<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
June 30, 1996 33-91582
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FTD Corporation
---------------
(Exact name of registrant as specified in its charter)
Delaware 13-3711271
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29200 Northwestern Highway, Southfield, Michigan 48034
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(Address of principal executive offices)
Registrant's telephone number, including area code (810) 355-9300
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
---
Because no established public trading market exists for shares of the
Registrant's voting stock, the aggregate market value of voting stock held by
non-affiliates of the Registrant cannot be determined.
As of September 25, 1996, there were outstanding 6,132,639 shares of
the Registrant's class A common stock, par value $.01 per share, and 1,566,686
shares of the Registrant's class B common stock, par value $.0005 per share.
<PAGE> 2
PART I
ITEM 1. BUSINESS
OVERVIEW
FTD Corporation ("FTD Corporation") was incorporated as a Delaware
corporation on March 8, 1993. As used in this Report, the terms "Company" or
"FTD" refer to FTD Corporation and its wholly owned subsidiary, Florists'
Transworld Delivery, Inc. (the "Operating Company")
FTD is the world's largest floral services organization based on
number of members and affiliated organizations, as well as the total number of
floral orders cleared. FTD has a membership of approximately 22,000 retail
florist shops primarily in the U.S. and Canada and, through affiliated or
related organizations, approximately 31,000 additional retail florist shops in
approximately 140 other countries. Through these members FTD offers consumers
same-day delivery of high-quality FTD-branded products in the U.S. and Canada
and non-branded floral products throughout most of the world.
FTD is primarily a marketing and technology organization. FTD
promotes a worldwide brand based on the FTD Mercury Man logo, one of the most
recognized corporate logos in the world according to consumer recognition
studies, on behalf of member florists through extensive marketing and
advertising programs on both the national and local level. See "- Marketing and
Advertising." FTD's marketing and advertising programs are primarily funded by
revenues from FTD's Clearinghouse operations. A significant portion of FTD's
revenues, operating income and competitive advantage is derived from FTD's
technology based transaction processing businesses, which include the Mercury
Network, Clearinghouse, Advantage Software and Direct Access. In addition to
the foregoing, FTD's operations include Marketplace and other businesses which
support and enhance the retail florist industry. See "- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
The Operating Company is the successor to the first flowers-by-wire
organization founded by a group of retail florists in the United States in 1910.
The Operating Company was the surviving corporation after the acquisition (the
"Acquisition") on December 19, 1994 by FTD Corporation, of all of the
outstanding equity of Florists' Transworld Delivery Association, a Michigan
non-profit cooperative association (the "Old Association" or the "Acquired
Company"), pursuant to an Agreement and Plan of Merger, dated August 2, 1994
(the "Merger Agreement"), among FTD Corporation, FTD Acquisition Corporation, a
Delaware corporation, and the Old Association. Upon consummation of the
Acquisition, the Operating Company became a wholly-owned subsidiary of FTD
Corporation. Immediately following the Acquisition, the Acquired Company was
converted from a non-profit corporation to a for-profit corporation and renamed
"Florists' Transworld Delivery, Inc."
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FTD Corporation, through the Operating 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 Operating Company has any
ownership interest in FTD Association; however, as provided in the Merger
Agreement, the Operating Company and FTD Association have entered into the
Mutual Support Agreement, dated December 18, 1994 (the "Mutual Support
Agreement"), which governs the relationship between the Operating Company and
FTD Association. Pursuant to the Mutual Support Agreement, among other things:
(i) existing and future FTD Association members have the exclusive right,
subject to execution of a Trademark Membership License Agreement with the
Operating Company, to use the FTD logo and other FTD trademarks in connection
with retail florist industry operations in a public area; (ii) all FTD
Association members in good standing are provided access to FTD's Clearinghouse,
Mercury Network and certain other FTD services and products; (iii) the Operating
Company's prices to FTD Association members for specified services will not be
increased above those charged on July 1, 1994 for the three years after the
Acquisition (except for adjustments for inflation); (iv) payments by the
Operating Company equal to a percentage of the value of every floral order
cleared through FTD's Clearinghouse will be made to FTD Association; and (v) the
Operating Company and FTD Association may designate up to 20% but not fewer than
two individuals to be elected to the other's board of directors. Unless the
context indicates otherwise, all references herein to "members" or "membership"
refer to members of the Old Association prior to consummation of the Acquisition
and, following the Acquisition, the members of the FTD Association.
In order to partially finance the Acquisition, on December 19, 1994,
the Operating Company sold $60.0 million aggregate principal amount of 14%
Senior Subordinated Notes due 2001 (the "Old Notes"). The Old Notes were exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4 (2) of the Securities Act. The Old Notes were
subsequently exchanged by their holders for identical notes which were
registered under the Securities Act (the "Notes"). Also in connection with the
Acquisition, FTD Corporation and the Operating Company entered into a credit
agreement, dated December 19, 1994 as amended, (the "Bank Credit Agreement"),
with Bankers Trust Company and certain other lenders which provided for $45.0
million in aggregate principal amount of term loans and a revolving credit
facility which permits the Operating Company to borrow up to $25.0 million to
finance working capital and letter of credit needs.
MARKETING AND ADVERTISING
FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (via television, radio,
magazines and Sunday newspaper supplements) generally promotes FTD florists,
FTD-branded products and Direct Access. FTD coordinates cooperative advertising
on a local basis with participating florists. FTD also provides member florists
with advertising tools such as billboard paper, slicks for print advertising and
television and radio tapes to be tagged with individual shop information. In
addition, FTD provides members with customized direct mail pieces, in-shop
merchandising materials and FTD Floral Selections, a counter display catalog
featuring FTD products for all occasions.
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FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements which FTD members clear
through Clearinghouse and components of which are Marketplace's FTD-branded
hardgoods; (ii) feature the FTD Mercury Man logo; and (iii) support the FTD
retail florists generally by encouraging consumers to associate FTD professional
florists with high-quality floral goods and outstanding customer service.
OPERATIONS
A typical flowers-by-wire transaction cleared by FTD occurs as
follows: (i) a customer orders flowers through the Sending Florist to be
delivered outside the local delivery area of the Sending Florist; (ii) the
Sending Florist collects payment for the order from the customer; (iii) the
Sending Florist selects the Receiving Florist within the desired locale to fill
the order; (iv) the Sending Florist communicates the order to the Receiving
Florist via telephone, facsimile or the Mercury Network, FTD's proprietary
computerized order transmission system; and (v) the Receiving Florist fills the
order by delivering the requested flowers. Clearinghouse collects the billing
information from either the Mercury Network or the Receiving Florist if the
Mercury Network has not been used and allocates funds among FTD, the Sending
Florist and the Receiving Florist. Generally, orders received by the Receiving
Florist by 2:00 p.m. will be delivered to the recipient the same day. Floral
orders between FTD members are transmitted primarily by FTD's Mercury Network.
FTD was initially formed to encourage flowers-by-wire transactions
between its member florists, but over time FTD has developed a number of
additional services and products that support and enhance the retail floral
operations of its members. Currently, FTD's primary operations are Marketplace,
Clearinghouse, Mercury Network and Other (including Direct Access).
The following table illustrates the percentage of total revenue
generated by the Operating Company's major businesses as a percentage of total
revenue for the three fiscal years ended June 30, 1996:
<TABLE>
<CAPTION>
Revenue: 1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Marketplace 35.4% 37.3% 34.8%
Clearinghouse 25.4 23.8 22.3
Mercury Network 18.1 18.3 20.5
Other (including
Direct Access) 21.1 20.6 22.4
----- ----- -----
Total Revenue 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
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Marketplace. The Company believes that Marketplace is one of the
largest wholesale suppliers of hardgoods to retail florists in the U.S. based on
total sales. Marketplace products include both FTD-branded and non-branded
holiday and everyday floral arrangement containers and products, as well as
packaging, promotional products and a wide variety of other floral-related
supplies. By capitalizing on FTD's sourcing expertise and volume purchases,
Marketplace is able to provide members with a broad selection of products at
attractive prices.
Marketplace also enters into promotional partnerships to design,
promote and sell FTD-branded products. To date, FTD has participated in
partnerships with companies such as Gerber Products Company and M&M Mars. For
example, Gerber baby products are included in a baby congratulatory floral
arrangement, and M&M candy is included in a Sweet Surprise floral arrangement.
The Company believes that FTD's large supplier network and brand name
recognition make it a valuable corporate partner for such ventures.
Through Renaissance Greeting Cards, Inc. ("Renaissance"), a subsidiary
of the Operating Company acquired in 1992, FTD produces greeting cards for
special occasions and holidays which are sold in over 7,900 retail outlets
nationwide. Renaissance cards are made using only recycled paper.
Clearinghouse. FTD's Clearinghouse provides billing and collection
services to both the Sending Florist and the Receiving Florist in
flowers-by-wire transactions. In fiscal 1996, FTD cleared floral orders
aggregating in excess of $530 million in retail sales. Revenue from FTD's
Clearinghouse is generated by FTD retaining a percentage of the sales price of
orders sent through Clearinghouse.
FTD is a joint venture participant in Interflora, Inc., a
flowers-by-wire service organization with non-FTD member florists, which allows
FTD members to transmit and receive flowers-by-wire orders outside the Americas.
Mercury Network. The Company believes that FTD's Mercury Network is
one of the largest proprietary telecommunications networks in the world, based
on the total number of participating retail outlets, linking together FTD and
approximately 16,200 of its 22,000 members. FTD's on-line members may use the
Mercury Network to transmit orders cleared through FTD or through competing
clearinghouses and to send messages. In fiscal 1996, the Mercury Network
transmitted approximately 15.5 million orders among U.S. and Canadian members.
The Mercury Network provides FTD with three primary sources of
revenue. First, FTD leases to its subscribers the computer hardware necessary
for network access. Second, FTD charges its subscribers a flat monthly fee for
access to the network. Third, FTD receives a fee (unrelated to Clearinghouse
fees) for each order transmitted over the network.
The Mercury Network is a mainframe based transaction processing
system. FTD also provides Mercury Network subscribers with technical support,
and, through a third party, repair and maintenance services.
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Direct Access. The Direct Access business offers retail customers
the opportunity to place flowers-by-wire orders directly with FTD by dialing a
toll free number (1-800-SEND-FTD) or through online services such as Compuserve
or the Internet. Revenue from the Direct Access business is generated by FTD's
receipt of a percentage of the sales price for originating the order and a
service charge from the consumer.
OTHER BUSINESSES
FTD has developed several other businesses to support and enhance its
members' retail floral operations, including computer software, publications,
and credit card authorization and processing services.
Advantage Software. FTD offers members computer software, which
operates on the Mercury computer system, that is customized to the needs of
retail florists. The Advantage Plus software package provides a comprehensive
range of payroll and accounting functions for the retail florist. In addition,
the package was expanded in 1996 with modules which streamline the delivery
process. These modules automatically calculate delivery rates, confirm accuracy
of addresses, build efficient delivery routes, print delivery maps and capture
recipient data for future marketing.
FTD Directory & Toll Free Listings. FTD produces the FTD Directory &
Toll Free Listings ("FTD Directory"), a directory of all current members, their
locations, product ordering information and minimum order amounts. In a typical
flowers-by-wire transaction, the Sending Florist is responsible for selecting
the Receiving Florist within the desired locale. Unless the Sending Florist has
already established a relationship with a particular florist in that locale, the
Sending Florist typically consults FTD Directory to identify a Receiving
Florist. FTD Directory is published five times per year and is supplied to
members in printed form. FTD Directory is also available on CD-ROM.
Credit Card Authorization and Processing. FTD offers processing of
credit card transactions to participating members. By pooling the credit card
transactions of the participating members, FTD is able to secure more favorable
terms on credit card transactions than members could secure individually. Credit
card authorizations can be obtained by telephone, with a dedicated authorization
terminal, or by using the accounting software offered to retail florists by FTD.
FTD also provides an address verification system to minimize fraud, as well as
statement and adjustment services. Revenue from FTD's credit card program is
generated by a monthly subscriber fee and discounts charged for transactions.
SEASONALITY
FTD generated 22%, 28%, 27% and 23% of total revenue in the quarters
ended September 30, December 31, March 31 and June 30 of fiscal 1996,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1996, however, FTD's operating income fluctuates more
dramatically over the course of the fiscal year, with FTD generating
substantially all of its operating income in the fiscal quarters ended September
30 and March 31. This fluctuation is primarily attributable to (i) increased
advertising and promotional expenditures during the holiday seasons in the
fiscal quarters ending December 31 and June 30 and (ii) a Clearinghouse volume
incentive program, which experiences higher expenses as a result of
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increased volume during these quarters. FTD's working capital, cash and
short-term borrowings also fluctuate during the year as a result of the factors
set forth above.
TRADEMARKS
The FTD Mercury Man logo is a registered trademark which distinguishes
FTD's flowers-by-wire services from services offered by others and appears on
the shop window or door of each member. FTD also owns the rights to a number of
other trademarks, including "FTD," "FTDA" and "Florists' Transworld Delivery"
and trademarks for certain floral products, including "Chicken Soup,"
"Especially For You," "Big Hug," "Basket of Love" and "Pick-Me-Up." FTD has
licensed certain of its trademarks, including the FTD Mercury Man logo, to FTD
Association for use with its trade association activities and to the members who
have executed a Trademark Membership License Agreement with the Operating
Company.
COMPETITION
There are approximately 47,000 retail florists in the U.S. and Canada.
Because most of these florists are members of at least two of the
flowers-by-wire services operated by FTD and its competitors, competition is
intense. FTD believes that retail florists join clearinghouses and use their
services based on the ability of a service to provide the following benefits:
(i) assistance in building their businesses via national and local marketing
programs; (ii) consumer brand name recognition; (iii) ability to generate a
substantial volume of incoming flowers-by-wire orders and a high-quality
membership to fill orders; (iv) availability of direct financial benefits
including rebates and competitive credit card processing fees; (v) quality and
reliability of clearinghouse and other services; (vi) quality and selection of
attractive branded floral products; and (vii) selection of non-floral products
which allow the florists to provide greater value to consumers. The Company
believes that it competes favorably with other flowers-by-wire services based on
the above criteria.
FTD's Clearinghouse operation has three primary competitors: American
Floral Services, Inc., Teleflora (a division of Roll International, Inc.) and
National Florist Directory, Inc. d/b/a Redbook Florist Services. Each of these
competing services offers some products and services which are comparable to
those offered by FTD. As of the end of fiscal 1996, FTD was the flowers-by-wire
leader based upon total industry clearings.
FTD's Marketplace operation competes in an extremely fragmented
industry against a large number of wholesalers and against Teleflora primarily
with respect to holiday branded products. The Company believes that it has a
competitive advantage in this segment due to its multi-faceted relationship with
retail florists, its depth of product line and its ability to offer discounted
pricing because of FTD's substantial volume purchases.
The primary competitor for the Direct Access business is 800-Flowers.
Several other less significant companies operate in the toll free and online
services markets.
The Operating Company currently is subject to certain operating
restrictions pursuant to the Modified Final Judgment, dated November 13, 1990,
of the United States District court for the Eastern District of Michigan in
United States of America v. Florists' Telegraph Delivery
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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 the Company
from restricting its membership to florists who are not members of any other
clearinghouse. On December 14, 1995, the Consent Order was modified to provide
for, among other things, the extension of the term of the Consent Order from
November 13, 2000 to August 1, 2005.
EMPLOYEES
As of June 30, 1996, FTD employed approximately 515 full-time employees.
FTD considers its relations with its employees to be good. FTD employees are
not currently covered by any collective bargaining agreement.
ITEM 2. PROPERTIES
FTD's principal executive offices, consisting of approximately 126,000
square feet of office space, are owned by FTD and are located in Southfield,
Michigan. FTD also owns approximately 120,000 square feet of office space in
Downers Grove, Illinois where the Mercury Network operations are located. FTD
leases office space through a subsidiary in Sanford, Maine and leases office
space in Boston, Massachusetts. FTD uses independent warehouse and distribution
facilities in California, Ohio and Ontario, Canada for product distribution.
ITEM 3. LEGAL PROCEEDINGS
FTD is involved in various lawsuits and other matters arising in the
normal course of business. In the opinion of the management of FTD, although
the outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on FTD's financial condition, liquidity or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
No established public trading market exists for FTD Corporation's common
equity. As of September 25, 1996, there were approximately 1800 holders of
record of the class A common stock, par value $.01, of FTD Corporation and
approximately 6 holders of record of the class B common stock, par value $.0005,
of FTD Corporation.
FTD Corporation has not paid any dividends on its common equity since
its inception.
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FTD Corporation has no present intention of paying any dividends on
its common equity. Any future determination as to the payment of dividends
will be at the discretion of the Board of Directors of FTD Corporation, and
will depend on the Company's financial condition, results of operations,
capital requirements, compliance with charter and contractual restrictions, and
such other factors as the Board of Directors deems relevant. In addition,
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 Operating Company to or on behalf of FTD
Corporation to fund certain operating expenses of FTD Corporation; (2)
payments by the Operating Company to FTD Corporation pursuant to a tax sharing
agreement between such parties as in effect on December 19, 1994 or any
amendment thereto or replacement agreement thereof; (3) payments by the
Operating Company to FTD Corporation to fund payments by FTD Corporation for
management services provided to the Operating Company; (4) payments of
dividends from the proceeds of a public equity offering by the Operating
Company or FTD Corporation (if the proceeds are distributed to the Operating
Company), subject to restrictions; and (5) payments by the Operating Company to
FTD Corporation to effect certain stock repurchases by FTD Corporation.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical data of the Acquired
Company for each fiscal year in the three year period ended June 30, 1994 and
the period from July 1, 1994 to December 18, 1994 and of FTD for the period
December 19, 1994 to June 30, 1995 and the year ended June 30, 1996. The
selected historical balance sheet and statement of operations data as of and for
each fiscal year in the three year period ended June 30, 1994 were derived from
the audited consolidated financial statements of the Acquired Company. The
Acquisition was consummated on December 19, 1994. The selected historical
statement of operations data for the period from July 1, 1994 to December 18,
1994 were derived from the audited consolidated financial statements of the
Operating Company. The selected historical statement of operations for the
period from December 19, 1994 to June 30, 1995, the year ended June 30, 1996,
and the balance sheet data as of June 30, 1996 and 1995 were derived from the
audited consolidated financial statements of FTD. The information contained in
this table should be read in conjunction with Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements for the years ended June 30, 1996 and 1995, of
FTD, including the notes thereto, appearing elsewhere in this Form 10-K.
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<TABLE>
<CAPTION>
Acquired Company
-----------------------------------------------------------------------
Year ended June 30, July 1
--------------------------------- through
December
18,
1992 1993 1994 1994
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Statement of Operations Data:
Marketplace. ........................... $ 56,194 $ 63,606 $ 58,987 $ 28,556
Clearinghouse .......................... 46,090 44,717 42,386 16,093
Mercury Network 22,465 27,596 30,113 13,865
Other .................................. 30,751 33,276 35,074 16,818
------------ ------------ ------------ ------------
Total revenue ......................... 155,500 169,195 166,560 75,333
Cost of goods sold and services
provided .............................. 96,446 103,622 102,260 49,109
Selling, general and administrative .... 53,290 61,073 57,625 28,684
------------ ------------ ------------ ------------
Income (loss) from operations ......... 5,764 4,500 6,675 (2,460)
Interest (income) ...................... (1,808) (1,236) (2,046) (1,095)
Interest expense(1) .................... 1,636 2,414 2,841 1,172
Income taxes (benefit)(2) .............. 169 42 92 35
Minority interest ......................
Cumulative effect of accounting
change(3) 6,277
------------ ------------ ------------ ------------
Net income (loss) ...................... $ 5,767 $ 3,280 $ (488) $ (2,572)
============ ============ ============ ============
Earnings(loss) per share
Primary ...............................
Fully Diluted .........................
Other Data:
Depreciation and amortization .......... $ 6,566 $ 9,043 $ 10,144 $ 4,911
Capital expenditures ................... 20,153 18,200 8,134 1,413
Ratio of earnings to fixed charges(4) .. 3.4x 2.0x 2.9x --
Operating Data (end of period):
Number of member locations ............. 24,672 24,072 23,218
Number of Mercury Network
terminals installed ................... 16,669 16,698 16,648
Balance Sheet Data (end of period):
Working capital ........................ $ 14,343 $ 12,581 $ 16,918
Total assets ........................... 115,230 125,816 135,506
Long-term debt, including current
portion ............................... 24,887 33,746 33,463
Total equity ........................... 40,642 40,521 36,216
<CAPTION>
December 19,
1994
Through Year ended
June June
30, 30,
1995 1996
------------ ----------
(dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Marketplace. ........................... $ 35,460 $ 57,924
Clearinghouse .......................... 24,738 37,070
Mercury Network 17,618 34,138
Other .................................. 18,702 37,123
------------ -------------
Total revenue ......................... 96,518 166,255
Cost of goods sold and services
provided .............................. 58,567 104,386
Selling, general and administrative .... 30,669 58,376
------------ -------------
Income (loss) from operations ......... 7,282 3,493
Interest (income) ...................... (1,719) (1,431)
Interest expense(1) .................... 7,546 13,498
Income taxes (benefit)(2) .............. 1,021 (1,813)
Minority interest ...................... 8 (33)
Cumulative effect of accounting
change(3)
------------ -------------
Net income (loss) ...................... $ 426 $ (6,728)
============ =============
Earnings(loss) per share
Primary ............................... $ 0.06 $ (1.01)
============ =============
Fully Diluted ......................... $ 0.06 $ (1.01)
============ =============
Other Data:
Depreciation and amortization .......... $ 6,525 $ 14,231
Capital expenditures ................... 3,082 4,950
Ratio of earnings to fixed charges(4) .. 1.2x --
Operating Data (end of period):
Number of member locations ............. 22,828 22,007
Number of Mercury Network
terminals installed ................... 16,859 16,238
Balance Sheet Data (end of period):
Working capital ........................ $ 6,546 $ 2,718
Total assets ........................... 203,864 196,082
Long-term debt, including current
portion ............................... 100,757 96,277
Total equity ........................... 35,080 29,140
</TABLE>
___________________________________________
(1) Interest expense in fiscal 1992 and 1993 is net of $179 and $185 of
interest capitalized as construction in progress, respectively.
(2) Taxes on income for the fiscal years ended June 30, 1992 through June 30,
1994 and the period July 1 through December 18, 1994 are generally
applicable to the Acquired Company's Canadian operations. During these
periods, the Acquired Company conducted substantially all of its business
activities as a member-owned non-profit cooperative association and,
accordingly, no provision for U.S. income taxes was required. Taxes on
income for the period December 19, 1994 through June 30, 1995 and for the
year ended June 30, 1996 represent operations after conversion from a
cooperative association to a for-profit corporation, which resulted in
greater U.S. taxable income (loss).
(3) Effective July 1, 1993, the Acquired Company and its consolidated
subsidiaries adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
for its unfunded post-retirement health care program. See note 8 to the
consolidated financial statements of the Company.
(4) In calculating the ratio of earnings to fixed charges, earnings consists
of net income prior to income taxes, minority interest and cumulative
effect of accounting change, plus fixed charges. Fixed charges consist of
interest expense and the component of rental expense believed by
management to be representative of the interest factor thereon. Earnings
for the period July 1 through December 18, 1994 were insufficient to cover
fixed charges by $2,537. Earnings for the year ended June 30, 1996 were
insufficient to cover fixed charges by $8,574.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause actual
results to differ materially from these forward-looking statements, including,
without limitation, the effect of economic and market conditions and the impact
of competitive activities.
EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS
The Acquisition was consummated on December 19, 1994. Accordingly, the
results of operations from December 19, 1994 through June 30, 1995 and for the
year ended June 30, 1996 represent those of FTD Corporation and its consolidated
subsidiaries. Results of operations prior to December 19, 1994 are those of the
Acquired Company. The Acquisition generally affected FTD's results of
operations as follows: (i) certain trade association activities previously
conducted by FTD are being conducted by FTD Association; (ii) immediately
following the consummation of the Acquisition, the Operating Company was
converted from a non-profit cooperative association owned by its members to a
for-profit corporation; (iii) in connection with the Acquisition, FTD recorded
a $3.9 million liability for the costs of termination benefits and other
expenses associated with FTD's employee headcount reduction and the planned
consolidation of FTD's data processing facilities; (iv) as a result of the
Acquisition, FTD's balance sheet carries significant goodwill; (v) certain
provisions of the Mutual Support Agreement may impact, among other things,
product pricing in transactions with FTD Association members and national
advertising expenditures; and (vi) the Company has implemented or plans to
implement several cost reduction strategies, including a reduction in costs
related to the Company's Board of Directors, the elimination of costs
associated with trade activities of the Old Association and a reduction in
various general and administrative expenses of the Old Association (offset by
additional costs related to the new management team and out-sourcing certain
functions). Because of the elements of uncertainty inherent in any future event
and the possibility of reevaluation and alteration as elements of the Company's
cost reduction strategy are implemented, there can be no assurance that such a
cost reduction strategy will be successfully implemented, in whole or in part,
or that such cost reductions will be achieved in the time frame expected, if at
all. Finally, the Company expects to utilize any reduced costs discussed above,
along with plans to increase consumer demand through a strengthened FTD brand,
to offset certain increased annual costs related to the Acquisition, including
increased interest expense, amortization of deferred financing costs and
original issue discount, amortization of goodwill and other intangible assets,
and management fees and other expenses that were not incurred historically.
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1996 compared
with the year ended June 30, 1995. For purposes of presenting a meaningful
comparison, as stated above, the year ended June 30, 1995 includes both: (i)
results of the Operating Company's predecessor (Florists' Transworld Delivery
Association) for the period prior to the acquisition on December 19, 1994; and
(ii) the results of the Company for the year ended June 30, 1995.
11
<PAGE> 12
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Revenue decreased by $5.6 million, or 3.3%, to $166.3 million for the
year ended June 30, 1996, compared to $171.9 million for the year ended June 30,
1995. The decline in revenue was partly due to the elimination of $2.7 million
in revenue from trade association activities in the prior comparable period
which, since the Acquisition, have no longer been conducted by the Company. The
balance of the decline in revenue was the net result of decreases in Marketplace
and Clearinghouse, partially offset by Mercury Network and Other revenue.
Marketplace revenue decreased by $6.1 million, or 9.5%, to $57.9
million for the year ended June 30, 1996 compared to $64.0 million for the year
ended June 30, 1995. The decrease from the prior year was the result of lower
sales of holiday, seasonal and non-branded everyday containers. This was
partially offset by increased sales of the expanded perishables product line
and FTD branded everyday products. Marketplace revenue was 34.8% and 37.3% of
total revenue for the years ended June 30, 1996 and 1995, respectively.
Clearinghouse revenue decreased by $3.7 million, or 9.2%, to $37.1
million for the year ended June 30, 1996 from $40.8 million for the year ended
June 30, 1995. This was the net result of a decline in the volume of floral
orders cleared through FTD and a 3.1% increase in the average revenue per order
in accordance with overall industry trends. The Company believes the decline in
the volume of orders cleared by FTD is due to competition from other
clearinghouse services, and the general decline in industry clearings which has
resulted from the general decline in the market share of retail florists.
Clearinghouse revenue was 22.3% and 23.8% of total revenue for the years ended
June 30, 1996 and 1995, respectively.
Mercury Network revenue increased by $2.6 million, or 8.4%, to $34.1
million for the year ended June 30, 1996 from $31.5 million for the year ended
June 30, 1995. An increase in terminal leasing revenue, order transmission
income and equipment sales were the major factors in the revenue increase.
Mercury Network revenue was 20.5% and 18.3% of total revenue for the years ended
June 30, 1996 and 1995, respectively.
Excluding the trade association related revenues from the prior year
discussed above, Other revenue experienced a net increase of $4.3 million, or
13.1%, to $37.1 million for the year ended June 30, 1996 from $32.8 million for
the year ended June 30, 1995. This increase was primarily due to growth in the
order volume of the Direct Access business and in the volume of listings in the
FTD Directory. Other revenue was 22.4% and 20.6% of total revenue for the year
ended June 30, 1996 and 1995, respectively.
The cost of goods sold and services provided decreased by $3.3
million, or 3.1%, to $104.4 million for the year ended June 30, 1996 from $107.7
million for the year ended June 30, 1995. The decrease in cost of goods sold
and services provided is primarily due to a $6.2 million reduction in costs for
products and distribution related to the lower Marketplace sales volume and a
$1.8 million decrease due to lower costs of member programs which have not been
conducted by the Company since the Acquisition. Offsetting these decreases was
a depreciation expense increase
12
<PAGE> 13
of $1.1 million from the prior year primarily due to computer hardware and
software acquisitions. Other offsetting cost increases resulted from the
increase in Direct Access order volume, additional FTD Directory costs, field
service costs and Mercury Network product and other costs. As a percentage of
revenue, cost of goods sold and services provided remained relatively constant,
with an increase to 62.8% for the year ended June 30, 1996 from 62.7% for the
year ended June 30, 1995.
Selling, general and administrative expenses decreased by $.9 million,
or 1.5%, to $58.4 million for the year ended June 30, 1996 from $59.3 million
for the year ended June 30, 1995. Several factors contributed to the net
decrease: (i) non-recurring Acquisition related costs of $4.1 million were
incurred by the Company during the year ended June 30, 1995; (ii) the
elimination of approximately $1.3 million in costs of certain trade association
activities in fiscal 1995 which, since the Acquisition, have not been conducted
by the Company; (iii) various overhead reductions of $0.8 million affecting
promotional costs; (iv) advertising activities related to the Company's member
incentive program which was implemented during the year ended June 30, 1996
which amounted to $4.7 million; and (v) amortization of goodwill and other
intangibles increased by $1.8 million for the year ended June 30, 1996 from the
prior comparable period which included a partial year of amortization. Selling,
general and administrative expenses increased, as a percent of revenue, to 35.1%
from 34.5% for the year ended June 30, 1996 compared to the comparable period in
1995.
Interest income for the years ended June 30, 1996 and 1995 was $1.4
million and $2.8 million, respectively. The decrease is attributable to lower
average invested cash due to cash utilized to effect the Acquisition. Interest
expense for the year ended June 30, 1996 was $13.5 million as compared to $8.7
million in the prior year. The increase of $4.8 million resulted from a full
year of interest on the debt in fiscal 1996 versus a partial year of interest on
the debt in fiscal 1995. See "-Liquidity and Capital Resources."
Income taxes for the year ended June 30, 1996 reflect a benefit of
$1.8 million compared to an expense of $1.1 million for the comparable period in
the prior year. The expense in the prior year was due to the Operating Company's
conversion from a cooperative association to a for-profit corporation on
December 19, 1994, the date of the Acquisition, resulting in recognition of
primarily deferred tax expense for the period from December 19, 1994 through
June 30, 1995. Income tax expense prior to December 19, 1994 was entirely
related to the Old Association's Canadian operations. The tax benefit for the
year ended June 30, 1996 represents the amount of deferred tax benefit
recognized as a result of the pretax loss incurred for the year.
As a result of the factors described above, a net loss of $6.7 million
resulted for the year ended June 30, 1996, an increase of $4.6 million from a
net loss of $2.1 million for the year ended June 30, 1995. The change is
primarily attributable to increases in interest expense, goodwill and other
intangibles amortization and an offsetting tax benefit.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes and interest and principal payments on
obligations under the Bank Credit Agreement represent significant liquidity
requirements for FTD. Borrowings under the Bank Credit Agreement bear interest
at floating rates and require interest payments on varying dates depending on
the interest rate option selected by FTD. Borrowings available under the Bank
Credit Agreement consist of a $45.0 million term loan facility and a $25.0
million revolving credit facility to finance working capital and letter of
credit needs. FTD has repaid $6.2 million of the term loans through June 30,
1996 and is required to repay principal amounts of $8.5 million in fiscal 1997,
$11.4 million in fiscal 1998, $12.4 million in fiscal 1999 and $6.5 million in
fiscal 2000. Loans then outstanding under the revolving credit facility will
mature on the fifth anniversary of the initial borrowings under the Bank Credit
Agreement. Under the terms of the Bank Credit Agreement, borrowings under the
revolving credit facility are required to be reduced to zero for 30 consecutive
days in each annual period. None of the $25.0 million revolving credit facility
available under the Bank Credit Agreement was borrowed from the date of
Acquisition through June 30, 1996. The Company believes, based on current
circumstances, that its cash flow, together with borrowings under the revolving
credit facility, will be sufficient to fund operations, including planned
capital expenditures, and to repay the term loans and make interest payments as
they become due through the term of the Notes and the Bank Credit Agreement.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures and working capital needs. In
the fiscal years ended June 30, 1995 and 1996, FTD's capital expenditures were
$4.5 million and $5.0 million, respectively, related primarily to the upgrade of
its Mercury Network communications facilities through the purchase of its new
Mercury 3000 terminals that are leased to FTD members. FTD's expected capital
expenditures for fiscal 1997 are estimated to increase approximately 20% over
fiscal 1996 and will primarily be used for upgrading internal customer service
and information systems and the Mercury Network. The Company believes that cash
flow from operations, together with borrowings available under the revolving
credit facility, will be sufficient to fund anticipated capital expenditures and
working capital needs.
The Bank Credit Agreement contains certain restrictive covenants with
respect to the Company that, among other things, create limitations (subject to
certain exceptions) on the declaration or payment of any dividend or making of
any distribution by the Company on shares of its common stock.
For the year ended June 30, 1996, cash flow reflected a net increase
in cash of $2.1 million, compared to a $22.0 million decrease in cash,
excluding consideration of cash acquired in the Acquisition of $46.6 million,
for the year ended June 30, 1995. The decrease in cash for the year ended June
30, 1995 was primarily attributable to cash used to effect the Acquisition.
Cash provided by operating activities was $11.1 million for the year
ended June 30, 1996 compared to cash used of $1.3 million for the year ended
June 30, 1995. Factors contributing to this change in cash flow were: (i)
reductions in accounts payable during the year ended June 30, 1995 due to
payment of obligations assumed during the Acquisition; (ii) payment of certain
incentive program obligations to FTD members under the terms of the Merger
Agreement in the year ended
14
<PAGE> 15
June 30, 1995 and the introduction of an expanded member incentive program
which increased these liabilities in the year ended June 30, 1996; and (iii)
net income before depreciation and amortization which decreased to $8.9 million
for the year ended June 30, 1996 from $10.0 million for the year ended June 30,
1995 primarily due to lower income from operations.
Cash used in investing activities was $5.0 million for the year ended
June 30, 1996 compared to $111.3 million, excluding cash acquired in the
Acquisition of $46.6 million, for the year ended June 30, 1995. In 1996, the
cash used in investing activities consisted entirely of capital expenditures.
The cash used in the year ended June 30, 1995 reflects the cash utilized to
effect the Acquisition.
Cash used in financing activities was $4.0 million for the year ended
June 30, 1996 compared to cash provided of $90.6 million for the year ended June
30, 1995. The net cash used in the year ended June 30, 1996 reflects payment of
principal on the term loans, proceeds from the stock offering to FTD members
which was consummated in September 1995 (the "Member Offering") and cash used to
repurchase stock from the principal stockholders for the Member Offering. Cash
provided in the year ended June 30, 1995 reflects the receipt of proceeds from
the sale of the Notes and the term loans under the Bank Credit Agreement and the
repayment of debt of the Old Association.
During the fourth quarter of fiscal 1996, 90,000 warrants outstanding
were exercised for 1,125,000 shares of class B common stock, par value $.0005
per share of FTD Corporation. Shares of class B common stock are convertible
into class A common stock, par value $.01 per share of FTD Corporation, on a
one-to-one basis at any time at the option of the holders thereof, provided that
shares of class B common stock originally issued to a bank holding company or an
affiliate of a bank holding company shall be converted into shares of class A
common stock by the original holder or any direct or indirect transferee thereof
only upon the occurrence of certain conversion events.
In September 1996, based on a preliminary study of the Company's
defined benefit pension plan, the Company anticipates that it will freeze
benefits under the plan effective December 31, 1996. The Company expects to
replace benefits under the current pension plan with a program which partially
matches employees' contributions to a 401(k) program. While the impact of this
change has not been fully determined, it is anticipated that implementation of
the new plan will: (i) reduce operating expenses; (ii) reduce accrued pension
obligations; and (iii) reduce cash payments required to fund the retirement
benefit plan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-20 and the related schedule is set forth on page F-22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
During the year ended June 30, 1996, there were no disagreements with
KPMG Peat
15
<PAGE> 16
Marwick LLP on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedures.
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 Corporation. All directors are elected annually to serve until
the next annual meeting of stockholders and until their successors have been
elected and qualified. All executive officers of FTD serve at the pleasure of
the Board of Directors of FTD.
<TABLE>
<CAPTION>
Name Age Position
- ------------------- --- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Richard C. Perry 41 Chairman of the Board of Directors
Margaret C. Whitman 40 President and Chief Executive Officer and Director
Douglas L. Hagemann 59 Director of Finance and Treasurer
William P. Phelan 40 Vice President Technology Business - Florists' Transworld Delivery, Inc., and Director
Scott D. Levin 34 Vice President and Secretary
Rock A. Davis 41 Vice President Direct Access - Florists' Transworld Delivery, Inc.
Louis E. Nagy, Jr. 41 Vice President Marketing and Product - Florists' Transworld Delivery, Inc.
Diane E. Forese 30 Vice President Product Design, Sourcing and New Business
Development - Florists' Transworld Delivery, Inc.
Scott M. Hyde 34 Vice President Sales - Florists' Transworld Delivery, Inc.
Robert W. Collins, Jr. 42 Vice President Human Resources - Florists' Transworld
Delivery, Inc.
Veronica K. Ho 36 Vice President and Director
Gary K. Silberberg 36 Director
Marc B. Wolpow 38 Director
Alexander Troy 37 Director
Tiffany Faircloth 27 Director
Geoffrey Rehnert 39 Director
</TABLE>
16
<PAGE> 17
The principal stockholders of FTD Corporation are Perry Acquisition
Partners L.P. ("Perry"), a group of five investment funds (the "Bain Funds")
controlled by Bain Capital, Inc. ("Bain"), and three investment funds (the
"Fleet Funds") controlled by Fleet Financial Group, Inc. ("FFG"), employees of
FFG subsidiaries or an entity controlled by an affiliate of an FFG subsidiary.
Perry, the Bain Funds and the Fleet Funds are collectively referred to herein
as the "Sponsors".
FTD Corporation and the Sponsors have entered into a stockholders'
agreement, dated December 19, 1994 (the "Stockholders' Agreement"), which
provides, among other things, for the composition of the Board of Directors of
FTD Corporation. The Board of Directors of FTD Corporation consists of nine
directors, of which Perry is entitled to nominate six and the Bain Funds are
entitled to nominate three. Each of the Sponsors has agreed to take all
actions necessary, including voting all of the securities owned by it, to cause
such nominees to be elected to the Board of Directors of FTD Corporation.
Mr. Perry, Ms. Whitman, Ms. Ho, Mr. Silberberg, Ms. Faircloth and Mr.
Troy were elected to the Board of Directors as designees of Perry. Mr. Phelan,
Mr. Wolpow and Mr. Rehnert were elected to the Board of Directors as designees
of the Bain Funds.
Directors' Fees. Directors of FTD Corporation will not receive any fees
in connection with their service as members of the Board of Directors. All
directors are reimbursed for the reasonable expenses incurred in connection
with each meeting attended.
Set forth below is certain biographical information about each of the
Company's directors and executive officers:
RICHARD C. PERRY
Chairman of the Board of Directors
Mr. Perry has been Chairman of the Board of Directors of FTD Corporation
since December 1994. Mr. Perry is also Chairman of the Board of Directors of
the Operating Company. Mr. Perry is the President and founder of Perry Corp.,
a private money management firm. Prior to forming Perry Corp. in 1988, Mr.
Perry was with Goldman, Sachs & Co. where he was involved in developing and
implementing investment strategies in the trading and arbitrage area. Mr.
Perry is an Adjunct Associate Professor at the New York University Stern School
of Business Administration, where he has taught a course in Domestic Arbitrage
since 1984. He is also a director of Radio & Records, Inc. and a trustee of
the Allen Stevenson School and the New York Advisory Board of Facing History
and Ourselves. Mr. Perry received a B.S. from the Wharton School of the
University of Pennsylvania in 1977 and an M.B.A. from New York University
Graduate School of Business Administration in 1980.
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<PAGE> 18
MARGARET C. WHITMAN
President and Chief Executive Officer and Director
Ms. Whitman was appointed President and Chief Executive Officer of FTD
Corporation in April 1995 and has been a Director of FTD Corporation since June
1995. Ms. Whitman is also President and Chief Executive Officer and a Director
of the Operating Company. Prior to joining the Company, Ms. Whitman was
President, Stride Rite Division at The Stride Rite Corporation, a casual
footwear manufacturer, from February 1994 to February 1995, Executive Vice
President, Keds Division, from August 1993 to February 1994, Vice President,
Product and Marketing, Keds Division, from February 1993 to August 1993 and
Vice President, Strategic Planning, from October 1992 to February 1993. Prior
to joining Stride Rite Corporation, Ms. Whitman was Senior Vice President,
Marketing--Consumer Products Division at The Walt Disney Company, a diversified
entertainment corporation, from May 1991 to October 1992 and Vice President,
Strategic Planning from May 1989 to May 1991. Ms. Whitman received a B.A. in
Economics from Princeton University in 1977 and an M.B.A. from the Harvard
Graduate School of Business Administration in 1979.
DOUGLAS L. HAGEMANN
Director of Finance and Treasurer
Mr. Hagemann was appointed Director of Finance of FTD Corporation in April
1995 and Treasurer in September 1996. Mr. Hagemann is also Vice President
Finance and Stockholder Relations of the Operating Company. Prior thereto, Mr.
Hagemann was the Director of Finance of the Old Association and, following the
Acquisition, the Company, since 1981. He is responsible for finance functions
and for providing management with financial information for strategic planning
and general stockholder relations. Mr. Hagemann received a B.S. in Accounting
from Ferris State University.
WILLIAM P. PHELAN
Vice President Technology Business - Florists' Transworld Delivery, Inc.,
and Director
Mr. Phelan has been a member of the Board of Directors of FTD Corporation
since June 1995 and joined the Operating Company as Vice President Technology
Business in February 1996. Mr. Phelan is also a Director of the Operating
Company. Mr. Phelan has been President of Chatham Capital Management, Inc., a
private equity capital firm, since January 1995. Mr. Phelan has also been a
limited partner in Fleet Equity Partners, a private equity capital firm, since
January 1995. From January 1992 through December 1994, Mr. Phelan was a
partner in Fleet Equity Partners. From 1988 through December 1991, Mr. Phelan
was a Senior Vice President at Cowen & Company, an investment banking firm
specializing in healthcare and technology-related investment banking. He is a
member of the Board of Directors of Cryenco Sciences, Inc. Mr. Phelan received
a B.B.A. in Accounting from Siena College in 1978 and his M.S. in Taxation
from City College of New York in 1983.
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<PAGE> 19
SCOTT D. LEVIN
Vice President and Secretary
Mr. Levin joined FTD Corporation as Vice President and Secretary in May
1996. Mr. Levin is also Vice President, General Counsel and Secretary of the
Operating Company. Prior to joining the Company, Mr. Levin practiced law with
Schulte Roth & Zabel specializing in corporate and securities transactions from
April 1989 to April 1996. Mr. Levin received a B.A. in Political Science and
Philosophy from Boston College in 1984 and a J.D. from The National Law Center
of the George Washington University in 1987.
ROCK A. DAVIS
Vice President Direct Access - Florists' Transworld Delivery, Inc.
Mr. Davis joined the Operating Company as Vice President Direct Access in
April 1995. Previously, Mr. Davis was Senior Vice President of The Signature
Group, a consumer credit marketing company, from June 1982 to July 1994. His
responsibilities included sales and marketing for all third party clients and
customer service operations. Prior to joining The Signature Group, Mr. Davis
was in the Audit Division of Arthur Andersen & Company. Mr. Davis received a
B.S. in General Management from Purdue University in 1977 and a Masters of
Management from Northwestern University in 1986. Mr. Davis is also a Certified
Public Accountant.
LOUIS E. NAGY, JR.
Vice President Marketing and Product - Florists' Transworld Delivery,
Inc.
Mr. Nagy joined the Operating Company as Vice President Marketing and
Product in March 1995. Prior to that time, from June 1989 to March 1995, Mr.
Nagy was Vice President, Marketing at Stride Rite Children's Group, Inc., a
division of Stride Rite Corporation, where his responsibilities included brand
and retail marketing initiatives, and product marketing strategies. Mr. Nagy
received a B.S. in Marketing from Central Connecticut State College in 1977.
19
<PAGE> 20
DIANE E. FORESE
Vice President Product Design, Sourcing and New Business Development -
Florists' Transworld Delivery, Inc.
Ms. Forese joined the Operating Company as Vice President Product Design,
Sourcing and New Business Development in August 1995. Before joining the
Operating Company, Ms. Forese was Director, Strategic Planning and Acquisitions
of The Stride Rite Corporation from 1994 to 1995. From 1993 through 1994, Ms.
Forese was the Director Women's Keds Category of The Stride Rite Corporation -
Keds Division. From 1992 to 1993, Ms. Forese was Product Manager - Women's
Keds at The Stride Rite Corporation - Keds Division. From 1988 through 1990,
Ms. Forese specialized in Mergers and Acquisitions at Goldman, Sachs & Company.
Ms. Forese received a degree in Civil Engineering and Management Systems from
Princeton University in 1988 and an M.B.A. from Harvard Graduate School of
Business Administration in 1992.
SCOTT M. HYDE
Vice President Sales - Florists' Transworld Delivery, Inc.
Mr. Hyde joined the Operating Company as Vice President Sales in December
1995. From 1994 through December 1995, Mr. Hyde was the U.S. Communications
Industry Field Marketing Manager at the Hewlett-Packard Company, an electronic
products company. From 1986 to 1994, Mr. Hyde was a Field Sales Engineer with
the Hewlett-Packard Company. Mr. Hyde received a B.S. in Electrical
Engineering from Northeastern in 1986 and a graduate degree in business
administration from Harvard Graduate School of Business Administration in 1991.
ROBERT W. COLLINS, JR.
Vice President Human Resources - Florists' Transworld Delivery, Inc.
Mr. Collins joined the Operating Company as Vice President Human Resources
in July 1996. Prior to joining the Operating Company, Mr. Collins was Vice
President Human Resources at Holson Burnes Group, a distributor of picture
frames and photo albums, from 1993 until 1996. From 1992 through July 1993,
Mr. Collins served as Director of Human Resources at Holson Burnes Group. From
March 1989 through August 1992 Mr. Collins served as Manager of Human Resources
at Crystal Brands Jewelry Group's Sales, Marketing and Product Development
Division. Mr. Collins received a B.S. in Business from University of
Massachusetts Boston in 1976.
20
<PAGE> 21
VERONICA K. HO
Vice President and Director
Ms. Ho has been a Vice President and member of the Board of Directors of
FTD Corporation since December 1994. Ms. Ho is a member of the Board of
Directors of the Operating Company. Ms. Ho is a Managing Director of Perry
Corp. Before joining Perry Corp. in April 1993, Ms. Ho was Chief Financial
Officer of Whitehall Corporation, a producer of defense, electronics, and
technology systems, from April 1991 to March 1993. From 1986 to 1991, she was
with several private merchant banking firms specializing in management buyouts.
Ms. Ho is also a member of the Board of Directors of Radio & Records, Inc.
and the New York Advisory Board of Facing History and Ourselves. She received
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.
GARY K. SILBERBERG
Director
Mr. Silberberg has been a member of the Board of Directors of FTD
Corporation since December 1994. Mr. Silberberg is a member of the Board of
Directors of the Operating Company. Mr. Silberberg is a Managing Director of
Perry Corp. Prior to joining Perry Corp. in April 1994, Mr. Silberberg was a
principal of Baker Ne Investments, where he managed an investment portfolio for
seven years. Before that time, Mr. Silberberg practiced corporate law with
Sadden, Arps, Slate, Meagher & Flom, where he worked on a variety of
transactions, including strategic mergers and restructurings. Mr. Silberberg
received an Sc.B. in Economics and Applied Mathematics from Brown University in
1982 and a J.D. from Yale Law School in 1985. Mr. Silberberg is married to Ms.
Ho.
MARC B. WOLPOW
Director
Mr. Wolpow has been a Director of FTD Corporation since December 1994.
Mr. Wolpow has been a Managing Director of Bain since January 1993 and was a
Principal of Bain Venture Capital from May 1990 through December 1992. From
1986 to February 1990, Mr. Wolpow was a Vice President in the corporate finance
department of Drexel Burnham Lambert, Incorporated. Mr. Wolpow is a Director
of the Operating Company, The Holson Burnes Group, Inc. and Waters, Inc. Mr.
Wolpow received a B.S. from the Wharton School of the University of
Pennsylvania, an M.B.A. from the Harvard Graduate School of Business
Administration and a J.D. from Harvard Law School.
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<PAGE> 22
ALEXANDER TROY
Director
Mr. Troy has been a member of the Board of Directors of FTD Corporation
since December 1994. Mr. Troy has been a Managing Director of Perry Corp.
since 1991. Mr. Troy received a B.A. in Economics from Yale University in 1981
and a J.D. from Harvard Law School in 1984.
TIFFANY FAIRCLOTH
Director
Ms. Faircloth was elected to the Board of Directors of FTD Corporation in
July 1996. Since 1995, Ms. Faircloth has been an associate at Perry Corp.
From September 1991 to July 1993, Ms. Faircloth was an Investment Banking
Analyst at Salomon Brothers Inc., an investment banking firm. Ms. Faircloth
received a B.S. in Finance and Accounting from Georgetown University in 1991
and an M.B.A. from the Harvard Graduate School of Business Administration in
1995.
GEOFFREY REHNERT
Director
Mr. Rehnert has been a member of the Board of Directors of FTD Corporation
since May 1996. Mr. Rehnert has been a General Partner and Managing Director
of Bain since 1986. He is a director of ICON Health & Fitness, Inc., FTD
Holdings, Inc., Gilbert Engineering, GT Bicycles, Inc., Nutraceutical Corp.,
Miltex, Inc., General Sportcraft, Ltd., Kollmorgen Corporation, U.S. Order, and
World Corporation. Mr. Rehnert received a B.A. from Duke University and a J.D.
from the Stanford Law School.
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<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last two fiscal years,
the compensation of those persons who were, at June 30, 1996, the chief
executive officer and the other four most highly compensated executive officers
of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
-------------
All Other
Securities Compen-
Underlying sation
Name and Principal Position Year Salary Bonus Options (#) ($)
- --------------------------- ---- ------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Margaret C. Whitman 1996 $258,038 -- -- $100,517(1)
President and Chief Executive Officer 1995 85,600 $100,000 255,000 7,018(2)
Douglas L. Hagemann 1996 149,730 -- -- 2,859(3)
Director of Finance and Treasurer 1995 144,422 16,500 -- 17,136(4)
Rock A. Davis
Vice President Direct Access - Florists' 1996 125,288 6,000 30,000 2,693(3)
Transworld Delivery, Inc. 1995 2,404 11,000 -- 52(3)
Louis E. Nagy, Jr
Vice President Marketing and Product 1996 125,192 -- 30,000 14,246(5)
- Florists' Transworld Delivery, Inc. 1995 40,866 17,500 -- 777(3)
Paul A. Luck(6)
Former Vice President and Chief Financial 1996 150,000 -- 30,000 2,887(3)
Officer - Florists' Transworld Delivery, Inc. 1995 8,653 -- -- 167(3)
</TABLE>
______________________
(1) Reflects $3,461 for flexible dollars for use in connection with FTD's
benefit plans and $97,056 for the forgiveness of debt used to purchase
shares of FTD Corporation stock.
(2) Reflects $1,370 for flexible dollars for use in connection with FTD's
benefit plans and $5,648 for the forgiveness of debt used to purchase
shares of FTD Corporation stock.
(3) Represents flexible dollars for use in connection with FTD's benefit
plans.
(4) Reflects $14,327 for Universal life Insurance and $2,809 for flexible
dollars for use in connection with FTD's benefit plans.
(5) Reflects $2,963 for flexible dollars for use in connection with FTD's
benefit plans and $11,553 for moving expenses.
(6) Mr. Luck was Vice President and Chief Financial Officer from June 1995
until his resignation effective August 31, 1996.
23
<PAGE> 24
The following table sets forth individual grants of stock options made to
the Named Officers during the fiscal year ended June 30, 1996. Options are
exercisable for Class A Common Stock, par value $.01 per share, of FTD
Corporation.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------ ------------------------
Number of Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees in Price
Name Granted(#)(1) Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
- ------------- --------- ----------- ------ ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Rock A. Davis 15,000 8.57% $5.35 July 7, 2005 $94,274 $185,019
15,000 8.57% $21.40 July 7, 2005 - -
Louis E. Nagy, Jr. 15,000 8.57% $5.35 July 7, 2005 $94,274 $185,019
15,000 8.57% $21.40 July 7, 2005 - -
Paul A. Luck(2) 15,000 8.57% $5.35 - - -
15,000 8.57% $21.40 - - -
</TABLE>
(1) Options granted under the FTD Corporation 1994 Stock Award and Incentive
Plan. Such options vest and become exercisable in four equal, cumulative
installments commencing February 25, 1997 for Mr. Nagy and April 1, 1997
for Mr. Davis.
(2) All of the options granted to Mr. Luck were forfeited upon the effective
date of Mr. Luck's resignation as Vice President and Chief Financial
Officer on August 31, 1996.
24
<PAGE> 25
The following table sets forth the June 30, 1996 aggregate value of
unexercised options held by each of the Named Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value
Underlying of Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End ($)
(#) Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
------------------- -------------------- ------------------
<S> <C> <C>
Margaret C. Whitman 51,000/204,000 $71,145/$284,580
Rock A. Davis 0/30,000 $0/$32,250
Louis E. Nagy, Jr. 0/30,000 $0/$32,250
Paul A. Luck (2) 0/30,000 $0/$32,250
</TABLE>
________________
(1) Because no established public trading market exists for the underlying
securities, fiscal year-end option values were based on an assumed stock
price of $7.50 per share, which price is currently used by FTD for
purposes of granting additional options under the FTD Corporation 1994
Stock Award and Incentive Plan. There can be no assurance that such price
per share represents the actual fair market value of a share.
(2) All of the options granted to Mr. Luck were forfeited upon the effective
date of Mr. Luck's resignation as Vice President and Chief
Financial Officer on August 31, 1996.
No options were exercised during the fiscal year ended June 30, 1996.
25
<PAGE> 26
Pension Plan. The following table shows the estimated annual pension
benefits payable to a covered participant upon normal retirement at age 65
under the Company's qualified defined benefit pension plan (the "Pension
Plan"), based on the remuneration that is covered under the Pension Plan and
years of service with the Company and its subsidiaries:
<TABLE>
<CAPTION>
Years of Service
------------------------------------------
Renumeration 5 10 15 20 25 30
- ------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 4,150 8,300 12,450 16,600 20,750 24,900
60,000 5,025 10,050 15,075 20,100 25,125 30,150
70,000 5,900 11,800 17,700 23,600 29,500 35,400
80,000 6,775 13,550 20,325 27,100 33,875 40,650
90,000 7,650 15,300 22,950 30,600 38,250 45,900
100,000 8,625 17,050 25,575 34,100 42,625 51,150
110,000 9,400 18,800 28,200 37,600 47,000 56,400
120,000 10,275 20,550 30,825 41,100 51,375 61,650
130,000 11,150 22,300 33,450 44,600 55,750 66,900
140,000 12,025 24,050 36,075 48,100 60,125 72,150
150,000 12,900 25,600 38,700 51,600 64,500 77,400
to
270,000
</TABLE>
The Pension Plan covers all employees who receive a regular stated salary
and who do not work a varied schedule for purposes of meeting the peak demand
requirements of the Company's business (provisional employees).
Pension Plan benefits as shown above, are calculated based upon total
years of services to a maximum of 30 years and the average of the five highest
consecutive calendar years' salary, bonus and certain elements of other
compensation and assume that participants have contributed all years to the Tax
Deferred Account-Mandatory under the Company's 401(k) Retirement Savings Plan.
The annual pension benefits shown are computed as a straight life annuity with
ten years certain period beginning at age 65, and assume that participants will
transfer the balance of the Tax Deferred Account-Mandatory from the 401(k)
Retirement Savings Plan to the Pension Plan. The amounts paid under the
Pension Plan are not offset by any social security payments. Covered
compensation and the estimated years of service for each of the Named Officers
as of December 31, 1995 is as follows: Ms. Whitman, $319,936, .90 years; Mr.
Hagemann, $163,578, 14.85 years; Mr. Davis, $102,145, .75 years; Mr. Nagy,
$117,944, .82 years; and Mr. Luck, $80,217, .55 years. Mr. Hagemann is the
only Named Officer eligible to receive benefits under
26
<PAGE> 27
the Pension Plan. Mr. Luck resigned from the Company prior to his becoming
eligible to receive benefits under the Pension Plan.
Whitman Employment Agreement. FTD Corporation and the Operating Company
have entered into an employment agreement, dated as of March 31, 1995 (the
"Whitman Employment Agreement"), with Ms. Whitman to serve as President and
Chief Executive Officer of the Operating Company. The term of the Whitman
Employment Agreement expires on June 30, 2000, subject to automatic annual
renewals thereafter. The Whitman Employment Agreement provides for an initial
base salary of $250,000 per year plus an annual bonus based on performance
criteria to be established by the Company's Board of Directors.
Pursuant to the Whitman Employment Agreement, Ms. Whitman purchased
127,500 shares of FTD Corporation class A common stock, par value $.01 per
share (the "Class A Common Stock") on April 25, 1995 at a price of $4.71 per
share. One hundred thousand dollars of such purchase price was financed by
means of a one-year, interest-free loan from FTD Corporation (the "Whitman
Note"). The Whitman Note was forgiven in its entirety in accordance with its
terms as of June 30, 1996. In addition, $150,000 of such purchase price was
financed by means of an interest bearing, recourse note (the "Short-Term
Note"). The Short-Term Note bears interest at 9% per annum. At August 31,
1996, $105,229 in principal and interest was outstanding from the Short-Term
Note. The shares acquired by Ms. Whitman are subject to certain restrictions
on transfer. The Whitman Employment Agreement also provided for the issuance
to Ms. Whitman of options (the "Options") to purchase, (i) at an exercise price
equal to $4.71 per share, 127,500 shares of Class A Common Stock and (ii) at an
exercise price of $18.84 per share, 127,500 shares of Class A Common Stock,
which vest and become exercisable in five equal annual installments, commencing
March, 1996.
The Whitman Employment Agreement may be terminated by the Company at any
time prior to June 30, 2000. If, however, the Company terminates the Whitman
Employment Agreement other than for Cause (as defined in the Whitman Employment
Agreement), or, if Ms. Whitman terminates the Whitman Employment Agreement for
Good Reason (as defined in the Whitman Employment Agreement) the Company will
be obligated to pay Ms. Whitman severance compensation equal to minimum of
eighteen months' base salary or, if certain performance criteria have been met,
up to a maximum of thirty-six months' base salary. In the event of a Change of
Control (as defined in the Whitman Employment Agreement) of FTD Corporation's
stockholders, under certain conditions, the Options shall become fully vested
and immediately exercisable.
Severance Arrangement. The Company has agreed with Mr. Hagemann that he
will be entitled to receive, among other things, salary continuation for a
period of 18 months if his employment with the Company were terminated by the
Company for any reason other than cause (as defined in the Merger Agreement).
In no event will such benefits be paid beyond age 65. Mr.
Hagemann's severance benefit currently would equal approximately $224,600.
27
<PAGE> 28
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors of FTD Corporation, which was
established April 25, 1995 and is charged with administering FTD Corporation's
1994 Stock Award and Incentive Plan (under which the Company's employees are
eligible to receive stock options and other awards), is comprised of Mr. Perry
and Mr. Wolpow. As more fully described in Item 13, Mr. Perry and Mr. Wolpow
will receive indirectly a portion of the management fees payable by FTD under
the Management Consulting Services Agreement (as defined), to affiliates of the
Sponsors as a result of their ownership interest in or other relationship with
such entities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
ownership of FTD Corporation common stock as of September 25, 1996, 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
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.
28
<PAGE> 29
<TABLE>
<CAPTION>
Class A Class B Percent
Common Stock Common Stock of
------------ (nonvoting) Total
Number of Percent Number of Percent Voting
Shares of Class Shares of Class Power
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Perry 3,729,431 60.54 - - 60.54
599 Lexington Avenue
New York, NY 10022
Bain Funds 1,339,808 21.75 - - 21.75
Two Copley Plaza
Boston, MA 02116
Richard Perry(1) 3,729,431 60.54 - - 60.54
Marc B. Wolpow(2) 1,339,808 21.75 21.75
William P. Phelan(3) 13,247 * 25,625 1.64% *
Geoffrey Rehnert(2) 1,339,808 21.75 - - 21.75
Margaret Whitman(4) 167,618 1.89 - - 1.89
Rock A. Davis(5) 5,000 * - - *
Louis E. Nagy(5) 5,000 * - - *
All executive officers and
directors of FTD as a group 5,286,549 84.76 25.625 1.64 84.76
(16 people) (6)
</TABLE>
_____________
* Represents less than 1%
(1) The address of Mr. Perry is c/o the Company, 29200 Northwestern Highway,
Southfield Michigan 48034. Significantly all of the shares shown are held
by Perry. Mr. Perry has a controlling interest in Perry Investors,
L.L.C., the general partner of Perry. Accordingly, Mr. Perry may be
deemed to have voting and dispositive power with respect to the shares
held by Perry. Mr. Perry disclaims beneficial ownership of such shares.
(2) The address of Mr. Wolpow and Mr. Rehnert is c/o Bain Capital, Inc. Two
Copley Place, Boston, Massachusetts 02116. All of the shares shown are
owned by the Bain Funds. Mr. Wolpow and Mr. Rehnert are Managing
Directors of Bain, which is a general partner of the Bain Funds.
Accordingly, Mr. Wolpow and Mr. Rehnert may be deemed to share voting and
dispositive power as to the shares held by the Bain Funds. Mr. Wolpow and
Mr. Rehnert disclaim 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 and Robert White, may also be deemed to share
voting and dispositive power as to, and also disclaim beneficial ownership
of such shares.
(3) The address of Mr. Phelan is c/o the Company, 29200 Northwestern Highway,
Southfield, Michigan 48034. All of the shares shown are owned by
Turnberry Partners, L.P. Mr. Phelan is the President and sole stockholder
of Chatham Capital Management, Inc., the general partner of Turnberry
Partners, L.P.,and is deemed to have voting and dispositive power as to
the shares held by Turnberry Partners, L.P.
(4) The address of Ms. Whitman is c/o the Company, 29200 Northwestern
Highway, Southfield, Michigan 48034. The shares beneficially owned by Ms.
Whitman include 116,618 shares which were purchased by Ms. Whitman
pursuant to the terms of the Whitman Employment Agreement and 51,000
shares issuable upon exercise of outstanding options which are currently
exercisable. Such shares are subject to certain restrictions on transfer,
and the Company and Ms. Whitman have agreed to enter into additional
agreements setting forth appropriate "piggyback" registration rights and
certain other rights and obligations with respect to such shares.
(5) The address of Mr. Davis and Mr. Nagy is c/o the Company, 29200
Northwestern Highway, Southfield, MI 48034. The shares issued to Mr.
Davis and Mr. Nagy are subject to certain restrictions on transfer.
(6) Includes 51,000 shares issuable upon exercise of outstanding options which
are currently exercisable.
29
<PAGE> 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Services Agreement. Parties related to each of the
Sponsors have entered into an agreement for management consulting services (the
"Management Consulting Services Agreement") with FTD Corporation pursuant to
which they will make available to FTD management, financial and other
corporate advisory services. Subject to certain limitations contained in the
Bank Credit Agreement and the Indenture with respect to the Notes, for each
fiscal year of the Company ended after June 30, 1995, the Operating Company
will pay dividends to FTD Corporation sufficient to allow FTD Corporation to
pay such affiliates an annual fee of $400,000 per year plus an additional $1.6
million per year conditioned upon the achievement of certain levels of
operating income, and reimbursement of reasonable out-of-pocket expenses.
Subject to certain conditions, such fee will be shared by the parties thereto
in proportion to their relative ownership interests in FTD Corporation. The
Sponsors received $1.0 million for the year ended June 30, 1996.
Certain directors of FTD Corporation will receive indirectly a portion of
the management fee as a result of their ownership interest in or other
relationship with the entities providing services to FTD. Mr. Wolpow and Mr.
Rehnert, directors of FTD Corporation designated by the Bain Funds, are
Managing Directors of Bain Capital, Inc. Mr. Phelan, a director of FTD
Corporation 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 FTD Corporation. Mr.
Perry, Ms. Ho, Mr. Troy and Mr. Silberberg, directors of FTD Corporation
designated by Perry, have an interest in Perry Investors, LLC. Assuming the
relative ownership interest among the Sponsors remains unchanged, Bain Capital,
Inc., Fleet Growth Resources, Inc. and Perry Investors, LLC will be entitled to
23.33%, 11.67% and 65%, respectively, of the fees to be paid by the Company
under the Management Consulting Services Agreement. The portion of such fee
each of such directors will receive, if any, is discretionary.
Stockholders' Agreement. Pursuant to the Stockholders' Agreement among
the Company and the Sponsors, each of the Sponsors has agreed, among other
things, (i) to vote its shares of common stock in order to elect and maintain a
board of directors of FTD Corporation and each of its subsidiaries (including
the Operating Company), which consists of a designated number of nominees of
Perry and the Bain Funds and, in the case of FTD Corporation's subsidiaries,
FTD Association nominees as well, (ii) that certain actions taken by the
Company require the approval of two of the directors nominated by Perry and two
of the directors nominated by the Bain Funds and (iii) to certain restrictions
and to grant the other Sponsors certain rights with respect to the sale of its
common stock of FTD Corporation.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedule which are filed with this Form
10-K are set forth in the Index to Consolidated Financial Statements and
Schedule at Page F-1 which immediately precedes such documents.
EXHIBITS
The following exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the Securities and Exchange Commission under
the Securities Act and are referred to and incorporated herein by reference to
such filings.
31
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- ----------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant. (In-
corporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 33-98250).)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's Registration Statement on Form
S-1 (File No. 33-91582).)
4.1 Indenture, dated as of December 1, 1994
(the "Indenture"), by and between Florists' Transworld Delivery, Inc.
and First Trust of New York, National Association, as Trustee. (In-
corporated by reference to Exhibit 4.1 of the Florists'
Transworld Delivery, Inc. Registration Statement on Form
S-1 (File No. 33-88628).)
4.2 Supplemental Indenture, dated as of December 19, 1994
to the Indenture. (Incorporated by reference to Exhibit 4.3 of
the Florists' Transworld Delivery, Inc. Registration State-
ment on Form S-1 (File No. 33-88628).)
4.3 Form of Subscription Agreement among the Registrant and
certain stockholders of the Registrant. (Incorporated by
reference to Exhibit 4.3 of Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(File No. 33-91582).)
10.1(a) Credit Agreement, dated as of December 19, 1994,
among the Registrant, Florists' Transworld Delivery, Inc.,
the various lending institutions party thereto and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.1 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No. 33-88628).)
10.1(b) First Amendment to Credit Agreement, dated as of
August 30, 1995, among the Registrant, Florists' Transworld
Delivery, Inc., the lending institutions party to the Credit Agreement
and the Bankers Trust Company, as Agent. (Incorporated by
reference to Exhibit 10.1(b) of the Florists' Transworld Delivery,
Inc. Annual Report on Form 10-K for fiscal year ended
June 30, 1995.)
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- ----------------------------------------------------------------------
<S> <C>
10.1(c) Second Amendment to Credit Agreement, dated as of
June 11, 1996, among the Registrant, Florists' Transworld
Delivery, Inc., the lending institutions party to the Credit
Agreement and Bankers Trust Company, as Agent. (In-
corporated by reference to Exhibit I(d) of the Registrant's
Registration Statement on Form 8-A, filed August 28, 1996.)
10.2 Pledge Agreement, dated December 1, 1994, by and among
the Registrant, Florists' Transworld Delivery, Inc., FTD Holdings
Incorporated, FTD Direct Access, Inc., Directory Advertising, Inc.
and Bankers Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.2 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No. 33-88628).)
10.3 Security Agreement, dated December 19, 1994, by and
among the Registrant, Florists' Transworld Delivery, Inc., certain
subsidiaries of the Registrant and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.3 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No. 33-88628).)
10.4 Consultation Agreement and Covenant Not to Compete,
dated as of August 2, 1994, by and between Florists' Transworld
Delivery, Inc. and John A. Borden. (Incorporated by reference to
Exhibit 10.8 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No 33-88628).)
10.5 Mutual Support Agreement, dated as of December 18,
1994, by and between Florists' Transworld Delivery, Inc. and
FTD Association. (Incorporated by reference to Exhibit 10.9
of the Florists' Transworld Delivery, Inc. Registration Statement
on Form S-1 (File No, 3-88628).)
10.6 Trademark License Agreement, dated as of December 18,
1994, by and between Florists' Transworld Delivery, Inc. and
FTD Association. (Incorporated by reference to Exhibit 10.10
of the Florists' Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -----------------------------------------------------------------
<S> <C>
10.7 Registration Rights Agreement, dated as of December 19,
1994, among the Registrant, Florists' Transworld Delivery, Inc.,
BT Securities Corporation and Montgomery Securities.
(Incorporated by reference to Exhibit 10.11 of the Florists'
Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
10.8 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and Florists' Transworld Delivery, Inc.
(Incorporated by reference to Exhibit 10.12 of the Florists'
Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
10.9 Employment Agreement, dated March 31, 1995, among
Margaret C. Whitman, the Registrant and Florists' Transworld
Delivery, Inc. (Incorporated by reference to Exhibit 10.10 of the
Registrant's Registration Statement on Form S-1
(File No. 33-91582).)
10.10 Securityholders' and Registration Rights Agreement, dated as of
December 19, 1994, among the Registrant, certain stockholders of
the Registrant, BT Securities Corporation and Montgomery
Securities. (Incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1 (File No. 33-
91582).)
10.11 Stockholders' Agreement, dated as of December 19, 1994, among
the Registrant and certain stockholders of the Registrant.
(Incorporated by reference to Exhibit 10.13 of the Registrant's
Registration Statement on Form S-1 (File No. 33-91582).)
10.12 FTD Corporation 1994 Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.14 of the
Registrant's Registration Statement on
Form S-1 (File No. 33-91582).)
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -----------------------------------------------------------------
<S> <C>
11 Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 21.1 of the Registrant's Registration Statement on
Form S-1 (File No. 33-91582).)
27 Financial Data Schedule.
</TABLE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- ---------------------------------------------------
<S> <C>
10.4 Consultation Agreement and Covenant Not to Compete
dated as of August 2, 1994, by and between
Florists' Transworld Delivery, Inc. and John A. Borden.
10.9 Employment Agreement, dated March 31, 1995,
among Margaret C. Whitman, the Registrant
and Florists' Transworld Delivery, Inc.
10.12 FTD Corporation 1994 Stock Award and Incentive Plan.
</TABLE>
REPORTS ON FORM 8-K
No forms 8-K were filed by the Company during the fourth quarter of
fiscal 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No annual report covering the registrant's last fiscal year has been
sent to security-holders of the registrant.
35
<PAGE> 36
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.
FTD CORPORATION
By: /s/ Margaret C. Whitman
---------------------------------
Margaret C. Whitman
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
---- --------- -----
<S> <C> <C>
9/25/96 /s/ Richard C. Perry Chairman of the Board of
---------------------------------- Directors
Richard C. Perry
9/25/96 /s/ Margaret C. Whitman President, Chief Executive
---------------------------------- Officer and Director
Margaret C. Whitman
9/25/96 /s/ Veronica K. Ho Vice President and Director
----------------------------------
Veronica K. Ho
9/25/96 /s/ Tiffany Faircloth Director
----------------------------------
Tiffany Faircloth
9/25/96 /s/ William P. Phelan Director
----------------------------------
William P. Phelan
9/25/96 /s/ Geoffrey Rehnert Director
----------------------------------
Geoffrey Rehnert
9/25/96 /s/ Gary K. Silberberg Director
-----------------------------------
Gary K. Silberberg
9/25/96 /s/ Alexander Troy Director
------------------------------------
Alexander Troy
9/25/96 /s/ Marc B. Wolpow Director
-------------------------------------
Marc B. Wolpow
9/25/96 /s/ Douglas L. Hagermann Director of Finance and Treasurer
------------------------------------- (Principal Financial Officer and Principal
Douglas L. Hagermann Accounting Officer)
</TABLE>
36
<PAGE> 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F - 2
Consolidated Statements of Financial Position as of June 30, 1996 and 1995 F - 3
Consolidated Financial Statements for the years ended June 30, 1996, and 1995:
Statements of Operations F - 5
Statements of Stockholders' Equity F - 6
Statements of Cash Flows F - 7
Notes to Consolidated Financial Statements F - 9
Independent Auditors' Report on Financial Statement Schedule F - 21
Schedule II - Valuation and Qualifying Accounts F - 22
</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> 38
Independent Auditors' Report
Board of Directors
FTD Corporation
Southfield, Michigan:
We have audited the accompanying consolidated statements of financial position
of FTD Corporation and subsidiary as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. 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 of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of FTD Corporation and subsidiary as of June 30, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Detroit, Michigan
July 31, 1996
F-2
<PAGE> 39
FTD CORPORATION
Consolidated Statements of Financial Position
As of June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,650,190 24,481,991
Accounts receivable, less allowance for doubtful accounts ($1,412,000 in 1996 and
$1,589,000 in 1995) 24,080,222 20,860,573
Inventories, principally finished goods, net 12,467,390 13,019,003
Deferred income taxes 5,569,000 6,830,000
Other current assets 1,717,334 1,558,984
------------ -----------
Total current assets 70,484,136 66,750,551
Property and equipment:
Land and improvements 2,500,000 2,500,000
Building and improvements 13,168,949 12,682,199
Mercury consoles 23,186,780 22,705,868
Furniture and equipment 11,629,881 10,774,754
------------ -----------
Total 50,485,610 48,662,821
Less accumulated depreciation 15,157,865 4,961,620
------------ -----------
Property and equipment, net 35,327,745 43,701,201
Other noncurrent assets:
Deferred financing costs, less accumulated amortization ($1,648,000 in 1996 and
$572,000 in 1995) 4,470,435 5,546,578
Deferred income taxes 193,779 -
Other noncurrent assets 2,191,612 827,329
Goodwill and other intangibles, less accumulated amortization ($4,874,000 in 1996 and
$1,523,000 in 1995) 83,414,093 87,038,048
------------ -----------
Total other noncurrent assets 90,269,919 93,411,955
------------ -----------
Total assets $196,081,800 203,863,707
============ ===========
</TABLE>
F-3
<PAGE> 40
FTD CORPORATION
Consolidated Statements of Financial Position
As of June 30, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1995
------------ -----------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 8,496,171 4,704,322
Accounts payable 28,359,463 26,868,919
Accrued member incentive programs 12,948,754 6,754,496
Accrued severance costs 1,318,946 5,961,033
Other accrued liabilities 6,059,171 5,889,796
Unearned income and members' deposits 10,583,981 10,026,403
------------ -----------
Total current liabilities 67,766,486 60,204,969
Long-term debt, less current maturities 87,781,270 96,052,186
Postretirement benefits, less current portion 7,162,379 7,326,820
Accrued pension obligations 4,061,212 2,924,871
Deferred income taxes - 2,072,000
Minority interest in subsidiary 170,163 202,786
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued - -
Common stock:
Class A, $0.01 par value, 30,000,000 shares authorized; 6,160,181 shares issued
and 6,134,549 outstanding at June 30, 1996; 6,135,187 shares issued and
6,028,937 outstanding at June 30, 1995 61,602 61,352
Class B, $0.0005 par value, 3,000,000 shares authorized; 1,566,686 shares issued and
outstanding at June 30, 1996; $0.01 par value, 3,000,000 shares authorized;
441,688 shares issued and outstanding at June 30, 1995 783 4,417
Paid-in capital 35,606,859 35,384,231
Retained earnings (deficit) (6,273,868) 449,056
Notes receivable (128,419) (318,981)
Treasury stock, at cost, 25,632 shares class A common stock at June 30, 1996. 106,250
shares class A common stock at June 30, 1995 (126,667) (500,000)
------------ -----------
Total stockholders' equity 29,140,290 35,080,075
------------ -----------
Total liabilities and stockholders' equity $196,081,800 203,863,707
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 41
FTD CORPORATION
Consolidated Statements of Operations
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1995
1996 (Note 1)
----------- -----------
<S> <C> <C>
Revenues:
Marketplace $ 57,924,154 35,459,629
Clearinghouse 37,070,125 24,737,704
Mercury Network 34,137,480 17,618,169
Other 37,123,123 18,702,424
------------- -----------
Total revenues 166,254,882 96,517,926
Costs:
Products and distribution 41,208,597 25,735,921
Floral order transmissions and processing services 30,562,101 14,922,606
Member programs 32,615,322 17,908,313
------------- -----------
Total cost of goods sold and services
provided 104,386,020 58,566,840
Selling, general and administrative expense 58,376,222 30,668,699
------------- -----------
Income from operations 3,492,640 7,282,387
Interest (income) (1,431,769) (1,719,742)
Interest expense 13,498,270 7,546,459
------------- -----------
Income (loss) before income taxes (benefit)
and minority interest (8,573,861) 1,455,670
Income taxes (benefit) (1,813,500) 1,021,000
Minority interest in earnings (loss) of subsidiary (32,623) 8,452
------------- -----------
Net income (loss) $ (6,727,738) 426,218
============= ===========
Earnings (loss) per share:
Primary ($1.01) 0.06
====== ======
Fully Diluted ($1.01) 0.06
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 42
FTD CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Number of
Shares Outstanding
----------------------- Preferred Common Paid-in
Class A Class B Stock Stock Capital
------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 100 - $ - 1 99
Repurchase of initial investment (100) (1) (99)
Common stock issued to effect merger 5,986,437 441,688 64,281 29,935,719
Additional common stock issued 148,750 1,488 948,512
Repurchase of class A common stock (106,250) - -
Issuance of common stock warrants - - 4,500,000
Net income - - -
Foreign currency translation adjustment - - - - -
--------- --------- ---------- -------- ----------
Balance, June 30, 1995 6,028,937 441,688 - 65,769 35,384,231
Purchase of common stock from initial investors (552,239) (2) (5,522) (2,948,956)
Sale of treasury stock (1,063) (498,937)
Sale of common stock in public offering 658,483 6,585 3,516,299
Repurchase of common stock (32,641) 79,510
Sale of common stock to officers 32,009 250 135,475
Change in par value of Class B shares (4,197) 4,197
Amortization of shareholder notes receivable
Cancellation of shareholder notes receivable
in connection with repurchase of common stock (65,297)
Exercise of common stock warrants 1,125,000 563 337
Net loss
Foreign currency translation adjustment
--------- --------- ---------- -------- ----------
Balance, June 30, 1996 6,134,549 1,566,686 $ - 62,385 35,606,859
========= ========= =========== ======== ==========
<CAPTION>
Stock
Subscription
Retained and Notes Treasury
Earnings Receivable Stock Total
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 1, 1994 - (100) - -
Repurchase of initial investment - 100 - -
Common stock issued to effect merger - - - 30,000,000
Additional common stock issued - (318,981) - 631,019
Repurchase of class A common stock - - (500,000) (500,000)
Issuance of common stock warrants - - - 4,500,000
Net income 426,218 - - 426,218
Foreign currency translation adjustment 22,838 - - 22,838
---------- --------- ---------- ----------
Balance, June 30, 1995 449,056 (318,981) (500,000) 35,080,075
Purchase of common stock from initial investors 67,924 (2,886,554)
Sale of treasury stock 500,000 -
Sale of common stock in public offering 3,522,884
Repurchase of common stock (162,190) (82,680)
Sale of common stock to officers (12,498) 35,523 158,750
Change in par value of Class B shares -
Amortization of shareholder notes receivable 69,839 69,839
Cancellation of shareholder notes receivable
in connection with repurchase of common stock 65,297 -
Exercise of common stock warrants 900
Net loss (6,727,738) (6,727,738)
Foreign currency translation adjustment 4,814 4,814
---------- --------- ---------- ----------
Balance, June 30, 1996 (6,273,868) (128,419) (126,667) 29,140,290
========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 43
FTD CORPORATION
Consolidated Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1995
1996 (Note 1)
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,727,738) 426,218
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 14,231,089 6,524,931
Amortization of deferred financing costs and original issue discount 1,359,335 708,188
Postretirement benefits 401,681 361,222
Pension (119,625) -
Minority interest in earnings (loss) of subsidiary (32,623) 8,452
Undistributed (earnings) losses of unconsolidated affiliate (66,774) (54,022)
Loss on disposal of assets 663,253 -
Increase (decrease) in cash due to change in:
Accounts receivable (3,219,311) 12,842,278
Inventories 1,027,373 1,523,824
Deferred income taxes (2,035,129) 507,000
Other current assets (158,688) 2,336,379
Accounts payable 1,490,547 (28,694,963)
Accrued member incentive programs 6,194,258 (2,819,035)
Accrued severance costs (1,504,086) (1,074,967)
Other accrued liabilities, unearned income,
and members' deposits (417,582) 1,906,736
------------ -------------
Net cash provided by (used in) operating activities 11,085,980 (5,497,759)
Cash flows from investing activities:
Release of restricted cash related to credit deposit
fund investments - 2,172,784
Cash acquired in acquisition - 46,577,468
Cash utilized to effect merger - (109,028,269)
Capital expenditures (4,950,398) (3,081,540)
------------ -------------
Net cash used in investing activities (4,950,398) (63,359,557)
Cash flows from financing activities:
Additions to deferred financing costs - (126,000)
Proceeds from long-term debt - 95,435,768
Repayments of long-term debt (4,762,259) (35,101,480)
Issuance of common stock 3,658,609 30,631,019
Purchase of common stock (2,954,478) -
Sale of treasury stock 23,025 -
Purchase of treasury stock (82,680) (500,000)
Issuance of common stock warrants 900 3,000,000
Reduction in notes receivable from stockholders 137,764 -
------------ -------------
Net cash provided by (used in) financing activities (3,979,119) 93,339,307
Effect of foreign exchange rate changes on cash 11,736 -
------------ -------------
Net increase in cash and cash equivalents 2,168,199 24,481,991
Cash and cash equivalents at beginning of period 24,481,991 -
------------ -------------
Cash and cash equivalents at end of period $ 26,650,190 24,481,991
============ =============
</TABLE>
F-7
<PAGE> 44
FTD CORPORATION
Consolidated Statements of Cash Flows, Continued
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $12,113,803 6,704,045
=========== =========
Income taxes paid $ 200,978 260,391
=========== =========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
Florists' Transworld Delivery Association (the "Acquired Company") was
acquired by FTD Corporation (the "Company") on December 19, 1994 (see note
2). The acquisition was effected through a merger of the Acquired Company
with a subsidiary of the Company, with the Acquired Company surviving the
merger as a wholly owned subsidiary of the Company, as follows:
<TABLE>
<S> <C>
Cash utilized to effect merger $109,028,269
Noncash items:
Reduction of proceeds from long-term debt for financing costs 5,992,405
Value ascribed to common stock warrants issued 1,500,000
Reduction in accrued severance costs subsequent to initial purchase price allocation 3,138,000
Other purchase accounting adjustments for assets acquired and liabilities assumed (808,674)
------------
Total purchase price $118,850,000
============
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 45
FTD CORPORATION
Notes to Consolidated Financial Statements
Years ended June 30, 1996 and 1995
(1) Accounting Policies
Principles of Consolidation
The consolidated financial statements at June 30, 1996 and 1995, include
the accounts of FTD Corporation and its wholly owned subsidiary, Florists'
Transworld Delivery, Inc. (the "Operating Company") (collectively the
"Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation. Through the Operating Company, the
Company is a supplier of non-perishable hardgoods, order clearing services,
marketing support and other services to the retail floral industry in the
United States and Canada.
The Company did not realize any revenues or incur any operating expenses
from its inception in March 1993 through the acquisition of the Operating
Company on December 19, 1994. Therefore, no statements of operations,
stockholders' equity, or cash flows have been presented for any periods
through June 30, 1994. The accompanying consolidated statements of
operations and cash flows for the year ended June 30, 1995 only includes
the Operating Company's revenues, operating expenses and cash flows for
the period December 19, 1994 through June 30, 1995.
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation.
Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company considers all investments
purchased with maturities of three months or less at the date of purchase
to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt. At June 30,
1996, because of the short maturity of those instruments, the fair value of
these financial instruments approximates the carrying amount with the
exception of long-term debt as discussed in note 4.
Inventories
Inventories consist principally of finished goods and are stated at the
lower of cost, principally on a first in, first out basis, or market (net
realizable sales) value.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Assets acquired on
December 19, 1994 (see note 2), have been recorded at fair value.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and
any gain or loss is included as selling, general and administrative expense
in the accompanying consolidated statements of operations.
Maintenance and repairs are charged to expense as incurred. Expenditures
which improve or extend the life of existing property and equipment are
capitalized.
F-9
<PAGE> 46
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(1) 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. Assets acquired on December 19, 1994 (see note 2), have been
recorded at fair value.
Intangibles
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized over
30 years. Other intangibles consist of trademarks, trained workforce, and
software, and are being amortized over 40, 7, and 5 years, respectively,
using the straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred indicate that the remaining balance of goodwill and other
intangibles may not be recoverable or that the remaining estimated useful
lives may warrant revision. When such factors indicate that goodwill and
other intangibles should be evaluated for possible impairment, the Company
uses an estimate of undiscounted future cash flows to measure whether the
goodwill and other intangibles is recoverable, and over what period.
Income Taxes
The Company files a consolidated federal income tax return. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, deferred taxes are provided on items that
result from temporary differences in the recognition of revenue and expense
for tax and financial statement reporting purposes (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.
Earnings Per Share
Earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average common shares and common share equivalents outstanding
during the period.
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-10
<PAGE> 47
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(1) 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
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." Effective for fiscal
years beginning after December 15, 1995, Statement No. 123 encourages
companies to record the fair value of any stock awards as compensation
expense within the income statement. Companies who choose to continue
accounting for such stock awards in accordance with Accounting Principles
Board Opinion No. 25 must disclose pro forma net income and earnings per
share as if the fair value of the award had been included as compensation
expense. The Company anticipates remaining with the intrinsic value
method. The Company expects the impact of this statement to be immaterial.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of." This Statement provides guidance
for recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill, if any, related both to assets to be
held and assets to be disposed of. The Company will adopt this Statement
in the first quarter of 1997 and anticipates the effect will be immaterial.
(2) Acquisition
On December 19, 1994 (the "Merger Date"), FTD Corporation, a Delaware
corporation, completed an acquisition of all 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 at June 30, 1996 and 1995, reflect the allocation of the total
purchase price to the tangible and intangible assets acquired and
liabilities assumed of the Acquired Company as of December 19, 1994, based
on their respective estimated fair values. The preliminary allocation of
the total purchase price to assets acquired and liabilities assumed as of
the Merger Date was as follows:
Current assets $ 94,694,000
Goodwill and other intangible assets 88,561,000
Other noncurrent assets 6,633,000
Property and equipment 45,294,000
Liabilities (116,332,000)
-------------
Total purchase price $ 118,850,000
=============
F-11
<PAGE> 48
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(2) Acquisition, Continued
Upon consummation of the acquisition of the Operating Company by FTD
Corporation, management began to assess and formulate a plan to
involuntarily terminate and/or relocate employees of the Operating Company
as part of its relocation and/or consolidation efforts. As of June 30,
1996, management has completed its assessment. Costs to involuntarily
terminate and/or relocate employees of the Operating Company as a result of
the Merger continue to be incurred.
The initial allocation of the total purchase price referred to above
included a reserve for the estimated cost of planned termination, severance
and relocation. The activity in such reserves during the period December
19, 1994 through June 30, 1995 and the year ended June 30 1996, can be
summarized as follows:
<TABLE>
<CAPTION>
Severance Relocation
Benefits Costs Other Total
---------- ---------- ------ -------
<S> <C> <C> <C> <C>
Initial estimate as of December 19, 1994 $5,573,000 600,000 863,000 7,036,000
Costs paid during the period December 19, 1994
through June 30, 1995 843,000 - 232,000 1,075,000
---------- ------- ------- ---------
Remaining liability as of June 30, 1995 4,730,000 600,000 631,000 5,961,000
Costs paid during the year ending June 30, 1996 1,310,000 41,000 153,000 1,504,000
Reduction of accrued liability during the year
ending June 30, 1996 2,370,000 480,000 288,000 3,138,000
---------- ------- ------- ---------
Remaining liability as of June 30, 1996 $1,050,000 79,000 190,000 1,319,000
========== ======= ======= =========
</TABLE>
The amounts included above representing reductions in the accrued liability
during the year ending June 30, 1996 were recorded as adjustments to the
allocation of the purchase price, and therefore, reductions to goodwill.
The remaining liability as of June 30, 1996 will be utilized to complete
the Operating Company's plan of involuntary terminations and/or employee
relocations which is underway.
(3) Intangibles
At June 30, 1996 and 1995, goodwill and other intangible assets consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Goodwill $69,187,677 69,460,954
Trademarks 15,000,000 15,000,000
Trained workforce 2,100,000 2,100,000
Software 2,000,000 2,000,000
----------- ----------
Total 88,287,677 88,560,954
Less accumulated amortization 4,873,584 1,522,906
----------- ----------
Total $83,414,093 87,038,048
=========== ==========
</TABLE>
F-12
<PAGE> 49
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(3) Intangibles, Continued
The Company had no intangibles prior to the Merger Date. The change in
goodwill resulted from adjustments to the reserve for estimated costs of
planned termination, severance and relocation (see note 2), as well as
pension and postretirement obligations (see notes 8 and 9).
(4) Financing Arrangements
Long-term Debt
At June 30, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Series B senior subordinated notes, interest payable semiannnually at 14%
due December 15, 2001, net of unamortized discount of $2,580,446
and $2,863,639 at June 30, 1996 and 1995, respectively $ 57,419,554 57,136,361
Term loans, payable quarterly at various amounts, plus interest at a
weighted average floating Eurodollar rate of 8.5% and 9.2% at
June 30, 1996 and 1995, respectively, due December 15, 1999 38,781,256 43,500,000
Other 76,631 120,147
------------ -----------
Total long-term debt 96,277,441 100,756,508
Less current maturities 8,496,171 4,704,322
------------ -----------
Long-term debt, less current maturities $ 87,781,270 96,052,186
============ ===========
</TABLE>
The principal reductions required for each of the following five years and
thereafter are as follows:
<TABLE>
<S> <C>
1997 $ 8,496,171
1998 11,449,704
1999 12,434,491
2000 6,477,521
2001 -
Thereafter 60,000,000
------------
Total $ 98,857,887
============
</TABLE>
The Company's debt agreements include covenants which, among other things,
require that the Company maintain certain financial ratios and a minimum
level of consolidated net worth. The Company is in compliance with all debt
covenants at June 30, 1996. The Company's debt agreements also include
restrictions on the declaration and payment of dividends. The term loan
agreement requires the Company to repay principal of the loans to the extent
cash flow generated in the fiscal year exceeds certain calculated amounts. As
of June 30, 1996 the estimated fair value of long-term debt, discounted at
current rates, was $104,397,000.
F-13
<PAGE> 50
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(4) Financing Arrangements, Continued
Line of Credit
The Company has a $25,000,000 unsecured line of credit, obtained during
fiscal year 1995, with a group of banks at an interest rate varying with
prime or other indices. There were no borrowings on this line during 1996
or 1995. The Company must pay a commitment fee of one-half of 1 percent
annually on the unused portion of the commitment.
(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, 1996 and 1995:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Mercury consoles $23,186,780 22,705,868
Less: Accumulated depreciation 10,945,722 3,489,603
----------- ----------
Net investment $12,241,058 19,216,265
=========== ==========
</TABLE>
As Lessee
The minimum aggregate annual operating lease obligations related to
facilities and equipment are as follows:
<TABLE>
<S> <C>
1997 $ 1,009,200
1998 705,700
1999 510,300
2000 352,000
Thereafter 461,200
-----------
Total $ 3,038,400
===========
</TABLE>
Rental expense with respect to operating leases was $802,000 and $459,000
for 1996 and 1995, respectively.
(6) Advertising and Sales Promotion Costs
The Company expenses advertising time and space costs and related
residual rights and contracts at the time the advertising is broadcast or
displayed. Production and promotion costs are charged to expense when
incurred. Costs of promotional materials and product catalogs distributed
to members or consumers are expensed over the periods to which the materials
relate. Advertising awarded to FTD members under the Company's incentive
program is charged to expense when earned.
In 1996 and 1995, advertising and sales promotion expense was $31
million and $16 million, respectively. Advertising and sales promotion
expense for the year ended June 30, 1996 includes $3.8 million of accrued
advertising costs earned by FTD members that will be paid in fiscal 1997
under a new incentive program established in fiscal 1996. No such costs
were incurred in fiscal 1995.
F-14
<PAGE> 51
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes
At June 30, 1996 and 1995, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
Current deferred tax assets: 1996 1995
-------- --------
<S> <C> <C>
Accrued Value Plus incentive obligations $ 3,058 2,341
Accrued severance costs 499 2,206
Allowance for doubtful accounts 518 585
Unearned income 617 559
Inventory 497 500
Accrued vacation 246 279
Other 134 360
------- --------
Current deferred tax assets 5,569 6,830
------- --------
Noncurrent deferred tax assets:
Net operating loss carryforwards 4,844 3,842
Postretirement benefit obligations 2,650 2,711
Accrued pension 1,503 1,082
Other 197 117
------- --------
Noncurrent deferred tax assets 9,194 7,752
Noncurrent deferred tax liabilities - tax over
book depreciation and difference in basis 7,500 8,824
------- --------
Net noncurrent deferred tax assets
(liabilities) 1,694 (1,072)
------- --------
Deferred tax assets - valuation allowance (1,500) (1,000)
------- --------
Net deferred tax assets $ 5,763 4,758
======= ========
</TABLE>
The deferred tax assets are subject to certain asset realization tests.
Company management believes that, under the principles of SFAS No. 109,
based on 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 $1,500,000 and $1,000,000 is
appropriate at June 30, 1996 and 1995, respectively.
The Company's net operating loss carryforwards at June 30, 1996 and 1995,
of approximately $13.1 million and $11.9 million, the tax benefits of which
are included above as noncurrent deferred tax assets, will expire if
unused, as follows: $3.6 million in 2007; $2.3 million in 2008; $0.8
million in 2009; $5.2 million in 2010; and $1.2 million in 2011. In
addition, as a result of the Merger (see note 2), the Company's pre-Merger
net operating loss carryforwards of $6.7 million available to be utilized
in the future are limited to approximately $1.8 million per year.
F-15
<PAGE> 52
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
The provision for income taxes for the year ended June 30, 1996 and
1995, differs from the amount computed by applying the U.S. federal income
tax rate (35 percent) to pretax income because of the effect of the
following items (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Tax (benefit) at U.S. federal income tax rate $(3,001) 509
State income taxes (benefit), net of federal income tax benefit (172) 29
Taxes on foreign subsidiary in excess of income taxes at
statutory rate 23 17
Amortization of purchased goodwill 842 464
Valuation allowance 500 -
Other items, net (6) 2
-------- -----
Reported income tax (benefit) expense $(1,814) 1,021
======== =====
</TABLE>
(8) Postretirement Benefits Other than Pensions
The Operating Company provides certain postretirement health care
benefits to substantially all employees who retired with a minimum of 10
years of service and have attained 60 years of age. The plan retirees are
required to share in the cost of the benefit. There are currently no plans
to modify or terminate the plan; however, the Operating Company is under no
obligation to continue the plan under its current form, and may modify or
terminate the plan at the discretion of its board of directors.
Effective July 1, 1993, the Acquired Company adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, for
its unfunded postretirement health care program. This statement requires
that the expected cost of postretirement benefits be recognized in the
financial statements during the employees' active service period. The
Acquired Company elected to immediately recognize as a charge to expense its
transition obligation of $6,277,000.
At June 30, 1996 and 1995, the status of the plan consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Retirees $4,198,000 4,435,000
Fully eligible active participants 62,000 -
Other Active participants 1,921,000 3,124,000
---------- ---------
Accumulated postretirement benefit obligation 6,181,000 7,559,000
Unrecognized net gain 1,238,000 -
---------- ---------
Accrued postretirement benefit liability $7,419,000 7,559,000
========== =========
</TABLE>
At June 30, 1995, the accrued postretirement benefit liability included
employees who were subsequently voluntarily or involuntarily terminated as
part of the Company's plan to relocate and/or consolidate employees. Upon
the completion of the Company's plan, a reduction to the accrued
postretirement benefit liability of $590,000 was recorded to reflect the
impact of this plan.
F-16
<PAGE> 53
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(8) Postretirement Benefits Other than Pensions, Continued
Net periodic postretirement benefit costs for the years ended June 30, 1996
and 1995 included the following components:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Service cost $194,000 168,000
Interest cost 438,000 294,000
Unrecognized prior period gain (54,000) -
-------- -------
Total $578,000 462,000
======== =======
</TABLE>
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 8.5 percent through June 30, 1995, 7.75
percent at June 30, 1995 and 7.5 percent at and for the year ended June 30,
1996. The assumed health care cost trend rate used in measuring the APBO
was 10.0 percent and graded down to 5.5 percent over 12 years at June 30,
1996 and 13.2 percent and graded down to 6.4 percent over 13 years at June
30, 1995. If the current health care cost trend rate assumption was
increased by 1 percent, the APBO as of June 30, 1996, would increase
approximately $1,006,000, or 16 percent, while the periodic cost for the
fiscal year ended June 30, 1996, would have increased approximately
$131,000, or 21 percent.
(9) Pension Plans
The Operating Company has both a defined benefit and a defined contribution
plan which cover substantially all domestic employees. The Operating
Company's funding policy is to contribute annually to the defined benefit
plan the amount deductible for income tax purposes. Contributions of
approximately $1,223,000 were made to the defined benefit plan in 1996. No
contributions were made in 1995. The Operating Company's matching
contributions to the defined contribution plan are determined at the
discretion of their board of directors. No matching contributions have been
made in 1996 or 1995 to the defined contribution plan.
Pension expense, including administrative costs, charged to the
operations for the above-mentioned plans amounted to $903,000 and $507,000
in 1996 and 1995, respectively.
Benefits under the defined benefit plan are based on the employee's age,
years of service, and the highest consecutive five-year average
compensation.
Plan assets for the defined benefit plan consist of investments in
common stock, real estate properties, fixed income securities, and
short-term investments. Pension expense for the defined benefit plan in
1996 and 1995 was computed as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Service cost $ 616,000 360,000
Interest cost 820,000 387,000
Actual gain on plan assets (1,434,000) (566,000)
Net amortization and deferral 901,000 310,000
---------- --------
Pension expense $ 903,000 491,000
========== ========
</TABLE>
F-17
<PAGE> 54
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(9) Pension Plans, Continued
At June 30, 1996 and 1995, the funded status of the defined benefit plan was
as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligations $ 6,136,000 5,576,000
Nonvested benefit obligations 840,000 800,000
----------- ----------
Accumulated benefit obligations $ 6,976,000 6,376,000
=========== ==========
Projected benefit obligations $10,653,000 9,786,000
Plan assets at fair value (5,780,000) (5,948,000)
----------- ----------
Projected benefit obligations in excess of
plan assets 4,873,000 3,838,000
Unrecognized net gain 212,000 310,000
----------- ----------
Total accrued pension obligations $ 5,085,000 4,148,000
=========== ==========
</TABLE>
For the period July 1, 1995 through March 1, 1996, the weighted average
discount rate was 7.75 percent preretirement and 6 percent postretirement
for those participating in the defined benefit plan on November 1, 1976, and
7.75 percent for all others. For any benefits accrued after March 1, 1996,
the weighted average discount rate was 7.75 percent for both preretirement
and postretirement for all plan participants. For the year ended June 30,
1995, the weighted average discount rate was 8.5 percent preretirement and 6
percent postretirement for those participating in the defined benefit plan
on November 1, 1976, and 8.5 percent for all others. The discount rate used
to calculate the projected benefit obligation at June 30, 1996 was decreased
to 7.5 percent. For both 1996 and 1995, the rate of increase in future
compensation levels was 5 percent and the expected long-term rate of return
on assets was 9 percent.
At June 30, 1995 the calculated projected benefit obligation assumed
that certain employees of FTD Association, who were formerly employees of
the Operating Company, were active plan participants continuing to earn
benefits. Subsequent to June 30, 1995, the status of FTD Association
employees was changed to vested terminated participants who were due a lump
sum under the plan agreement and, accordingly, the calculated projected
benefit obligation was increased by $734,000.
F-18
<PAGE> 55
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(10) Related Party Transactions
Operating expenses for the years ended June 30, 1996 and 1995 include
$1,000,000 payable each period to certain investors of the Company for
management consulting services.
The Company and the Operating Company entered into an employment agreement
dated as of March 31, 1995, with their president and chief executive
officer (the "CEO") through June 30, 2000 (the "Employment Agreement"),
with automatic one-year renewals thereafter.
The Employment Agreement provided, among other things, for the sale to
the CEO of 127,500 shares of common stock of the Company at the assumed
fair market value on the agreement date of $4.71 per share. A portion of
such purchase was financed through (i) a $100,000 one-year, interest-free
loan from the Company, and (ii) a $150,000 interest-bearing loan from the
Company due June 30, 1996. The interest-free loan was forgiven in its
entirety by June 30, 1996 and was recorded as compensation expense by the
Operating Company in the amount of $97,000 for the year ended June 30,
1996. The outstanding principal balance of the interest-bearing loan
accrued interest at 9 percent per annum. At June 30, 1996, $128,419 was
outstanding from these notes.
(11) Earnings Per Share
Earnings per common and common equivalent share for 1996 and 1995 have
been computed based on the weighted average number of common and common
equivalent shares outstanding during the period.
(12) 1994 Stock Award and Incentive Plan
The Company's 1994 Stock Award and Incentive Plan (the "Plan") was
adopted by the board of directors of the Company and approved by the
Company's stockholders on December 19, 1994, and amended on June 12, 1995.
The maximum number of shares of common stock authorized for issuance under
the Plan is equal to 15 percent of the initial equity capital of the
Company upon the consummation of the Merger. The board of directors
determined that for a period of one year from April 14, 1995, the number of
outstanding options and management warrants will not exceed 10 percent of
the outstanding shares of common stock.
The Plan provides for the granting of incentive stock options ("ISOs");
options which do not qualify as ISOs, known as nonqualified stock options
("NSOs"); or a combination of both ISOs and NSOs ("Options"), provided,
however, that ISOs may only be granted to employees of the Company and its
subsidiaries. Options granted under the Plan may be accompanied by stock
appreciation rights ("SARs") or limited stock appreciation rights
("LSARs"), or both ("Rights"). The Plan also provides for the granting of
restricted stock, deferred stock, and performance shares (together,
referred to as "Restricted Awards"). The Plan is not subject to any
provisions of the Employee Retirement Income Security Act of 1974, as
amended, nor is the Plan a qualified plan within the meaning of section
401(a) of the Internal Revenue Code of 1986, as amended.
Under the Employment Agreement, the CEO has been issued options to
purchase: (i) at an exercise price equal to $4.71 per share, 127,500 shares
of the Company's common stock; and (ii) at an exercise price of $18.84 per
share, 127,500 shares of the Company's common stock. During the year ended
June 30, 1995, other senior officers were granted options to purchase: (i)
at an exercise price of $4.71 per share, 40,000 shares of the Company's
common stock; and (ii) at an exercise price of $18.84 per shares, 40,000
shares of the Company's common stock. As of June 30, 1995, options
covering 335,000 shares of class A common stock were outstanding, of which
none were exercisable. During the year ended June 30, 1996, other senior
officers have been granted options to purchase: (i) at an exercise price of
$5.35 per share, 75,000 shares of the Company's common stock; and (ii) at
an exercise price of $21.40 per share, 100,000 shares of the Company's
common stock. These options vest and become exercisable in four or five
equal installments. In addition, during the year ended June 30, 1996, the
following options to purchase shares of the Company's common stock were
forfeited: (i) 40,000 shares at an exercise price of $4.71 per share; and
(ii) 40,000 shares at an exercise price of $18.84 per share. As of June
30, 1996, options covering 430,000 shares of class A common stock were
outstanding of which 51,000 shares were vested and none were exercised.
F-19
<PAGE> 56
FTD CORPORATION
Notes to Consolidated Financial Statements, Continued
(13) 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.
(14) Capital Stock
Class A and non-voting class B common stock rank equally and, except with
respect to voting power, are substantially identical in all material
respects. Class B common stock is convertible into class A common stock on
a one-to-one basis.
The Company is authorized to establish and designate one or more series
of preferred stock.
Pursuant to the terms of the Merger Agreement, on July 5, 1995, the
Company offered 796,875 shares of class A common stock at an offering
price of $5.35 per share to certain members of FTD Association.
658,483 shares were sold to these FTD members. The Company concurrently
repurchased 552,239 shares of class A common stock and 2 shares of class B
common stock from existing stockholders on a pro rata basis and recouped
the costs associated with the previous purchase of treasury stock.
Effective September 21, 1995, the stockholders of the Company, in a
unanimous Action by Written Consent, authorized a change in the par value
of the class B common stock from $0.01 to $0.0005 per share.
Ninety thousand warrants were exercised in May 1996 to purchase
1,125,000 shares of Class B common stock at a price of $0.01 per warrant,
each of which bought 12.5 shares of class B common stock.
F-20
<PAGE> 57
Independent Auditors' Report
The Board of Directors
FTD Corporation:
Under date of July 31, 1996, we reported on the consolidated statements of
financial position of FTD Corporation and subsidiary, as of June 30, 1996 and
1995, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the years then ended, which are included in the
annual report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule in the annual report on Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Detroit, Michigan
September 24, 1996
F-21
<PAGE> 58
FTD CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------------------
Balance Charged to Charged Balance
Beginning Cost and to Other at End
of Period Expenses Accounts Deductions of Period
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR 1995
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) ......................... $1,583,158(a) $ 563,408 $ 14,206(b) $ 571,432(c) $ 1,589,000
Inventory valuation reserve
(included in Inventories, net in
balance sheet) ................. $ 400,005(a) $ 750,187 --- $ 805,192(d) $ 345,000
YEAR 1996
Allowance for doubtful accounts
(shown as deduction from
Accounts Receivable in balance
sheet) ......................... $1,589,000 $ 895,000 $ 80,000(b) $ 1,152,000(c) $ 1,412,000
Inventory valuation reserve
(included in Inventories, net in
balance sheet) ................. $ 345,000 $1,325,000 --- $ 1,276,000(d) $ 394,000
</TABLE>
(a) Reserves assumed due to the Acquisition
(b) Collection of accounts previously written off
(c) Uncollectible accounts written off
(d) Valuation writedown
F-22
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant. (In-
corporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 33-98250).)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's Registration Statement on Form
S-1 (File No. 33-91582).)
4.1 Indenture, dated as of December 1, 1994
(the "Indenture"), by and between Florists' Transworld Delivery, Inc.
and First Trust of New York, National Association, as Trustee. (In-
corporated by reference to Exhibit 4.1 of the Florists'
Transworld Delivery, Inc. Registration Statement on Form
S-1 (File No. 33-88628).)
4.2 Supplemental Indenture, dated as of December 19, 1994
to the Indenture. (Incorporated by reference to Exhibit 4.3 of
the Florists' Transworld Delivery, Inc. Registration State-
ment on Form S-1 (File No. 33-88628).)
4.3 Form of Subscription Agreement among the Registrant and
certain stockholders of the Registrant. (Incorporated by
reference to Exhibit 4.3 of Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-1
(File No. 33-91582).)
10.1(a) Credit Agreement, dated as of December 19, 1994,
among the Registrant, Florists' Transworld Delivery, Inc.,
the various lending institutions party thereto and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.1 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No. 33-88628).)
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
<S> <C> <C>
10.1(b) First Amendment to Credit Agreement, dated as of
August 30, 1995, among the Registrant, Florists' Transworld
Delivery, Inc., the lending institutions party to the Credit Agreement
and the Bankers Trust Company, as Agent. (Incorporated by
reference to Exhibit 10.1(b) of the Florists' Transworld Delivery,
Inc. Annual Report on Form 10-K for fiscal year ended
June 30, 1995.)
10.1(c) Second Amendment to Credit Agreement, dated as of
June 11, 1996, among the Registrant, Florists' Transworld
Delivery, Inc., the lending institutions party to the Credit
Agreement and Bankers Trust Company, as Agent. (In-
corporated by reference to Exhibit I(d) of the Registrant's
Registration Statement on Form 8-A, filed August 28, 1996.)
10.2 Pledge Agreement, dated December 1, 1994, by and among
the Registrant, Florists' Transworld Delivery, Inc., FTD Holdings,
Incorporated, FTD Direct Access, Inc., Directory Advertising, Inc.
and Bankers Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.2 of the Florists' Transworld Delivery, Inc.)
Registration Statement on Form S-1 (File No. 33-88628).)
10.3 Security Agreement, dated December 19, 1994, by and
among the Registrant, Florists' Transworld Delivery, Inc., certain
subsidiaries of the Registrant and Bankers Trust
Company, as Agent. (Incorporated by reference to
Exhibit 10.3 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No. 33-88628).)
10.4 Consultation Agreement and Covenant Not to Compete,
dated as of August 2, 1994, by and between Florists' Transworld
Delivery, Inc. and John A. Borden. (Incorporated by reference to
Exhibit 10.8 of the Florists' Transworld Delivery, Inc.
Registration Statement on Form S-1 (File No 33-88628).)
10.5 Mutual Support Agreement, dated as of December 18,
1994, by and between Florists' Transworld Delivery, Inc. and
FTD Association. (Incorporated by reference to Exhibit 10.9
of the Florists' Transworld Delivery, Inc. Registration Statement
on Form S-1 (File No, 3-88628).)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
<S> <C> <C>
10.6 Trademark License Agreement, dated as of December 18,
1994, by and between Florists' Transworld Delivery, Inc. and
FTD Association. (Incorporated by reference to Exhibit 10.10
of the Florists' Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
10.7 Registration Rights Agreement, dated as of December 19,
1994, among the Registrant, Florists' Transworld Delivery, Inc.,
BT Securities Corporation and Montgomery Securities.
(Incorporated by reference to Exhibit 10.11 of the Florists'
Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
10.8 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and Florists' Transworld Delivery, Inc.
(Incorporated by reference to Exhibit 10.12 of the Florists'
Transworld Delivery, Inc. Registration Statement on
Form S-1 (File No. 33-88628).)
10.9 Employment Agreement, dated March 31, 1995, among
Margaret C. Whitman, the Registrant and Florists' Transworld
Delivery, Inc. (Incorporated by reference to Exhibit 10.10 of the
Registrant's Registration Statement on Form S-1
(File No. 33-91582).)
10.10 Securityholders' and Registration Rights Agreement, dated as of
December 19, 1994, among the Registrant, certain stockholders of
the Registrant, BT Securities Corporation and Montgomery
Securities. (Incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form S-1 (File No. 33-
91582).)
10.11 Stockholders' Agreement, dated as of December 19, 1994, among
the Registrant and certain stockholders of the Registrant.
(Incorporated by reference to Exhibit 10.13 of the Registrant's
Registration Statement on Form S-1 (File No. 33-91582).)
10.12 FTD Corporation 1994 Stock Award and Incentive Plan.
(Incorporated by reference to Exhibit 10.14 of the
Registrant's Registration Statement on
Form S-1 (File No. 33-91582).)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Exhibit Electronic (E)
<S> <C> <C>
11 Computation of Earnings Per Share. E
21.1 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 21.1 of the Registrant's Registration Statement on
Form S-1 (File No. 33-91582).)
27 Financial Data Schedule. E
</TABLE>
<PAGE> 1
EXHIBIT 11
FTD CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, June 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Primary Earnings Per Share:
Net earnings (loss) applicable to common stock ($6,728) $ 426
======= ======
Average number of common shares outstanding 6,669 6,471
Common stock equivalents due to dilutive affect
of stock options and warrants 15 1,140
------- ------
Total average number of common shares
outstanding 6,684 7,611
======= ======
Primary earnings (loss) per share ($1.01) $ 0.06
======= ======
Fully Diluted Earnings Per Share:
Net earnings (loss) applicable to common stock ($6,728) $ 426
======= ======
Average number of common shares outstanding 6,669 6,471
Common stock equivalents due to dilutive affect
of warrants 15 1,140
------- ------
Total average number of common shares
outstanding 6,684 7,611
======= ======
Fully diluted earnings (loss) per share ($1.01) $ 0.06
======= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FTD
CORPORATION JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 26,650
<SECURITIES> 0
<RECEIVABLES> 25,492
<ALLOWANCES> 1,412
<INVENTORY> 12,467
<CURRENT-ASSETS> 70,484
<PP&E> 50,486
<DEPRECIATION> 15,158
<TOTAL-ASSETS> 196,082
<CURRENT-LIABILITIES> 67,766
<BONDS> 96,277
0
0
<COMMON> 63
<OTHER-SE> 29,077
<TOTAL-LIABILITY-AND-EQUITY> 196,082
<SALES> 57,924
<TOTAL-REVENUES> 166,255
<CGS> 41,209
<TOTAL-COSTS> 104,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,498
<INCOME-PRETAX> (8,574)
<INCOME-TAX> (1,814)
<INCOME-CONTINUING> (6,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,728)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
