the then existing debt
were expensed net of the related income tax benefit of $0.5 million,
resulting in a net loss on extinguishment of debt of $0.8 million. See note
4 to the consolidated financial statements.
(6) 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 net Other expenses. Net Other expenses consist of
net 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 years ended June 30, 1996 and 1997 were
insufficient to cover fixed charges by $8,548 and $1,265, respectively.
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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 reflect the Company's
expectations regarding its future growth, results of operations, performance and
business prospects and opportunities. Words such as "anticipates," "believes,"
"plans," "expects," "estimates," and similar expressions have been used to
identify these forward looking statements, but are not the exclusive means of
identifying these statements. These statements reflect the Company's current
beliefs and are based on information currently available to the Company.
Accordingly, these statements are subject to known and unknown risks,
uncertainties, and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties,
and other factors include the Company's ability to develop and market existing
and acquired products, the Company's ability to adjust to changes in technology,
customer preferences, enhanced competition and new competitors in the floral
services industry, current exchange rate fluctuations, collection of
receivables, the Company's ability to address internal and external Year 2000
issues and risks associated with general economic and business conditions, which
may reduce or delay customers' purchases of the Company's products and services.
The Company is not obligated to update or revise these forward-looking
statements to reflect new events or circumstances.
RESULTS OF OPERATIONS
The following table illustrates the total revenue generated by FTD's major
businesses and summarizes FTD's historical results of operations for the three
fiscal years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
--------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Marketplace................................................. $ 48,668 $ 50,257 $ 58,944
Clearinghouse............................................... 35,292 36,301 38,966
Mercury Network............................................. 35,317 37,554 34,134
Direct Access, Publications and Other....................... 42,048 38,425 34,598
-------- -------- --------
Total revenue.......................................... 161,325 162,537 166,642
Cost of goods sold and services provided.................... 94,083 97,395 104,386
Selling, general and administrative......................... 54,461 54,565 58,724
-------- -------- --------
Income from operations...................................... $ 12,781 $ 10,577 $ 3,532
======== ======== ========
</TABLE>
- -------------------------
Certain amounts in 1997 and 1996 have been reclassified to conform to the
current year presentation.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1998 compared
with the year ended June 30, 1997.
Total revenue decreased by $1.2 million, or 0.7%, to $161.3 million for the
year ended June 30, 1998 compared to $162.5 million for the year ended June 30,
1997. The decline in revenue was the net result of decreases in Marketplace,
Clearinghouse and Mercury Network revenue, partially offset by an increase in
Other revenue.
Marketplace revenue decreased by $1.6 million, or 3.2%, to $48.7 million
for the year ended June 30, 1998 compared to $50.3 million for the year ended
June 30, 1997. The decrease from the prior year was the net result of lower
sales volume of holiday products offset in part by an increase in revenue
relating to Renaissance as a result of the increase in the number of retail
outlets in which Renaissance Greeting Cards are sold and the FTD Floral
Selections. Marketplace revenue was 30.2% and 31.0% of total revenue for the
years ended June 30, 1998 and 1997, respectively.
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Clearinghouse revenue decreased by $1.0 million, or 2.8%, to $35.3 million
for the year ended June 30, 1998 from $36.3 million for the year ended June 30,
1997. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.9% 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 overall decline in the market share of retail florists. Clearinghouse
revenue was 21.9% and 22.3% of total revenue for the years ended June 30, 1998
and 1997, respectively.
Mercury Network revenue decreased by $2.2 million, or 5.9%, to $35.3
million for the year ended June 30, 1998 from $37.6 million for the year ended
June 30, 1997. A decrease in computer console rental income and sales of
Advantage floral business systems were the major factors contributing to the
revenue decrease. Mercury Network revenue was 21.9% and 23.1% of total revenue
for the years ended June 30, 1998 and 1997, respectively.
Other revenue experienced a net increase of $3.6 million, or 9.4%, to $42.0
million for the year ended June 30, 1998 from $38.4 million for the year ended
June 30, 1997. This increase was primarily due to an increase in the monthly
access fee charged to FTD florists as well as incremental revenue for fiscal
1998 relating to FTD's Internet site www.ftd.com. Other revenue was 26.0% and
23.6% of total revenue for the year ended June 30, 1998 and 1997, respectively.
The cost of goods sold and services provided decreased by $3.3 million, or
3.4%, to $94.1 million for the year ended June 30, 1998 from $97.4 million for
the year ended June 30, 1997. This is primarily the result of lower costs
relating to floral order transmissions and processing services and customer
programs partially offset by an increase in costs relating to products and
distribution. As a percent of revenue, cost of goods sold and services provided
decreased slightly to 58.3% for the year ended June 30, 1998 from 59.9% for the
year ended June 30, 1997.
Costs relating to floral order transmissions and processing services
decreased $4.0 million, or 13.4%, to $25.8 million for the year ended June 30,
1998 from $29.8 million for the year ended June 30, 1997. This decrease is
primarily attributable to a decrease in depreciation expense relating to fully
depreciated equipment as of December 31, 1997.
Costs relating to customer programs decreased $0.2 million, or 0.5%, to
$31.5 million for the year ended June 30, 1998 from $31.7 for the year ended
June 30, 1997. This is primarily the net result of decreased costs relating to
the FTD Directory being published on a quarterly basis in fiscal 1998 versus
five times per year in fiscal 1997 and net increased costs associated with FTD's
customer incentive program and other miscellaneous expenses.
Product and distribution costs increased by $0.8 million, or 2.2% to $36.7
million for the year ended June 30, 1998 from $35.9 million for the year ended
June 30, 1997. This increase is primarily due to increased costs associated with
the Marketplace branded product line and costs associated with product sourcing.
Selling, general and administrative expenses decreased by $0.1 million, or
0.2%, to $54.5 million for the year ended June 30, 1998 from $54.6 million for
the year ended June 30, 1997. This decrease is primarily due to the net result
of increased national advertising expenses and decreased general and
administrative expenses in comparison to fiscal 1997.
Net interest expense for the years ended June 30, 1998 and 1997 was $9.5
million and $11.3 million, respectively. The decrease of $1.8 million was
attributable to lower average debt outstanding as well as lower average interest
rates resulting from the implementation of a new credit agreement which became
effective in November 1997. See "-- Liquidity and Capital Resources."
Income taxes on income from continuing operations for the year ended June
30, 1998 reflect an expense of $2.2 million compared to an expense of $0.4
million in the prior year. This increase is due to the increase in taxable
income.
As a result of the factors described above, a net profit before
extraordinary item of $1.1 million was achieved for the year ended June 30,
1998, an improvement of $2.8 million, from a net loss of $1.7 million for
9
<PAGE> 10
the year ended June 30, 1997. In November 1997, FTD entered into a new credit
agreement with First Chicago Capital Markets, Inc. which resulted in $1.3
million of unamortized deferred financing costs associated with the then
existing debt to be expensed. The related income tax benefit attributable to the
extinguishment of the existing debt was $0.5 million, resulting in a net loss on
extinguishment of debt of $0.8 million which is reflected as an extraordinary
item in the consolidated condensed statements of operations. Net profit after
the extraordinary item was $279 thousand, an improvement of $2.0 million from a
net loss of $1.7 million for the year ended June 30, 1997.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1997 compared
with the year ended June 30, 1996.
Revenue decreased by $4.1 million, or 2.5%, to $162.5 million for the year
ended June 30, 1997 compared to $166.6 million for the year ended June 30, 1996.
The decline in revenue was the net result of decreases in Marketplace and
Clearinghouse revenue, partially offset by increases in Mercury Network and
Other revenue.
Marketplace revenue decreased by $8.7 million, or 14.8%, to $50.2 million
for the year ended June 30, 1997 compared to $58.9 million for the year ended
June 30, 1996. The decrease from the prior year was the result of lower sales
volume of holiday products. Marketplace revenue was 30.9% and 35.4% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Clearinghouse revenue decreased by $2.7 million, or 6.8%, to $36.3 million
for the year ended June 30, 1997 from $39.0 million for the year ended June 30,
1996. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.5% 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 23.4% of total revenue for the years ended June 30, 1997
and 1996, respectively.
Mercury Network revenue increased by $3.4 million, or 10.0%, to $37.6
million for the year ended June 30, 1997 from $34.1 million for the year ended
June 30, 1996. An increase in terminal leasing revenue, order transmission
income and sales of Advantage floral business systems were the major factors in
the revenue increase. Mercury Network revenue was 23.1% and 20.5% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Other revenue experienced a net increase of $3.8 million, or 11.1%, to
$38.4 million for the year ended June 30, 1997 from $34.6 million for the year
ended June 30, 1996. This increase was primarily due to growth in the order
volume of Direct Access (1-800-SEND-FTD) and publications revenue. Other revenue
was 23.6% and 20.8% of total revenue for the year ended June 30, 1997 and 1996,
respectively.
The cost of goods sold and services provided decreased by $7.0 million, or
6.7%, to $97.4 million for the year ended June 30, 1997 from $104.4 million for
the year ended June 30, 1996. This is primarily the result of lower costs
associated with products and distribution as well as decreased costs relating to
floral order transmissions and processing services and customer programs. As a
percentage of revenue, cost of goods sold and services provided decreased
slightly to 59.9% for the year ended June 30, 1997 from 62.7% for the year ended
June 30, 1996.
Product and distribution costs decreased by $5.3 million, or 12.9%, to
$35.9 million for the year ended June 30, 1997 from $41.2 million for the year
ended June 30, 1996. This is primarily the result of lower costs of goods sold
related to lower Marketplace sales as discussed above.
Costs relating to floral order transmissions and processing services
decreased $0.8 million, or 2.6%, to $29.8 million for the year ended June 30,
1997 from $30.6 million for the year ended June 30, 1996. This decrease is
primarily attributable to decreased costs associated with computer operations
and systems and programming offset in part by an increase in costs related to
data processing.
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<PAGE> 11
Costs relating to customer programs decreased $0.9 million, or 2.8%, to
$31.7 million for the year ended June 30, 1997 from $32.6 million for the year
ended June 30, 1996. This decrease is primarily attributable to decreased costs
associated with FTD's customer incentive program and credit cards offset in part
by an increase in costs associated with the sales of Advantage floral business
systems.
Selling, general and administrative expenses decreased by $4.1 million, or
7.0%, to $54.6 million for the year ended June 30, 1997 from $58.7 million for
the year ended June 30, 1996. This decrease is primarily due to FTD's decreased
advertising and promotional expenditures in fiscal 1997. In addition, a pension
curtailment gain of $2.7 million, a $0.8 million postretirement curtailment gain
and a $0.5 million pension settlement gain were partially offset by costs of
$4.5 million due to FTD's facility consolidation efforts including the write off
of the trained workforce intangible asset and other related actions.
Net interest expense for the years ended June 30, 1997 and 1996 was $11.3
million and $12.1 million, respectively. The decrease of $0.8 million resulted
from a reduction in debt during the year ended June 30, 1997. See "-- Liquidity
and Capital Resources."
Income taxes on income for the year ended June 30, 1997 reflect an expense
of $0.4 million compared to a benefit of $1.8 million in the prior year. This
increase is a result of the decrease in the net loss from the prior year.
As a result of the factors described above, a net loss of $1.7 million was
achieved for the year ended June 30, 1997, an improvement of $5.0 million from a
net loss of $6.7 million for the year ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's $60.0 million aggregate principal amount
of 14% Senior Subordinated Notes due December 15, 2001 (the "Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act") and interest
payments under the Company's $100 million Credit Agreement dated as of November
20, 1997 with First Chicago Capital Markets, Inc. (the "Bank Credit Facilities")
represent significant liquidity requirements for FTD. Borrowings available under
the Bank Credit Facilities consist of a $50.0 million Multiple Draw Term Loan
Facility and a $50.0 million Revolving Credit Facility to finance working
capital, acquisitions, certain expenses associated with the Bank Credit
Facilities and letter of credit needs. FTD has repaid $24.6 million of existing
loans under the "Old Bank Credit Agreement" with Bankers Trust dated December
19, 1994 with the proceeds of the Bank Credit Facilities during fiscal 1998. At
June 30, 1998, the Company did not have any borrowings outstanding under the
Bank Credit Facilities. Any loan outstanding under the Bank Credit Facilities
will mature on December 31, 2003. The Company believes, based on current
circumstances, that its cash flow, together with borrowings under the Bank
Credit Facilities will be sufficient to fund its working capital needs, capital
expenditures, potential acquisitions, and to make interest and principal
payments as they become due under the terms of the Notes and the Bank Credit
Facilities.
As of June 30, 1998, the Company is in compliance with the covenants of
their debt agreements. See Note 4 (Financing Arrangements) to the consolidated
financial statements.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures, Year 2000 Compliance costs
and working capital needs. In the fiscal years ended June 30, 1998 and 1997,
FTD's net capital expenditures were $1.9 million and $2.6 million, respectively,
related primarily in 1998 to the implementation of new software packages and
building improvements, and in 1997 to the purchase of additional office
equipment. FTD's expected capital expenditures for fiscal 1999 are estimated to
be in the range of $5.0 to $7.0 million and will primarily be used for new
computer software and related information technology purchases. The Company
believes that cash flow from operations, together with borrowings available
under the Bank Credit Facilities, will be sufficient to fund anticipated capital
expenditures and working capital needs.
Cash provided by operating activities was $13.5 million for the year ended
June 30, 1998 compared to cash provided of $12.4 million for the year ended June
30, 1997. Factors contributing to this increase in cash
11
<PAGE> 12
flow were decreases in accrued pension and inventory of $2.4 million and $4.3
million respectively, offset by a cash flow decrease relating to depreciation
and amortization of $6.0 million.
Cash used in investing activities was $2.0 million for the year ended June
30, 1998, compared to cash provided by investing activities of $3.6 million for
the year ended June 30, 1997. In fiscal 1998, the cash used in investing
activities primarily consisted of the acquisition of components relating to the
new software package and the purchase of the remaining minority interest in
Renaissance.
Cash used in financing activities was $26.1 million for the year ended June
30, 1998, compared to cash used of $14.2 million for the year ended June 30,
1997. The net cash used in financing activities in the year ended June 30, 1998,
reflects primarily the net proceeds of long-term debt as a result of entering
into the new Bank Credit Facilities and repayments of principal on the then
existing term loans under the old Bank Credit Agreement.
Effective January 1, 1997, amendments to FTD's defined benefit pension plan
were adopted, including the elimination of the accrual of future benefits under
the plan. As a result of these amendments, and the corresponding remeasurement
of the accumulated and projected benefit obligations under the plan, a pre-tax
pension settlement gain of $0.4 million and a pre-tax pension curtailment gain
of $1.0 million were recognized in income as a reduction in Selling, General and
Administrative costs during fiscal 1998. FTD has established a new 401(k)
savings plan for all of its eligible employees.
On January 3, 1997, FTD's Board of Directors approved a plan to consolidate
corporate staff and operations into its Downers Grove, Illinois facility, which
has enabled FTD to improve program execution and is helping FTD to better serve
its customers. Leased office space in Boston, Massachusetts was subleased, and
land and buildings in Southfield, Michigan were sold. FTD's then existing bank
credit agreement required FTD to use the net proceeds from the sale of assets to
reduce the outstanding term loan and as a result, future interest costs were
reduced. In accordance with EITF Consensus no. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
non-recurring charges in connection with the consolidation including severance,
asset impairment losses, and other costs aggregating $3.0 million were
recognized as Selling, General and Administrative costs during fiscal 1997.
During fiscal 1998 the Company reduced the liability for non-recurring charges
in connection with the consolidation by $0.4 million, as a result of over
estimates in anticipated consolidation expenses associated with severance,
relocation and other costs.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems and has
identified the systems that could be affected by the "Year 2000" issue. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1990 rather than the year 2000. This could result in a major system failure or
miscalculation. The Year 2000 issue may also affect the systems and applications
of the Company's vendors or customers. As of June 30, 1998, FTD has contracted
with an outside consulting firm which has assisted FTD in the evaluation and
selection of a compatible software package based on FTD's system requirements.
FTD is currently in the implementation and training process of a new software
package and expects the project to be completed by June 30, 1999. This new
software package will allow the Company to improve its execution and efficiency
in recording information in addition to providing a solution to the Year 2000
issue with respect to the Company's internal computer systems.
The Company has not completed its assessment of the Year 2000 issue as it
relates to customers and third party vendors with whom the Company does
business. However, it should be noted that the Company has over 20,000
customers, none of which individually accounts for a material portion of the
Company's revenues or profits. As it relates to vendors and suppliers, the
Company's plan includes contacting key third parties, including financial
institutions and communication and transportation providers with whom the
Company does business to address the compatibility of systems.
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<PAGE> 13
The economy in general may be adversely affected by risks associated with
the Year 2000 issue. The Company's business, financial condition, and results of
operations could be materially adversely affected if systems that it operates,
or systems that are operated by other parties with whom the Company does
business, are not Year 2000 Compliant in time. There can be no assurance that
these third party systems will continue to properly function and interface and
will otherwise be Year 2000 Compliant. Although the Company is not aware of any
threatened claims related to the Year 2000, the Company may be subject to
litigation arising from such claims and, depending on the outcome, such
litigation could have a material adverse affect on the Company.
During the implementation of the new software package, the Company will
incur internal staff costs as well as consulting and other costs. The total
estimated cost to complete the project over the next 12 to 18 months is expected
to range between 10.0 and $12.0 million of which approximately $8.0 to $10.0
million of these expenditures are expected to be capital expenditures. The
capitalized items include the costs related to hardware, software and other
external direct costs of material and services consumed in developing the
internal-use computer software. If the Company is unsuccessful in implementing
the software or if the software does not function as it is expected to, the
related potential effect on the Company's earnings is expected to have a
material effect on the Company's business, financial condition and results of
operations. The Company intends to develop and implement, if necessary,
appropriate contingency plans to mitigate to the extent possible any significant
Year 2000 noncompliance.
The expected costs and completion dates for the Year 2000 project are
forward looking statements based on management's best estimates, which were
derived using numerous assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
Actual results could differ materially from these estimates as a result of
factors such as the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages F-1
through F-17 and the related schedule is set forth on page F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
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<PAGE> 14
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 FTD. 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....................................... 43 Chairman of the Board of Directors
Robert L. Norton....................................... 51 President, Chief Executive Officer
and Director
Kenneth M. Coley....................................... 54 Director
Richard B. Heroman..................................... 43 Director
Fred Johnson........................................... 50 Executive Vice President
Technology
Francis C. Piccirillo.................................. 48 Vice President and Chief Financial
Officer
Scott D. Levin......................................... 36 Vice President, General Counsel
and Secretary
Michael Soenen......................................... 28 Vice President Marketing
Habib Y. Gorgi......................................... 42 Director
William P. Phelan...................................... 42 Director
Veronica K. Ho......................................... 38 Director
Gary K. Silberberg..................................... 38 Director
</TABLE>
The principal stockholders of FTD Corporation, the parent of the Company,
are Perry Acquisition Partners L.P. ("Perry Partners"), a group of five
investment funds (the "Bain Funds") controlled by Bain Capital, Inc. ("Bain"),
and three investment funds (the "Fleet Funds") two of which are controlled by
Fleet Financial Group, Inc. ("FFG"), and one of which is controlled by an
affiliate of an FFG subsidiary (referred to collectively herein as the
"Principal Stockholders").
FTD Corporation and the Principal Stockholders 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 FTD. The Board of Directors of FTD consists of ten
directors, of which Perry Partners is entitled to nominate six and the Bain
Funds are entitled to nominate two. The FTD Association has been entitled to
nominate two directors pursuant to the Mutual Support Agreement. Each of the
Principal Stockholders 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 FTD. Currently, the Board of Directors is comprised
of four Perry Partners nominees, two Bain Funds nominees and two directors
elected by the sole stockholder of the Company, with two directorships remaining
vacant. See "DESCRIPTION OF CAPITAL STOCK -- Stockholders' Agreement." Mr.
Perry, Ms. Ho, Mr. Silberberg, and Mr. Norton were elected to the Board of
Directors as designees of Perry Partners. Mr. Phelan and Mr. Gorgi were elected
to the Board of Directors as designees of the Bain Funds. Mr. Coley and Mr.
Heroman were elected to the Board of Directors of the Company by its sole
stockholder pursuant to a written consent dated June 24, 1998.
Directors' Fees. Each non-employee director who is not affiliated with any
of the Principal Stockholders 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.
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<PAGE> 15
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 Capital LLC, a
private money management firm. Prior to forming the predecessor of Perry Capital
LLC in 1988, Mr. Perry was with Goldman, Sachs & Co. Mr. Perry is an Adjunct
Associate Professor at the New York University Stern School of Business
Administration. He is also a director of Radio & Records, Inc., Uniplast
Holdings, Inc. and a trustee of the Allen Stevenson School and the 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.
ROBERT L. NORTON
President, Chief Executive Officer, and Director
Mr. Norton has been the President and Director of the Company since
January, 1997, and Chief Executive Officer since July 1997. Mr. Norton was
General Manager of the Company from October 1996 to January 1997. Mr. Norton is
currently also the President of FTD Corporation. From March 1993 until May 1996,
Mr. Norton was Vice Chairman and Chief Financial Officer of Fabri-Centers of
America, Inc., a retail chain of fabric and craft stores. Mr. Norton received a
B.S. from Cleveland State University in 1973.
KENNETH M. COLEY
Director
Mr. Coley has been a director of the Company since June 24, 1998. Mr. Coley
is also a member of the Board of Directors of Interflora, Inc. Mr. Coley founded
San Diego Flowers by Coley in 1973 and in 1989, became the co-owner/operator of
KDC Enterprise, a producer of floral products. In addition, Mr. Coley is a
member of the Society of American Florists Retail Association.
RICHARD B. HEROMAN
Director
Mr. Heroman has been a director of the Company since June 24, 1998. Mr.
Heroman has been the Corporate Treasurer of Billy Heroman's Flowerland, Inc.
since 1974. He is a life member of the Louisiana State Florist Association and a
member of the Society of American Florists and the American Floral Marketing
Council. Mr. Heroman received a B.S. in business from Louisiana State University
College of Business in 1977.
FRED JOHNSON
Executive Vice President Technology
Mr. Johnson joined the Company as Executive Vice President Technology in
July 1997. Prior to that time, Mr. Johnson was Senior Vice President MIS for
Fabri-Centers of America, Inc. for more than five years. Mr. Johnson received a
B.S. in engineering from Case Institute of Technology in 1969 and an M.B.A. from
Case Western Reserve University in 1977.
FRANCIS C. PICCIRILLO
Vice President and Chief Financial Officer
Mr. Piccirillo joined the Company as Vice President and Chief Financial
Officer in August 1997. Mr. Piccirillo is also Treasurer of FTD Corporation.
Prior to that time, Mr. Piccirillo was Vice President/
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<PAGE> 16
Treasurer of Fabri-Centers of America, Inc. for more than five years. Mr.
Piccirillo received a B.S. in Industrial Management in 1971 and an M.B.A. in
1973 from Gannon University. In addition, Mr. Piccirillo received a J.D. from
Cleveland State University in 1976, and is a Certified Public Accountant.
SCOTT D. LEVIN
Vice President, General Counsel and Secretary
Mr. Levin joined the Company in May 1996 as Vice President, General Counsel
and Secretary. Mr. Levin also serves as Secretary of FTD Corporation. Mr. Levin
practiced law with Schulte Roth & Zabel LLP 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 George Washington University in
1987.
MICHAEL SOENEN
Vice President Marketing
Mr. Soenen joined the Company as Director of Sales Promotion in January
1997. In August 1998, he was promoted to Vice President Marketing. Mr. Soenen
was an associate at Perry Capital Corp. from August 1996 to December 1996. Prior
to that time, Mr. Soenen worked for Salomon Brothers Inc, an investment banking
firm, from July 1993 to July 1996. Mr. Soenen received a B.A. in Economics from
Kalamazoo College in 1992.
HABIB Y. GORGI
Director
Mr. Gorgi has been a member of the Board of Directors of the Company since
January 1997. Mr. Gorgi is also a member of the Board of Directors of FTD
Corporation. Mr. Gorgi was the Executive Vice President of various investment
funds controlled by Fleet Financial Group, Inc. ("FGR") from January 1986 to
December 1995, when he became President of FGR. Mr. Gorgi serves on the Board of
Directors of several non-public companies. Mr. Gorgi earned an A.B. from Brown
University in 1978, and an M.B.A. from Columbia University in 1983.
WILLIAM P. PHELAN
Director
Mr. Phelan has been a member of the Board of Directors of the Company since
December 1994. Mr. Phelan has been President of Chatham Capital Management,
Inc., a private equity capital firm, since January 1995. From January 1992
through March 1995, Mr. Phelan was a partner in Fleet Private Equity Co., Inc.
He is a member of the Board of Directors of 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.
VERONICA K. HO
Director
Ms. Ho has been a member of the Board of Directors of the Company since
December 1994. Ms. Ho is also a member of the Board of Directors of FTD
Corporation and a principal of Perry Capital LLC. Before joining Perry Capital
LLC in April 1993, Ms. Ho was the principal financial officer of Whitehall
Corporation, a producer of defense, electronics, and technology systems, from
April 1991 to March 1993. Ms. Ho is also a member of the Board of Directors of
Radio & Records, Inc., Uniplast Holdings, Inc. and the New York Advisory Board
of Facing History and Ourselves. She received a 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.
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<PAGE> 17
GARY K. SILBERBERG
Director
Mr. Silberberg has been a member of the Board of Directors of the Company
since December 1994. Mr. Silberberg is also a member of the Board of Directors
of FTD Corporation. Mr. Silberberg is a Managing Director of Perry Capital LLC.
Prior to joining Perry Capital LLC 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. 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.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal years,
the compensation of those persons who were, at June 30, 1998, the chief
executive officer the other four most highly compensated executive officers of
the Company (the "Named Officers").
On February 2, 1998 the Board of Directors of FTD Corporation declared a
100% stock dividend (2 for 1 stock split) of FTD Corporation's Class A Common
Stock and Class B Common Stock for stockholders of record as of February 9, 1998
(the "Stock Split"). All references to the capital stock of FTD Corporation have
been restated to reflect the Stock Split.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
--------------------------
RESTRICTED SECURITIES
ANNUAL COMPENSATION(1) STOCK UNDERLYING
---------------------------- AWARDS(2) OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) (#) COMPENSATION
--------------------------- ---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Norton.............. 1998 $293,269 $ -- $150,000(3) -- $20,311(4)
President and Chief 1997 185,096 275,000 220,000 2,147(5)
Executive Officer
Fred Johnson.................. 1998 172,384 15,130(6) 155,000(7) 100,000 21,687(8)
Executive Vice President of
Technology
Francis Piccirillo............ 1998 150,385 13,320(6) 155,000(9) 80,000 61,176(10)
Vice President, Chief
Financial Officer and
Treasurer
Scott D. Levin................ 1998 156,923 12,380 -- -- 51,832(11)
Vice President, 1997 137,885 75,000 -- 60,000 18,127(12)
General Counsel and
Secretary 1996 17,788 25,000 -- -- 11,271(13)
Mike Soenen................... 1998 115,771 9,380 -- 10,000 8,570(14)
Vice President of Marketing 1997 77,884 50,000 -- --
</TABLE>
- -------------------------
(1) Includes cash bonuses paid in the fiscal year following the referenced
fiscal year with respect to services rendered in the prior fiscal year. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Key Management Incentive
Plan."
(2) Because no established public trading market exists for the underlying
securities, restricted stock award values on the date of grant thereof were
based on an assumed stock price of $3.75 per share for Robert L. Norton,
and $7.75 per share for Fred Johnson and Francis Piccirillo, which prices
were used by FTD at the date of grant for purposes of granting additional
options under the FTD Corporation 1994 Stock Award and Incentive Plan.
Fiscal year-end restricted stock award values were based on an assumed
stock price of $10.50 per share, which price is currently used by FTD for
purposes of granting
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<PAGE> 18
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. Holders of shares of restricted stock
will be entitled to receive dividends if and when declared by the Board of
Directors.
(3) As of June 30, 1998, Mr. Norton holds 40,000 shares of restricted stock
with an aggregate value of $420,000.
(4) Represents $17,587 in compensation for moving expenses and $2,724 in
flexible dollars for use in connection with FTD's benefit plans.
(5) Represents flexible dollars for use in connection with FTD's benefit plans.
(6) Includes cash bonuses of $1,630 for Fred Johnson and Fran Piccirillo paid
in the referenced fiscal year pursuant to the KMIP.
(7) As of June 30, 1998, Mr. Johnson holds 20,000 shares of restricted stock
with an aggregate value of $210,000.
(8) Reflects $19,831 in compensation for moving expenses and $1,856 in flexible
dollars for use in connection with FTD's benefit plans.
(9) As of June 30, 1998, Mr. Piccirillo holds 20,000 shares of restricted stock
with an aggregate value of $210,000.
(10) Reflects $59,397 in compensation for moving expense and $1,779 in flexible
dollars for use in connection with FTD's benefit plans.
(11) Reflects $49,536 in compensation for moving expense and $2,296 in flexible
dollars for use in connection with FTD's benefit plans.
(12) Reflects $15,703 in compensation for moving expense and $2,424 in flexible
dollars for use in connection with FTD's benefit plans.
(13) Reflects $10,996 in compensation for moving expense and $275 for flexible
dollars for use in connection with FTD's benefit plans.
(14) Reflects $7,402 in compensation for moving expenses and $1,168 in flexible
dollars for use in connection with FTD's benefit plans.
18
<PAGE> 19
The following table sets forth individual grants of stock options made to
the Named Officers during the fiscal year ended June 30, 1998. Options are
exercisable for Class A Common Stock, par value $.01 per share, of FTD
Corporation.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------ AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN OR BASE EXPIRATION --------------------------
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SH) DATE 5% 10%
---- -------------- ------------- ------------ ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Fred Johnson.......... 50,000(2) 24.2% $ 7.75 10/28/2007 $814,447 $1,237,923
50,000(2) 24.2 15.00 10/28/2007 -- --
Francis Piccirillo.... 40,000(2) 19.3 7.75 10/28/2007 651,558 990,338
40,000(2) 19.3 15.00 10/28/2007 -- --
Michael Soenen........ 10,000(2) 4.8 7.75 10/28/2007 162,889 247,585
</TABLE>
- -------------------------
(1) Options granted under the FTD Corporation 1994 Stock Award and Incentive
Plan.
(2) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being July 1, 1998 for Fred
Johnson and Francis Piccirillo and January 1, 1998 for Michael Soenen.
The following table sets forth the June 30, 1998 aggregate value of
unexercised options held by each of the Named Officers.
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Norton............... -- -- -- 220,000 $ -- $810,000
Fred Johnson................... -- -- -- 100,000 -- 137,500
Francis Piccirillo............. -- -- -- 80,000 -- 110,000
Scott D. Levin................. -- -- 12,500 47,500 33,750 168,750
Michael Soenen................. -- -- -- 10,000 -- 13,750
</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 $10.50 per share, which price is currently used by FTD 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.
Pension Plan. Prior to January 1, 1997, the Company provided a qualified
defined benefit pension plan (the "Pension Plan") which covered all employees
who received a regular salary and who did not work a varied schedule for
purposes of meeting the peak demand requirements of the Company's business
(provisional employees). Effective January 1, 1997, amendments to the Pension
Plan were adopted, including the elimination of the accrual of future benefits
under the Pension Plan.
19
<PAGE> 20
The following table shows the estimated annual pension benefits payable to
a covered participant upon normal retirement at age 65 under the Pension Plan,
based on the renumeration 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>
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
(as amended, the "401(k) 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) Plan to the Pension Plan. The amounts paid
under the Pension Plan are not offset by any social security payments. There are
no Named Officers eligible to receive benefits under the Pension Plan.
401(k) Plan. FTD has amended, effective January 1, 1997, its 401(k) Plan
for all of its eligible employees to replace certain benefits eliminated under
the Pension Plan. Generally, any employee who has completed 12 months of service
and is over 21 years of age is eligible to participate in the 401(k) Plan. Each
eligible employee may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her compensation for services rendered in any
year, not to exceed a statutorily prescribed annual limit. Participants in the
401(k) Plan are always fully vested in their own contributions. The 401(k) Plan
provides that the Company may make matching contributions to the 401(k) Plan
based on the Company's net income and at the discretion of the Board of
Directors. Each participant becomes fully vested in the Company's contributions
allocated to his or her account upon completion of five years of service. The
Company's contributions are tax-deductible to the Company. Company contributions
to the 401(k) Plan for fiscal 1998 were $211,312 and contributions of $15,649
were made by the Company to the accounts of the Named Officers.
Norton Employment Arrangements. FTD Corporation and the Company have
entered into a letter agreement, dated August 18, 1998 (the "Norton Employment
Agreement"), with Mr. Norton to serve as President of FTD Corporation and
President and Chief Executive Officer of the Company. The term of the Norton
Employment Agreement expires on September 30, 2003. Mr. Norton's base salary
under the Norton Employment Agreement is currently $350,000 per year, subject to
merit increases in base salary as the Board of Directors may determine, in its
discretion. The Norton Employment Agreement also provides for Mr. Norton to
receive an annual performance bonus as set by the Board of Directors based upon
performance criteria to be set by the Board. Mr. Norton's annual bonus is paid
at the end of the first quarter of the fiscal year based upon performance
criteria met as of the end of the immediately preceding fiscal year. The Norton
Employment Agreement also provides for participation by Mr. Norton in all
benefit programs, including life, health, and disability, available to senior
executives of the Company.
20
<PAGE> 21
Pursuant to the Norton Employment Agreement, the Company issued Mr. Norton
50,000 shares of Class A Common Stock, which are subject to restrictions on
transfer and forfeiture in the event of termination of employment prior to the
expiration of a specified period of time.
The Norton Employment Agreement provides that Mr. Norton shall be paid an
amount equal to twenty-four months salary if his employment is terminated (other
than for cause) by the Company, provided that no severance payments will be made
beyond September 30, 2003 and such severance obligations are subject to Mr.
Norton's best efforts to mitigate. In addition, pursuant to the Norton
Employment Agreement Mr. Norton has entered into a separate agreement with the
Company which provides for (i) nondisclosure of confidential information, (ii)
non-competition and (iii) non-solicitation of customers, suppliers and
employees. Such agreement is effective until three years after Mr. Norton's
employment with the Company is terminated.
The Company has agreed to make a loan in the principal amount of $200,000
to Mr. Norton pursuant to a five year interest bearing recourse note (the
"Norton Note"), with accrued interest and principal due and payable at Maturity.
The Norton Note bears interest at 7% per annum. At August 31, 1998 the funds
have not been borrowed under the Norton Note. All indebtedness evidenced by the
Norton Note will be secured by shares of Common Stock owned by Mr. Norton. The
proceeds of the loan will be used by Mr. Norton to purchase a primary residence
and to assist Mr. Norton with other relocation expenses.
Levin Note. The Company loaned $150,000 to Mr. Levin pursuant to a
five-year, interest bearing recourse note dated June 30, 1997 (the "Levin
Note"), with accrued interest and principal due and payable at maturity. The
Levin Note bears interest at 7% per annum. The proceeds of the loan were used to
purchase a primary residence and to assist Mr. Levin with other relocation
expenses. At June 30, 1998, $160,500 in principal and interest was outstanding
under the Levin Note.
Severance Arrangements. Pursuant to the Company's severance policy, the
executive officers of the Company (other than Mr. Norton) will be paid an amount
equal to twelve months salary if such executive officer's employment is
terminated (other than for cause) by the Company (subject to the executive
officer's obligation to mitigate).
Key Management Incentive Plan. Mr. Johnson, Mr. Piccirillo, Mr. Levin and
Mr. Soenen are participants in the Company's Key Management Incentive Plan which
covers approximately 50 key employees of FTD and provides bonuses in the event
that (i) the Company achieves one or more targets based on FTD's EBITDA
(earnings before interest, taxes, depreciation, and amortization), and (ii) the
individual achieves specified goals.
Compensation Committee Interlocks and Insider Participation. The Company
currently does not have a compensation Committee. All matters which would
otherwise be determined by a Compensation Committee are considered by the Board
of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FTD Corporation owns 100% of the Common Stock of the Company. The Bank
Credit Facilities are secured by the stock of each direct and indirect domestic
subsidiary of FTD Corporation (including the stock of the Company) and 65% of
the stock of each direct and indirect foreign subsidiary. Upon the occurrence of
a continuing event of default under the Bank Credit Facilities, The First
National Bank of Chicago would, in certain circumstances, have the right to sell
or exercise the voting rights of the pledged Common Stock, thereby effecting a
change in the control of the Company. In addition, the Bank Credit Facilities
will be secured by all other tangible and intangible assets of FTD Corporation
and each of its subsidiaries.
The following table sets forth certain information concerning the ownership
of FTD Corporation Common Stock as of August 31, 1998, as adjusted to reflect
the Stock Split, by: (i) each person who is known to the Company to own
beneficially more than 5% of the outstanding shares of Class A Common Stock;
(ii) each director and each of the Named Officers owning equity securities of
FTD Corporation; and (iii) all
21
<PAGE> 22
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.
<TABLE>
<CAPTION>
CLASS B COMMON
CLASS A COMMON STOCK STOCK (NONVOTING)
---------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT
OF SHARES OF CLASS OF SHARES OF CLASS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Perry Partners......................................... 7,458,862 59.78% -- --
599 Lexington Avenue
New York, NY 10022
Bain Funds............................................. 2,679,616 21.47 -- --
Two Copley Plaza
Boston, MA 02116
Richard Perry(1)....................................... 7,458,862 59.78 -- --
Habib Y. Gorgi(2)...................................... 430,904 3.45 698,750 23.70%
Geoffrey Rehnert(3).................................... 2,679,616 21.47 -- --
Robert L. Norton(4).................................... 260,000 * -- --
Fred Johnson(5)........................................ 51,450 * -- --
Fran Piccirillo(6)..................................... 46,450 *
Scott D. Levin(7)...................................... 44,166 * -- --
Mike Soenen(8)......................................... 19,166 * -- --
All executive officers and directors of FTD as a group
(8 people)(9)........................................ 10,990,614 86.70% 698,750 23.70%
</TABLE>
- -------------------------
* Represents less than 1%.
(1) The address of Mr. Perry is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. All of the shares shown are held by Perry Partners.
Mr. Perry has a controlling interest in Perry Investors, L.L.C., the
general partner of Perry Partners. Accordingly, Mr. Perry may be deemed to
have voting and dispositive power with respect to the shares held by Perry
Partners. Mr. Perry disclaims beneficial ownership of such shares.
(2) The address of Mr. Gorgi is c/o Fleet Equity Partners, 50 Kennedy Plaza,
Providence, Rhode Island 02903. Includes shares owned by FGR, Fleet Equity
Partners VII, L.P. ("FEP"), and Chisholm Partners II, L.P. ("CPII"). Mr.
Gorgi is the President of FGR, Silverado V Corp. ("SVC"), and Silverado II
Corp. ("SIIC"). FGR and SVC are general partners of FEP, and SIIC is the
general partner of Silverado II L.P. ("SIILP"), which is the general
partner of CPII. Mr. Gorgi is also a limited partner of FEP and SIILP. As
President of FGR, SVC and SIIC, Mr. Gorgi may be deemed to share voting and
dispositive power with Robert M. Van Degna, Chairman & CEO of those
entities. Mr. Gorgi disclaims beneficial ownership of all shares which are
directly owned by FGR and those shares which are directly owned by FEP and
CPII, except for his pecuniary interest therein.
(3) The address of Mr. Rehnert is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116. All of the shares are owned by the Bain Funds.
Mr. Rehnert is a Managing Director of Bain, which is a general partner of
the Bain Funds. Accordingly, Mr. Rehnert may be deemed to share voting and
dispositive power as to the shares held by the Bain Funds. Mr. Rehnert
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, Mitt
Romney, Stephan Pagliuca, Mark B. Wolpow, and Robert White, may also be
deemed to share voting and dispositive power as to, and also disclaim
beneficial ownership, of such shares.
(4) The address of Mr. Norton is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 110,000 shares issuable upon exercise of
outstanding options which are currently exercisable, 40,000 restricted
shares which will vest in three equal annual installments commencing
September 30, 1999 and 50,000 restricted shares which will vest in three
equal annual installments commencing September 30, 2001. The shares owned
by Mr. Norton are subject to certain restrictions on transfer.
22
<PAGE> 23
(5) The address of Mr. Johnson is c/o the Company, 3113 Woodcreek Drive,
Downers Grove, Illinois 60515. Includes 25,000 shares issuable upon
exercise of outstanding options which are currently exercisable and 20,000
restricted shares which will vest in three equal annual installments
commencing September 30, 2000. The shares owned by Mr. Johnson are subject
to certain restrictions on transfer.
(6) The address of Mr. Piccirillo is c/o the Company, 3113 Woodcreek Drive,
Downers Grove, Illinois 60515. Includes 20,000 shares issuable upon
exercise of outstanding options which are currently exercisable and 20,000
restricted shares which will vest in three equal annual installments
commencing September 30, 2000. The shares owned by Mr. Piccirillo are
subject to certain restrictions on transfer.
(7) The address of Mr. Levin is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 27,500 shares issuable upon exercise of
outstanding options which are currently exercisable and 10,000 restricted
shares which will vest in three equal installments commencing September 30,
2001. The shares owned by Mr. Levin are subject to certain restrictions on
transfer.
(8) The address of Mr. Soenen is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 2,500 shares issuable upon exercise of
outstanding options which are currently exercisable and 10,000 restricted
shares which will vest in three equal installments commencing September 30,
2001. The shares owned by Mr. Soenen are subject to certain restrictions on
transfer.
(9) Includes 150,000 restricted shares which will vest in three equal annual
installments commencing September 30, 1999 with respect to 40,000 shares,
September 30, 2000 with respect to 40,000 shares and September 30, 2001
with respect to 70,000 shares, and includes 185,000 shares issuable upon
exercise of outstanding options which are currently exercisable.
Except as described above, no directors or executive officers of the
Company beneficially own any shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Services Agreement. Parties related to each of the
Principal Stockholders 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 the Company's management,
financial and other corporate advisory services. Subject to certain limitations
contained in the Bank Credit Facilities and the indenture with respect to the
Notes, for each fiscal year of the Company, the Company will pay dividends to
FTD sufficient to allow FTD Corporation to pay such affiliates the annual fee of
$400,000 per year plus up to an additional $1.6 million per year conditioned
upon the achievement of certain levels of EBITDA (earnings before interest,
taxes, depreciation and amortization), 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. Pursuant to the Management Consulting Services Agreement, the
Principal Stockholders will receive $2.0 million for the year ended June 30,
1998 and received $1.0 million for each of the years ended June 30, 1997 and
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. Rehnert, a director of FTD
Corporation designated by the Bain Funds, is a Managing Director of Bain
Capital, Inc. Mr. Gorgi, a director of the Company designated by the Bain Funds,
is the President of certain entities which own shares, directly or indirectly
through general partnership interests. Mr. Phelan, a director of the Company,
also 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 Partners, have an
interest in Perry Investors, LLC. Assuming the relative ownership interest among
the Principal Stockholders 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.
23
<PAGE> 24
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, each of
the Principal Stockholders 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 Partners and the Bain Funds
and, in the case of the Company, FTD Association nominees as well, (ii) that
certain actions taken by the Company including (A) amending the certificate of
incorporation or by-laws of the Company, (B) entering into acquisitions of
assets or stock exceeding $4.0 million or (C) effectuating any merger,
consolidation or sale of the Company, require the approval of two of the
directors nominated by Perry Partners and two of the directors nominated by the
Bain Funds and (iii) to certain restrictions on transferring its shares of Class
A Common Stock, including grants to the other Principal Stockholders of certain
rights with respect to the sale of its Class A Common Stock.
Business with Directors. Mr. Coley has an ownership interest in San Diego
Flowers By Coley. Mr. Heroman has an ownership interest in Billy Heroman's
Flowerland, Inc. Each of these businesses uses the Company's services in the
normal course of business. In fiscal 1998, the aggregate amount of revenues
recorded by the Company from business done with Mr. Coley's and Mr. Heroman's
businesses was approximately $159,000 and $131,000, respectively. The Company
made purchases from KDC Enterprises, a company owned by Mr. Coley, totaling
approximately $32,000 during fiscal 1998.
Mutual Support Agreement. For the fiscal year ended June 30, 1998, FTD
Association's percentage of clearinghouse advances accrued totaled approximately
$600,000. See "BUSINESS -- The Acquisition and Relationship with FTD
Association."
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
(1) & (2) The consolidated 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.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder upon written request, any exhibit listed in the accompanying Index
to Exhibits upon payment by such stockholders of the Company's reasonable
expenses in furnishing any such exhibits. Such Exhibits are, as indicated in the
index, 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.
(B) REPORTS ON FORM 8-K
No forms 8-K were filed by the Company during the fourth quarter of fiscal
1998.
(C) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
See accompanying Index to Exhibits.
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.
25
<PAGE> 26
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/ ROBERT L. NORTON
-----------------------------------
Robert L. Norton
President and Chief Executive
Officer
Date: September 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD C. PERRY Chairman of the Board of Directors September 24, 1998
- ---------------------------------------------
Richard C. Perry
/s/ ROBERT L. NORTON President, Chief Executive Officer September 24, 1998
- --------------------------------------------- and Director (Principal Executive
Robert L. Norton Officer)
/s/ FRANCIS C. PICCIRILLO Vice President and Chief Financial September 24, 1998
- --------------------------------------------- Officer (Principal Accounting and
Francis C. Piccirillo Financial Officer)
/s/ VERONICA K. HO Director September 24, 1998
- ---------------------------------------------
Veronica K. Ho
/s/ GARY K. SILBERBERG Director September 24, 1998
- ---------------------------------------------
Gary K. Silberberg
/s/ HABIB Y. GORGI Director September 24, 1998
- ---------------------------------------------
Habib Y. Gorgi
/s/ WILLIAM P. PHELAN Director September 24, 1998
- ---------------------------------------------
William P. Phelan
/s/ KENNETH M. COLEY Director September 24, 1998
- ---------------------------------------------
Kenneth M. Coley
/s/ RICHARD B. HEROMAN Director September 24, 1998
- ---------------------------------------------
Richard B. Heroman
</TABLE>
26
<PAGE> 27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1998 and 1997.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996.............................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996.................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996.............................. F-6
Notes to Consolidated Financial Statements as of June 30,
1998 and 1997............................................. F-7
Independent Auditors' Report on Financial Statement
Schedule.................................................. F-18
Schedule II -- Valuation and Qualifying Accounts............ F-19
</TABLE>
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> 28
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Florists' Transworld Delivery, Inc.:
We have audited the accompanying consolidated balance sheets of Florists'
Transworld Delivery, Inc., (the Company), as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1998. 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.
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 from
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 financial statements referred to above present fairly,
in all material respects, the financial position of Florists' Transworld
Delivery, Inc. as of June 30, 1998 and 1997 and the results of its operations
and cash flows for each of the years in the three-year period ended June 30,
1998, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
August 28, 1998
F-2
<PAGE> 29
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
FISCAL FISCAL
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 13,615 $ 28,294
Accounts receivable, less allowance for doubtful accounts
($1,854 in 1998 and $2,211 in 1997)....................... 24,104 24,979
Inventories, principally finished goods, net................ 13,261 14,992
Deferred income taxes....................................... 5,216 7,242
Other current assets........................................ 857 2,034
-------- --------
Total current assets.................................... 57,053 77,541
PROPERTY AND EQUIPMENT:
Land and improvements....................................... 1,600 1,600
Building and improvements................................... 7,996 7,601
Mercury consoles............................................ 21,835 22,472
Furniture and equipment..................................... 14,370 12,832
-------- --------
Total................................................... 45,801 44,505
Less accumulated depreciation............................... 30,108 23,925
-------- --------
Property and equipment, net............................. 15,693 20,580
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
($4,861 in 1998 and $2,724 in 1997)....................... 2,711 3,394
Other noncurrent assets..................................... 4,244 1,979
Goodwill and other intangibles, less accumulated
amortization ($10,599 in 1998 and $7,528 in 1997)......... 74,785 78,230
-------- --------
Total other assets...................................... 81,740 83,603
-------- --------
Total assets............................................ $154,486 $181,724
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ -- $ 9,297
Accounts payable............................................ 32,438 31,346
Accrued member incentive programs........................... 14,047 13,816
Accrued severance costs..................................... 193 1,245
Other accrued liabilities................................... 6,533 5,759
Members' deposits........................................... 9,962 9,991
Unearned income............................................. 603 2,724
-------- --------
Total current liabilities............................... 63,776 74,178
Long-term debt, less current maturities..................... 58,130 73,103
Postretirement benefits, less current portion............... 5,572 6,577
Accrued pension obligations................................. 497 876
Deferred income taxes....................................... 1,225 1,765
Minority interest in subsidiary............................. -- 156
STOCKHOLDERS' 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.......................... -- --
Paid-in capital............................................. 33,000 33,000
Accumulated deficit......................................... (7,714) (7,931)
-------- --------
Total stockholders' equity.............................. 25,286 25,069
-------- --------
Total liabilities and stockholders' equity.............. $154,486 $181,724
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 30
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Marketplace............................................... $ 48,668 $ 50,257 $ 58,944
Clearinghouse............................................. 35,292 36,301 38,966
Mercury Network........................................... 35,317 37,554 34,134
Direct Access, Publications and Other..................... 42,048 38,425 34,598
-------- -------- --------
Total revenues....................................... 161,325 162,537 166,642
COSTS:
Products and distribution................................. 36,701 35,897 41,209
Floral order transmissions and processing services........ 25,837 29,803 30,562
Member programs........................................... 31,545 31,695 32,615
-------- -------- --------
Total cost of goods sold and services provided....... 94,083 97,395 104,386
Selling, general and administrative expense............... 54,461 54,565 58,724
-------- -------- --------
Income (loss) from operations........................ 12,781 10,577 3,532
OTHER INCOME AND EXPENSES:
Interest income........................................... (1,079) (1,477) (1,418)
Interest expense.......................................... 10,582 12,789 13,498
Loss on sale of Southfield, Michigan Facility............. -- 530 --
-------- -------- --------
Total other income and expenses...................... 9,503 11,842 12,080
-------- -------- --------
Income (loss) before income tax expense (benefit)
minority interest and extraordinary item.......... 3,278 (1,265) (8,548)
Income tax expense (benefit)................................ 2,165 410 (1,807)
Minority interest in loss of subsidiary..................... (1) (14) (33)
-------- -------- --------
Net income (loss) before extraordinary item.......... $ 1,114 $ (1,661) $ (6,708)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (net of $490 income tax
benefit)............................................... (835) -- --
-------- -------- --------
Net income (loss).................................... $ 279 $ (1,661) $ (6,708)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 31
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997, 1996
<TABLE>
<CAPTION>
NUMBER OF RETAINED
SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ------- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995......................... 100 -- 33,000 440 33,440
Net loss....................................... -- -- -- (6,708) (6,708)
Foreign currency translation adjustment........ -- -- -- 4 4
--- --- ------- ------ ------
Balance, June 30, 1996......................... 100 -- 33,000 (6,264) 26,736
Net loss....................................... -- -- -- (1,661) (1,661)
Foreign currency translation adjustment........ -- -- -- (6) (6)
--- --- ------- ------ ------
Balance, June 30, 1997......................... 100 -- 33,000 (7,931) 25,069
Net Income..................................... -- -- -- 279 279
Foreign currency translation adjustment........ -- -- -- (62) (62)
--- --- ------- ------ ------
Balance, June 30, 1998......................... 100 -- 33,000 (7,714) 25,286
=== === ======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 32
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 279 $ (1,661) $(6,708)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 9,570 15,606 14,231
Amortization of deferred financing costs and original
issue discount....................................... 2,519 1,404 1,359
Postretirement benefits other than pension............. (1,005) (586) 401
Pension................................................ (379) (2,756) (120)
Minority interest in loss of subsidiary................ (1) (14) (32)
Undistributed (earnings) losses of unconsolidated
affiliate............................................ (8) (30) (67)
Loss on sale or disposal of assets..................... -- 530 663
Increase (decrease) in cash due to change in:
Accounts receivable.................................. 875 (911) (3,283)
Inventories.......................................... 1,731 (2,524) 1,027
Deferred income taxes................................ 1,486 286 (2,035)
Other current assets................................. 1,177 (316) (159)
Other non-current assets............................. (1,979) -- --
Accounts payable..................................... 1,092 581 1,669
Accrued member incentive programs.................... 231 867 6,194
Accrued severance costs.............................. (678) (74) (1,504)
Other accrued liabilities, unearned income, and
members' deposits................................. (1,376) 1,959 224
-------- -------- -------
Net cash provided by operating activities......... 13,534 12,361 11,860
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (1,942) (2,614) (4,950)
Proceeds from sale of Southfield, Michigan facility....... -- 6,224 --
Purchase of minority interest in Renaissance.............. (103) -- --
-------- -------- -------
Net cash provided by (used in) investing
activities...................................... (2,045) 3,610 (4,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit borrowings............... 28,546 -- --
Repayments of long-term debt.............................. (54,652) (14,206) (4,762)
-------- -------- -------
Net cash used in financing activities............. (26,106) (14,206) (4,762)
Effect of foreign exchange rate changes on cash........... (62) (6) 12
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (14,679) 1,759 2,160
Cash and cash equivalents at beginning of year.............. 28,294 26,535 24,375
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 13,615 $ 28,294 $26,535
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................. $ 5,283 $ 11,458 $12,114
======== ======== =======
Income taxes.............................................. $ 110 $ 237 $ 201
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 33
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
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") is a supplier of non-perishable
hardgoods, order clearing services, marketing support and other services
including publications, and credit card authorization and processing to the
retail floral industry and operates a toll free number and internet web site
that offer consumers the opportunity to place orders directly with the Company .
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company at June 30, 1998, 1997
and 1996 include the accounts of FTD Inc., and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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, accrued member incentive programs,
accrued severance costs, other accrued liabilities, unearned income, member
deposits and long-term debt. At June 30, 1998, because of the short maturity of
those instruments other than long-term debt, the fair value of these financial
instruments approximates the carrying amount, Long-term debt is 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. The useful lives are ten
to 31.5 years for building and improvements, five years for Mercury consoles,
and five to ten years for furniture and equipment. Assets acquired on December
19, 1994 (see Note 2), have been recorded at their fair value at acquisition
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 incurred in the ordinary course of business 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.
F-7
<PAGE> 34
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 using the straight-line method. Assets acquired on December 19, 1994 (see
Note 2), have been recorded at their fair value at acquisition date.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" on March 4, 1998. The Company adopted this SOP in fiscal 1998.
INTANGIBLES
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized using the
straight line method over 30 years. Other intangibles consist of trademarks and
software, and are being amortized over 40 and 5 years, respectively, using the
straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred 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 (see Notes 2 and 3).
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date (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 or historical 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 by the Company 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.
F-8
<PAGE> 35
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued, SFAS No. 130,
"Reporting Comprehensive Income" in June 1997. This Statement establishes
Standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. This statement will be
effective in the fiscal 1999 consolidated financial statements.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in February 1998. This statement is expected to affect
the disclosure requirements for fiscal 1999 consolidated financial statements.
The Company is evaluating the impact of this statement.
The FASB also issued Statement No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits" in February 1998. This statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair value of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when FASB statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," were
issued. This Statement will be effective in the fiscal 1999 consolidated
financial statements.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial statements have
been reclassified to conform to the 1998 presentation.
(2) ACQUISITION
On December 19, 1994 (the "Merger Date"), FTD Corporation, a Delaware
corporation, completed an acquisition of all of the outstanding equity of
Florists' Transworld Delivery Association, a Michigan nonprofit cooperative
association (the "Acquired 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 Acquired Company,
with the Acquired Company surviving the Merger as a wholly owned subsidiary of
FTD Corporation. Concurrent with the Merger, the Acquired Company was converted
from a nonprofit cooperative association to a for-profit corporation and renamed
"Florists' Transworld Delivery, Inc." (from and after the Merger Date, the
"Operating Company").
The Company has accounted for the Merger under the purchase method of
accounting, and accordingly, the Company's consolidated financial statements,
reflect the allocation of the total purchase price to the tangible and
intangible assets acquired and liabilities assumed of the Acquired Company as of
December 19, 1994, based on their respective estimated fair values (see Note 3).
F-9
<PAGE> 36
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) ACQUISITION -- CONTINUED
Upon consummation of the acquisition of the Company by FTD Corporation,
management began to assess, formulate, and implement a plan to involuntarily
terminate and/or relocate employees of the Company as part of its relocation
and/or consolidation efforts. The allocation of the total purchase price
referred to above included a reserve for the estimated cost of planned
termination, severance and relocation. On January 3, 1997, the Company's Board
of Directors approved a plan to consolidate corporate staff and operations into
its Downers Grove, Illinois facility. Leased office space in Boston,
Massachusetts was sub-leased, and land and buildings, in Southfield, Michigan
were sold. The Company's then existing bank credit agreement required it to use
the net proceeds from the sale of assets to reduce the outstanding term loan. In
accordance with EITF Consensus No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity,"
non-recurring charges in connection with this consolidation including severance,
asset impairment losses, and other costs aggregating $3.0 million, were
recognized as selling, general and administrative costs in the accompanying
Consolidated Statement of Operations for Fiscal year 1997. The severance costs
results from the planned termination of approximately 183 employees who
performed corporate and operating functions at the Southfield and Boston
locations. In addition, based on the consolidation of the Company's facilities
and the termination of a majority of the workforce as a result of the closed
facilities, the unamortized balance of $2.1 million, net of $0.6 million of
amortization, representing an intangible asset of trained workforce was written
off during the year ended June 30, 1997. The activity in such reserves during
the years ended June 30, 1996, 1997 and 1998 can be summarized as follows (in
thousands):
<TABLE>
<CAPTION>
SEVERANCE RELOCATION
BENEFITS COSTS OTHER TOTAL
--------- ---------- ----- -----
<S> <C> <C> <C> <C>
Liability as of June 30, 1995........................... $ 4,730 $ 600 $ 631 $ 5,961
Costs paid during the year ending June 30, 1996......... (1,310) (41) (153) (1,504)
Change in estimate...................................... (2,370) (480) (288) (3,138)
------- ----- ------- -------
Remaining liability as of June 30, 1996................. 1,050 79 190 1,319
Additional liability recognized due to consolidation.... 1,292 93 1,575 2,960
Cost paid during the year ending June 30, 1997.......... (1,550) (53) (1,431) (3,034)
------- ----- ------- -------
Remaining liability as of June 30, 1997................. 792 119 334 1,245
Costs paid during the year ending June 30, 1998......... (479) (69) (130) (678)
Change in estimate...................................... (220) (50) (104) (374)
------- ----- ------- -------
Remaining Liability as of June 30, 1998................. $ 93 $ -- $ 100 $ 193
======= ===== ======= =======
</TABLE>
(3) INTANGIBLES
At June 30, 1998 and 1997 goodwill and other intangible assets relating to
the Acquisition (see Note 2) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill.................................................... $68,384 $68,758
Trademarks.................................................. 15,000 15,000
Software.................................................... 2,000 2,000
------- -------
85,384 85,758
Less accumulated amortization............................... 10,599 7,528
------- -------
Total....................................................... $74,785 $78,230
======= =======
</TABLE>
F-10
<PAGE> 37
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) FINANCING ARRANGEMENTS
In November, 1997 FTD entered into a new credit agreement with First
Chicago Capital Markets, Inc. who arranged a $100 million financing package (the
"Bank Credit Facilities") with The First National Bank of Chicago acting as
Administrative Agent. The Bank Credit Facilities consist of a $50 million
Multiple Draw Term Loan Facility and a $50 million Revolving Credit Facility,
both maturing on December 31, 2003. The proceeds of the Revolving Credit
Facility were used to provide funds for the refinancing of the then existing
debt totaling $24.6 million. As a result of entering into the Bank Credit
Facilities, $1.3 million of unamortized deferred financing costs associated with
the then existing debt were expensed in November, 1997. The related income tax
benefit attributable to the extinguishment of the then existing debt was $0.5
million, resulting in a net loss on extinguishment of debt of $0.8 million which
is reflected as an extraordinary item in the accompanying consolidated
statements of operations.
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 is in compliance with all debt covenants
at June 30, 1998.
LINE OF CREDIT
Interest on borrowings made under the Bank Credit Facilities are calculated
using LIBOR. The Bank Credit Facilities provide a maximum commitment for letters
of credit of $15 million and requires various quarterly commitment fees on the
unused portion of the commitment. As of June 30, 1998, the Company has trade
letters of credit of approximately $3.1 million outstanding under the terms of
the Revolving Credit Facility. There were no borrowings outstanding under the
Revolving Credit Facility or the Multiple Draw Term Loan Facility as of June 30,
1998.
LONG-TERM DEBT (IN THOUSANDS)
- -----------------------------------
At June 30, 1998 and 1997 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Series B Senior Subordinated Notes, interest payable
semiannually at 14% due December 15, 2001, net of
unamortized discount of $1,870 and $2,252 at June 30, 1998
and 1997 respectively..................................... $58,130 $57,748
Term loan, payable quarterly at various amounts, plus
interest at a weighted average floating Eurodollar rate of
8.8% at June 30, 1997..................................... -- 24,619
Other....................................................... -- 33
------- -------
Total long-term debt.............................. 58,130 82,400
Less current maturities..................................... -- 9,297
------- -------
Long-term debt, less current maturities..................... $58,130 $73,103
======= =======
</TABLE>
The principal payments required for each of the following five fiscal years
are as follows (in thousands):
<TABLE>
<S> <C>
1999....................................................... $ 0
2000....................................................... 0
2001....................................................... 0
2002....................................................... 60,000
-------
Total............................................ $60,000
=======
</TABLE>
F-11
<PAGE> 38
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) FINANCING ARRANGEMENTS -- CONTINUED
As of June 30, 1998 the estimated fair value of the Series B Senior
Subordinated Notes (the "Notes") discounted at current rates was $65,400,000.
The Notes will be redeemable at the Company's option on and after December 15,
1998 at the following redemption prices (expressed as percentages of the
aggregate principal amount):
<TABLE>
YEAR PERCENTAGE
------ --------
<S> <C>
1998....................................................... 107.00%
1999....................................................... 103.50%
2000 and thereafter........................................ 100.00%
</TABLE>
(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 at June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mercury consoles............................................ $21,835 $22,472
Less: Accumulated Depreciation.............................. 20,738 17,710
------- -------
Net Investment.................................... $ 1,097 $ 4,762
======= =======
</TABLE>
AS LESSEE
Rental expense with respect to operating leases related to facilities and
equipment was $1,121,000, $1,005,000 and $802,000 for fiscal 1998, 1997 and
1996, respectively. The minimum aggregate annual operating lease obligations are
as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $1,085
2000........................................................ 621
2001........................................................ 333
2002........................................................ 106
Thereafter.................................................. 0
------
Total............................................. $2,145
======
</TABLE>
The total minimum lease payments have not been reduced by minimum sublease
rental of $1,034,000 due in the future under non-cancelable subleases.
(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 first broadcast or
displayed. Production and promotion costs are charged to expense when incurred.
Cash Rebate Dollars earned by FTD members under the Company's sales incentive
program are charged to expense when earned.
In the years ended June 30, 1998, 1997 and 1996, advertising and sales
promotion expense was $31 million, $28 million, and $32 million, respectively.
F-12
<PAGE> 39
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES
At June 30, 1998 and 1997, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued Value Plus incentive obligations.................. $ 2,576 $ 2,824
Accrued severance costs................................... 81 399
Allowance for doubtful accounts........................... 686 814
Unearned income........................................... 224 970
Inventory................................................. 1,153 1,075
Accrued vacation.......................................... 182 132
Other..................................................... 314 1,028
------- -------
Current deferred tax assets................................. 5,216 7,242
------- -------
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 3,889 3,131
Postretirement benefit obligations........................ 2,062 2,433
Accrued pension........................................... 184 324
Other..................................................... 253 254
------- -------
Noncurrent deferred tax assets.............................. 6,388 6,142
Noncurrent deferred tax liabilities -- tax over book
depreciation and difference in basis...................... 6,112 6,407
------- -------
Net noncurrent deferred tax assets (liabilities)............ 276 (265)
------- -------
Deferred tax assets -- valuation allowance.................. (1,500) (1,500)
------- -------
Net deferred tax assets..................................... $ 3,992 $ 5,477
======= =======
</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
their 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 $1.5 million is appropriate at June 30, 1998 and 1997.
The Company's net operating loss carryforwards at June 30, 1998 and 1997,
of approximately $10.7 million, and $8.5 million, respectively, the tax benefits
of which are included above as noncurrent deferred tax assets, will expire if
unused, as follows: $2.4 million in 2007; $2.3 million in 2008; $0.8 million in
2009; and $5.2 million in 2010.
The provision for income taxes consists of the following components (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $ 190 $124 $ 189
Deferred.................................................... 1,975 286 (1,996)
------ ---- -------
Income Tax expense (benefit)................................ $2,165 $410 $(1,807)
====== ==== =======
</TABLE>
F-13
<PAGE> 40
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES -- CONTINUED
The provision for income taxes for the years ended June 30, 1998, 1997 and
1996, differs from the amount computed by applying the U.S. federal income tax
rate (35%) to pretax income because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S. federal income tax rate...... $1,147 $(443) $(2,992)
State income taxes (benefit), net of federal income tax
benefit.................................................. 66 (27) (172)
Amortization of purchased goodwill......................... 803 893 842
Valuation allowance........................................ -- -- 500
Other items, net........................................... 149 (13) 15
------ ----- -------
Reported income tax (benefit) expense................. $2,165 $ 410 $(1,807)
====== ===== =======
</TABLE>
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provided certain postretirement health care benefits to
employees who retired with a minimum of 10 years of service and attained 60
years of age. The plan retirees are required to share in the cost of the
benefit. During 1997, the consolidation of corporate staff and operations into
one facility (see Note 2), together with other factors, resulted in the
termination of numerous employees which significantly reduced the expected years
of future service of those employees and the Company's corresponding liability
for certain postretirement benefits. These terminations caused a decrease in the
Company's postretirement obligation and generated a pretax gain of $1.0 million
and $0.8 million which was recorded as a reduction in selling, general and
administrative expenses as of June 30, 1998 and 1997 respectively. In addition,
the Company amended its postretirement benefit plan effective January 1, 1997,
and no longer provides such benefits to employees hired after January 1, 1997.
At June 30, 1998 and 1997 the status of the plan consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retirees.................................................... $2,807 $4,448
Fully eligible active participants.......................... -- --
Other active participants................................... -- 860
------ ------
Accumulated postretirement benefit obligation............... 2,807 5,308
Unrecognized net gain....................................... _3,022 1,526
------ ------
Accrued postretirement benefit liability.................... $5,829 $6,834
====== ======
</TABLE>
Net periodic postretirement benefit costs for the years ended June 30,
1998, 1997 and 1996 included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 72 $190 $194
Interest cost............................................... 232 434 438
Unrecognized prior period gain.............................. (276) (45) (54)
----- ---- ----
Total....................................................... $ 28 $579 $578
===== ==== ====
</TABLE>
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 6.75% at and for the year ended June 30, 1998,
7.75% at and for the year ended June 30, 1997 and 7.5% at and for the year ended
June 30, 1996. The assumed health care cost trend rate used in measuring the
APBO
F-14
<PAGE> 41
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- CONTINUED
was 9.88% and graded down to 5.75% over 11 years at June 30, 1998, 9.8% and
graded down to 5.75% over 11 years at June 30, 1997, and 10.0% and graded down
to 5.5% over 12 years at June 30, 1996. If the current health care cost trend
rate assumption was increased by one percent, the APBO as of June 30, 1998,
would increase approximately $316,000, or 11.3%, while the periodic cost for the
fiscal year ended June 30, 1998, would have increased approximately $38,000, or
12.5%.
(9) PENSION PLANS
Prior to January 1, 1997, the Company had both a defined benefit and a
defined contribution plan (the "Pension Plan") which covered substantially all
domestic employees. The Company's funding policy was to contribute annually to
the defined benefit plan the amount deductible for income tax purposes. No
contributions were made in 1998, 1997 and 1996 to the defined benefit plan. The
Company's matching contributions to the defined contribution plan were
determined at the discretion of its Board of Directors. No matching
contributions were made in 1998, 1997 or 1996 to the defined contribution plan.
Effective January 1, 1997, amendments to the Company's Pension Plan were
adopted, including the elimination of the accrual of future benefits under the
plan. As a result of these amendments, and the corresponding remeasurement of
the accumulated and projected benefit obligations under the plan, a pre-tax
pension curtailment gain of $2.7 million as well as a pre-tax settlement gain of
$0.5 million were recognized in income as a reduction in selling, general and
administrative costs for the fiscal year ended June 30, 1997. During the fiscal
year ended June 30, 1998, a pre-tax pension settlement gain of $0.4 million was
recognized in income as a reduction in selling, general and administrative
costs.
Benefits under the Pension Plan are based on the employee's age, years of
service, and the highest consecutive five-year average compensation.
During the fiscal year end June 30, 1998, $9,000 of income was recognized
in relation to the Pension Plan. Pension expense, including administrative
costs, charged to the operations for the above-mentioned plan amounted to
$370,000 and $903,000 in 1997 and 1996 respectively.
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 defined benefit plan in 1998, 1997 and 1996
was computed as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $ -- $ 299 $ 616
Interest cost............................................. 187 546 820
Actual gain on plan assets................................ (104) (495) (1,434)
Net amortization and deferral............................. (92) 20 901
----- ------- -------
Net Periodic Pension expense/(income)..................... (9) 370 903
Settlement gain........................................... (366) (936) --
Curtailment gain.......................................... -- (2,665) --
----- ------- -------
Total Pension Cost/(Gain)................................. $(375) $(3,231) $ 903
===== ======= =======
</TABLE>
F-15
<PAGE> 42
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) PENSION PLANS -- CONTINUED
At June 30, 1998 and 1997 the funded status of the defined benefit plan was
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligations................................ $2,173 $2,457
Nonvested benefit obligations............................. 151 573
------ ------
Accumulated benefit obligations........................... 2,324 3,030
====== ======
Projected benefit obligations............................... 2,334 3,144
Plan assets at fair value................................... 1,047 2,562
------ ------
Projected benefit obligations in excess of plan assets...... 1,287 582
Unrecognized net gain....................................... 191 1,272
------ ------
Total accrued pension obligations........................... $1,478 $1,854
====== ======
</TABLE>
For the period July 1, 1995 through March 1, 1996, the weighted average
discount rate was 7.75% preretirement and 6% 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% for both preretirement and postretirement for all plan
participants. The discount rate used to calculate the projected benefit
obligation at June 30, 1996 was decreased to 7.5%. The discount rate used to
calculate the projected benefit obligation at June 30, 1997 was decreased to
7.0% for the period January 1, 1997 through June 30, 1997. The discount rate
used to calculate the projected benefit obligation at June 30, 1998 was 7.75%.
For Fiscal 1998, 1997 and 1996, the rate of increase in future compensation
levels was 5.0% and the expected long-term rate of return on assets was 9.0%.
Effective January 1, 1997, the Company has established a 401(k) savings
plan for all of its eligible employees to replace the Pension Plan. Company
contributions to the 401(k) plan for fiscal 1998 and 1997 were $211,312 and
117,174 respectively.
(10) NOTE RECEIVABLE AND OTHER RELATED PARTY TRANSACTIONS
The Company incurred expenses of $2.0 million, $1.0 million and $1.0
million for the years ended June 30, 1998, 1997 and 1996 respectively related to
the payment for management consulting services to certain investors of the
Company.
The Company has an inter company payable with its parent, FTD Corporation,
of $2,575,000 and $2,109,000 at June 30, 1998 and 1997, respectively.
The Company loaned an Officer of the Company $150,000 pursuant to a five
year interest bearing note dated June 30, 1997, with accrued interest at 7% per
annum with principal due at maturity.
(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-16
<PAGE> 43
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS):
<TABLE>
<CAPTION>
FISCAL 1998 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue............................... $35,544 $42,717 $42,523 $40,541
Income from operations.................... 3,335 880 2,404 6,162
Net income (loss)......................... 196 (2,133) (40) 2,256
FISCAL 1997
Net revenue............................... $37,020 $41,784 $47,991 $35,742
Income (loss) from operations............. 2,437 1,430 6,792 (82)
Net income (loss)......................... (523) (1,154) 2,308 (2,292)
</TABLE>
F-17
<PAGE> 44
[KPMG LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
Florists' Transworld Delivery Inc.:
We have audited and reported separately herein on the financial statements
of Florists' Transworld Delivery, Inc. as of and for the years ended June 30,
1998 and 1997.
Our audits were made for the purpose of forming an opinion on the basic
financial statements of Florists' Transworld Delivery, Inc. taken as a whole.
The supplementary information included in Schedule II is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ KPMG PEAT MARWICK LLP
Detroit, Michigan
August 28, 1998
F-18
<PAGE> 45
FLORISTS' TRANSWORLD DELIVERY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------- COLLECTION OF UNCOLLECTIBLE
BALANCE CHARGED TO ACCOUNTS ACCOUNTS AND BALANCE AT
BEGINNING OF COST AND PREVIOUSLY INVENTORY END OF
PERIOD EXPENSES WRITTEN OFF WRITE OFFS PERIOD
------------ ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR 1998
Allowance for doubtful accounts
(shown as deduction from Accounts
Receivable in balance sheet)..... $2,211 $ 511 $(47) $ 915 $1,854
Inventory valuation reserve
(included in Inventories, net in
balance sheet)................... $1,705 $ -- $ -- $ 30 $1,675
YEAR 1997
Allowance for doubtful accounts
(shown as deduction from Accounts
Receivable in balance sheet)..... $1,412 $1,105 $ 75 $ 381 $2,211
Inventory valuation reserve
(included in Inventories, net in
balance sheet)................... $ 394 $1,363 -- $ 52 $1,705
YEAR 1996
Allowance for doubtful accounts
(shown as deduction from Accounts
Receivable in balance sheet)..... $1,589 $ 895 $ 80 $1,152 $1,412
Inventory valuation reserve
(included in Inventories, net in
balance sheet)................... $ 345 $1,325 $ -- $1,276 $ 394
</TABLE>
F-19
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAPER (P)
NUMBER DESCRIPTION OF DEBT ELECTRONIC (E)
- ------- ------------------- --------------
<C> <S> <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) (the "FTDI S-1".)
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 (the "FTDI 1995 Form
10-K").)
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. (Incorporated by reference
to Exhibit 4.1 of the FTDI S-1.)
4.2 Supplemental Indenture, dated as of December 19, 1994.
(Incorporated by reference to Exhibit 4.3 of the FTDI S-1.)
10.1 Credit Agreement, dated November 20, 1997, among the
Registrant, Florists' Transworld Delivery Inc., the various
lending institutions party thereto and The First National
Bank of Chicago as Agent. (Incorporated by reference to
Exhibit 10.1 of FTD Corporation's Registration Statement on
Form S-1 (File No. 333-37303)(the "1997 FTD S-1").)
10.2 Pledge Agreement, dated November 20, 1997, by and among the
Registrant, Florists' Transworld Delivery Inc., and The
First National Bank of Chicago, as Agent. (Incorporated by
reference to Exhibit 10.2 of the 1997 FTD S-1.)
10.3 Security Agreement, dated November 20, 1997, by and among
FTD Corporation, the Registrant and The First National Bank
of Chicago, as Agent. (Incorporated by reference to Exhibit
10.3 of the 1997 FTD S-1.)
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
FTDI S-1.)
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 FTDI S-1.)
10.6 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between Florists' Transworld Delivery Inc.,
and FTD Association. (Incorporated by reference to Exhibit
10.9 of FTD Corporation's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.)
10.7 Trademark Membership 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 FTDI
S-1.)
10.8 Securityholders' and 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 FTDI
S-1.)
10.9 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and FTD Corporation. (Incorporated by
reference to Exhibit 10.12 of the FTDI S-1.)
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).)
</TABLE>
i
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT PAPER (P)
NUMBER DESCRIPTION OF DEBT ELECTRONIC (E)
- ------- ------------------- --------------
<C> <S> <C>
10.12* Letter dated August 18, 1998, regarding Norton employment
arrangements.
10.13* Confidentiality and Non-Competition Agreement dated as of
August 18, 1998 between the Registrant and Robert Norton.
10.14* Form of Secured Promissory Note to be made by Robert Norton.
10.15* Description of Key Management Incentive Plan. (Incorporated
by reference to Exhibit 10.b of the Registrant's Form 10-Q,
filed March 31, 1997.)
10.16* Promissory Note, dated June 30, 1997, made by Scott D.
Levin. (Incorporated by reference to Exhibit 10.18 of FTD
Corporation's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.)
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTDI 1995 Form 10-K.)
27 Financial Data Schedule. E
</TABLE>
- -------------------------
- - Management contract or compensatory plan arrangement required to be filed as
an Exhibit to the Form 10-K.
ii
<PAGE> 1
EXHIBIT 10.12*
August 18, 1998
Mr. Robert Norton
Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Dear Bob:
This letter sets forth the terms of your employment with Florists'
Transworld Delivery, Inc. ("FTD").
Duties. You shall serve as President and Chief Executive Officer of
FTD through September 30, 2003 and shall perform the duties assigned by FTD
from time to time that are consistent with your position. You shall devote
your entire business time to the affairs of FTD, to the performance of your
duties under this Agreement and to the promotion of FTD's interests.
Compensation. As full compensation for the performance by you of your
duties under this Agreement, FTD shall compensate you as follows:
(a) Salary. During the term of this Agreement, FTD shall pay
to you a salary of $300,000 per year, payable in the periodic installments
ordinarily paid by FTD to employees of FTD at comparable levels to you. You
shall be entitled to such merit increases in base salary as the Board of
Directors may determine, in its discretion.
(b) Performance Bonus. FTD shall pay to you a performance
bonus ("Performance Bonus") as set by the Board of Directors based upon
performance criteria to be set by the Board. Your Performance Bonus for 1999
and an "Additional Special Performance Bonus" are set forth in the schedule
attached hereto as Exhibit A.
(c) Stock Option Plan and Stock Subscription Plan. You (i)
have been entitled to participate in FTD's stock option plan pursuant to a
non-qualified stock option agreement substantially in the form of Exhibit B,
(ii) have been afforded the opportunity to purchase FTD's stock pursuant to a
stock subscription agreement substantially in the form of Exhibit C, and (iii)
have been awarded Company stock pursuant to two restricted stock award
agreements substantially in the form of Exhibits D and E.
(d) Paid vacation. You shall be entitled to four weeks of
paid vacation for each year of employment.
(e) Benefits. You shall be entitled to all additional
employment-related benefits that are made available from time to time to
employees of FTD at comparable levels to you.
<PAGE> 2
(f) Expense reimbursement. FTD shall reimburse you, in
accordance with the practice from time to time in effect for other employees of
FTD, for all reasonable and necessary traveling expenses and other
disbursements incurred by you, for or on behalf of FTD, in the performance of
your duties under this Agreement.
Severance. FTD shall have the right to terminate your employment by
giving you written notice of the effective date of the termination. If your
employment is terminated without cause by FTD, FTD will pay you continued salary
for 24 months from such effective date or until September 30, 2003, whichever is
earliest. FTD's severance obligations are subject to your best efforts to
mitigate. FTD shall have no further obligation hereunder.
Confidential Information and Non-Competition. You agree to enter into
a separate agreement with FTD (attached hereto as Exhibit F) which provides for
(i) non-disclosure of confidential information, (ii) non-competition and (iii)
non-solicitation of customers, suppliers and employees. Such agreement will be
effective until three years after your employment with FTD is terminated.
Miscellaneous. This Agreement shall be governed by the laws of the
State of Illinois, excluding the conflicts-of-laws principles thereof. You and
FTD consent to jurisdiction and venue in any federal or state court in the City
of Chicago. This Agreement and the accompanying Exhibits A-F state our entire
agreement and understanding regarding your employment with FTD. This Agreement
may be amended only by a written document signed by both you and FTD. No delay
or failure to exercise any right under this Agreement waives such rights under
the Agreement. If any provision of this Agreement is partially or completely
invalid or unenforceable, then that provision shall only be ineffective to such
extent of its invalidity or unenforceability, and the validity or
enforceability of any other provision of this Agreement shall not be affected.
Any controversy relating to this Agreement shall be settled by arbitration in
Chicago, Illinois in accordance with the commercial arbitration rules of the
American Arbitration Association, except as otherwise provided in the
confidentiality and non-competition agreement attached hereto as Exhibit F. In
the event of any inconsistency between this Agreement and any personnel policy
or manual of FTD with respect to any matter, this Agreement shall govern the
matter.
Sincerely,
/s/ Richard Perry
Richard Perry
Chairman of the Board
Accepted as of this
18th day of August, 1998
/s/ Robert L. Norton
- --------------------
Robert L. Norton
-2-
<PAGE> 1
EXHIBIT 10.13*
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT dated as of August 18, 1998
between Florists' Transworld Delivery, Inc. (the "Company") and Robert Norton
(the "Executive").
The Company and the Executive agree as follows:
Section 1. Confidential information.
(a) Executive acknowledges that in his employment hereunder he
occupies a position of trust and confidence. The Executive shall not, at any
time during or for a period of three years after the period the Executive is
employed by the Company, disclose to any other entity or organization any
non-public information concerning the business, customers or affairs of the
Company ("Confidential Information") and shall not make use of any Confidential
Information for the Executive's own purposes.
(b) Executive acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company, and that such
information gives the Company a competitive advantage. The Executive agrees to
deliver or return to the Company, at the Company's request at any time or upon
termination or expiration of his employment or as soon thereafter as possible,
all documents furnished by the Company or prepared by the Executive during the
term of his employment by the Company.
(c) It is further expressly agreed that the Company will or would
suffer irreparable injury if Executive were to disclose or use Confidential
Information in violation of this Agreement and that the Company would by reason
of such disclosure or use be entitled to injunctive relief in a court of
appropriate jurisdiction, and Executive further consents and stipulates to the
entry of such injunctive relief in such a court prohibiting Executive from
disclosing or using Confidential Information in violation of this Agreement.
Section 2. Non-Competition.
(a) Restrictive covenant. In consideration of the obligations of
the Company and the consideration to be received by the Executive under the
Employment Agreement between the Executive and the Company dated August 18,
1998, the Executive will not, from and after the date of this Agreement until
the third anniversary of the termination of the Executive's employment with the
Company:
(i) directly or indirectly engage in, represent in any way,
or be connected with, any business that offers any product or service which
directly or indirectly competes with the products or services offered, by the
Company within any geographic area in which the Company transacts business;
-1-
<PAGE> 2
(ii) assist others in engaging in any business or activity
in direct or indirect competition with the Company or any of its subsidiaries
or affiliates in the manner described in clause (i);
(iii) induce or attempt to induce directly or indirectly any
customer of the Company to cease doing business in whole or in part with the
Company or solicit the business of any customer of the Company for any products
or services which compete with any of the products or services offered by the
Company; or
(iv) solicit, or attempt to solicit, interfere with, or
endeavor to cause any employee of the Company to leave his employment or induce
or attempt to induce any employee of the Company to breach his employment
agreement with the Company.
(b) Calculation of time period. The Executive agrees that if the
Executive violates the non-competition provisions of this Agreement, the running
of the time period of the provisions shall be extended for the greatest of (A)
one year from the date the Executive permanently ceases the violation, (B) one
year from the date of entry of a final order enforcing the non-competition
provisions and (C) the remaining time period specified in the non-competition
provisions. The Executive understands that the foregoing restrictions may limit
the Executive's ability to earn a livelihood in a business which directly or
indirectly competes with the Company or any of its subsidiaries or affiliates,
but the Executive nevertheless believes that the Executive has received and will
receive sufficient consideration and other benefits as an employee of the
Company and as otherwise provided under this Agreement to clearly justify
restrictions which, in any event, given his education, skills and ability, the
Executive does not believe would prevent the Executive from earning a living.
(c) Irreparable Injury. It is further expressly agreed that the
Company will or would suffer irreparable injury if Executive were to compete
with the Company or any subsidiary or affiliate of the Company in violation of
this Agreement and that the Company would by reason of such competition be
entitled to injunctive relief in a court of appropriate jurisdiction, and
Executive further consents and stipulates to the entry of such injunctive relief
in such a court prohibiting Executive from competing with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement.
Section 3. Representations and Warranties of Executive.
Executive represents and warrants that the execution of this Agreement and
subsequent employment with the Company does not and will not conflict with any
obligations that Executive has to any former employers or any other entity.
Executive further represents and warrants that he has not brought to the
Company, and will not at any time bring to the Company, any materials, documents
or other property of any nature of a former employer.
-2-
<PAGE> 3
Section 4. Miscellaneous.
(a) Jurisdiction, Choice of Law, and Venue. The validity and
construction of this Agreement shall be governed by the laws of the State of
Illinois, excluding the conflicts-of-laws principles thereof. Each party
hereto consents to the jurisdiction of, and venue in, any federal or state
court of competent jurisdiction located in the City of Chicago.
(b) Entire agreement. This Agreement; any other agreement or
document delivered in connection with this Agreement, if any; and the
accompanying Exhibits and Schedules, if any; state the entire agreement and
understanding of the parties on the subject matter of the Agreement, and
supercede all previous agreements, arrangements, communications and
understandings relating to that subject matter.
(c) Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, with the same effect
as if all signatures were on the same document.
(d) Amendment; waiver; etc. This Agreement, and each other
agreement or document delivered in connection with this Agreement, may be
amended, modified, superseded or canceled, and any of the terms thereof may be
waived, only by a written document signed by each party to this Agreement or,
in the case of waiver, by the party or parties waiving compliance. The delay
or failure of any party at any time or times to exercise any right or require
the performance of any duty under this Agreement or any other agreement or
document delivered in connection with this Agreement shall in no way affect
the right of that party at a later time to exercise that right or enforce that
duty or any other right or duty. No waiver by any party of any condition or of
any breach of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall not be deemed or construed to be a further or continuing
waiver of any such condition or breach or of the breach of any other term of
this Agreement. A single or partial exercise of any right shall not preclude
any other or further exercise of the same right or of any other right. The
rights and remedies provided by this Agreement shall be cumulative and not
exclusive of each other or of any other rights or remedies provided by law.
(f) Severability. If any provision of this Agreement or any other
agreement or document delivered in connection with this Agreement, if any, is
partially or completely invalid or unenforceable in any jurisdiction, then that
provision shall be ineffective in that jurisdiction to the extent of its
invalidity or unenforceability, by the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall be construed and enforced as if
that invalid or unenforceable provision were omitted, nor shall the invalidity
or unenforceability of that provision in one jurisdiction affect its validity
or enforceability in any other jurisdiction. The Company and the Executive
agree that the period of time and the geographical area described in Section 1
are reasonable in view of the nature of the business in which the Company is
engaged and proposes to be engaged, and the Executive's understanding of his
prospective future employment opportunities. However, if the time period or
the geographical area, or both, described in Section 1 should be judged
unreasonable in any judicial proceeding, then the period of time shall be
reduced by that number of months and the geographical area shall be reduced by
elimination of that portion, or both, as
-3-
<PAGE> 4
are deemed unreasonable, so that the restriction covenant of Section 1 may be
enforced during the longest period of time and in the fullest geographical area
as is adjudged to be reasonable.
(g) Arbitration.
(i) Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
Chicago, Illinois in accordance with the commercial arbitration rules of the
American Arbitration Association. Judgement upon the award rendered in the
arbitration may be entered in any court having jurisdiction.
(ii) Notwithstanding the clause (i) above, the Executive
acknowledges and understands that the provisions of this Agreement are of a
special and unique nature, the loss of which cannot be accurately compensated
for in damages by an action at law, and that the breach or threatened breach of
the provisions of this Agreement would cause the Company irreparable harm. In
the event of a breach or threatened breach by the Executive of the provisions
of Sections 1 or 2, the Company shall be entitled to seek to obtain a
court-ordered injunction restraining the Executive from the breach or threatened
breach upon the terms and conditions as the court ordering the injunction may
impose.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FLORISTS' TRANSWORLD
DELIVERY, INC.
By: /s/ Scott D. Levin
--------------------------
Name: Scott D. Levin
Title: Vice President
Date: August 18, 1998
/s/ Robert Norton
--------------------------
Robert Norton
Date: August 18, 1998
<PAGE> 1
EXHIBIT 10.14*
SECURED PROMISSORY NOTE
$200,000 [Date]
FOR VALUE, RECEIVED, ROBERT L. NORTON ("Payor"), promises to pay to the
order of Florists' Transworld Delivery, Inc., a Michigan corporation (together
with its successors and assigns, "Payee"), at its place of business, 3113
Woodcreek Drive, Downers Grove, Illinois 60515, or at such other place as Payee
may designate, the principal sum of Two Hundred Thousand Dollars ($200,000).
The principal amount of this Promissory Note (the "Note") shall be payable
on August 31, 2003 in accordance with the terms of this Note; provided; however,
the principal amount of this Note shall immediately be due and payable upon
Payor's termination of employment.
The outstanding principal amount of the Note shall bear simple interest at
seven percent (7%) per annum. Accrued interest shall be payable at maturity
(whether at final maturity or earlier) of the Note.
All payments of and interest on this Note shall be payable in lawful
currency of the United States of America at the office of the Payee described
above, in immediately available funds.
Payor shall have the right to pay all or any part of the unpaid principal
hereunder without premium or penalty at any time and shall be accompanied by all
interest accrued thereon through such date; provided, however, that each partial
prepayment shall be in an aggregate principal amount not less than $50,000.
In addition to, and not in limitation of the foregoing, Payor agrees to pay
all expenses, including, without limitation, attorney's fees and legal expenses,
incurred by the holder of this Note in connection with endeavoring to collect
any amounts payable hereunder which are not paid when due.
In order to secure obligations of Payor under this Note, Payor has granted
to Payee a security interest in, and lien and charge over, certain collateral
pursuant to the terms of that certain Pledge Agreement dated as of the date
hereof between Payor and Payee.
All parties hereto waive presentment of payment, demand, protest and notice
of dishonor.
<PAGE> 2
Payor shall make all payments hereunder immediately when due without any
set-off, counterclaim, defenses, withholding (for taxes or otherwise), or
reduction of any kind. Payee shall have the right to set-off any amounts owing
or to be owing (by acceleration or otherwise) by Payee or Payor.
No delay on the part of Payee in the exercise of any right or remedy shall
operate as a waiver, thereof, and no single or partial exercise by Payee of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy.
Payee shall have the right at any time to sell, assign, transfer, negotiate
or pledge all or part of its interest in this Note. Payor may not assign any of
his obligations hereunder without the prior written consent of Payee. This Note
shall be binding on Payor and his legal representatives.
No amendment, modification, or waiver of, or consent with respect to any
provision of this Note shall in any event be effective unless the same shall be
in writing and signed and delivered by Payee or any other holder hereof.
After maturity of this Note, the outstanding principal amount of this Note
and all accrued and unpaid interest shall be unconditionally payable upon
demand.
For the avoidance of doubt, Payee shall have full recourse against Payor.
THIS NOTE IS MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK. Wherever possible each provision of the Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note and shall be interpreted so as to be effective and valid.
SIGNED AND DELIVERED as of the date first written above.
-------------------------------------
Robert L. Norton, Payor
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FLORISTS'
TRANSWORLD DELIVERY INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,615
<SECURITIES> 0
<RECEIVABLES> 25,958
<ALLOWANCES> 1,854
<INVENTORY> 13,261
<CURRENT-ASSETS> 57,053
<PP&E> 45,801
<DEPRECIATION> 30,108
<TOTAL-ASSETS> 154,486
<CURRENT-LIABILITIES> 63,776
<BONDS> 58,130
0
0
<COMMON> 0
<OTHER-SE> 25,286
<TOTAL-LIABILITY-AND-EQUITY> 154,486
<SALES> 48,668
<TOTAL-REVENUES> 161,325
<CGS> 36,701
<TOTAL-COSTS> 94,083
<OTHER-EXPENSES> 54,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,582
<INCOME-PRETAX> 3,278
<INCOME-TAX> 2,165
<INCOME-CONTINUING> 1,114
<DISCONTINUED> 0
<EXTRAORDINARY> 835
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
