<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File Number
33-91582
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FTD CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3711271
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420
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(Address of Principal Executive Offices) (Zip Code)
(630) 719-7800
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(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Action
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- -----
As of May 1, 1998, there were outstanding 12,315,392 shares of
the Registrant's Class A Common Stock, par value $0.01 per share, and 3,000,000
shares of the Registrant's Class B Common Stock, par value $0.0005 per share.
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FTD CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 1998
and June 30, 1997 3
Consolidated Condensed Statements of Operations
for the Three and Nine Month periods Ended
March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 14
Item 2. Changes in Securities
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
15
Exhibit Index 16
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD Corporation
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
MARCH 31,
1998 JUNE 30,
ASSETS (UNAUDITED) 1997
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(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $4,564 $28,294
Accounts receivable, less allowance for doubtful accounts
of $2,698 at March 31, 1998 and $2,211 at June 30, 1997 30,075 24,979
Inventories, principally finished goods, net 10,805 14,992
Deferred income taxes 7,242 7,242
Other current assets 1,935 2,034
----------------------- ---------------
TOTAL CURRENT ASSETS 54,621 77,541
Property and equipment, less accumulated depreciation
of $29,494 at March 31, 1998 and $23,925 at June 30, 1997 15,438 20,580
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $4,595 at March 31, 1998 and $2,724 at June 30, 1997 2,884 3,394
Other noncurrent assets 4,130 1,979
Goodwill and other intangibles, less accumulated amortization
of $9,832 at March 31, 1998 and $7,528 at June 30, 1997 75,927 78,230
----------------------- ---------------
TOTAL OTHER ASSETS 82,941 83,603
----------------------- ---------------
TOTAL ASSETS $153,000 $181,724
======================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ - $9,297
Accounts payable 26,639 29,237
Accrued member incentive programs 13,130 13,816
Accrued severance costs 593 1,245
Other accrued liabilities 9,665 5,765
Members' deposits 10,031 9,991
Unearned income 1,184 2,724
----------------------- ---------------
TOTAL CURRENT LIABILITIES 61,242 72,075
Long-term debt, less current maturities 58,029 73,103
Post-retirement benefits, less current portion 6,577 6,577
Accrued pension obligations, less current portion 497 876
Deferred income taxes 1,477 1,765
Minority interest in subsidiary - 156
STOCKHOLDERS' EQUITY:
Common stock:
Class A 123 62
Class B 2 1
Paid-in capital 36,049 35,639
Accumulated deficit (10,106) (8,013)
Notes receivable - (32)
Unamortized restricted stock (263) -
Treasury stock (627) (485)
----------------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 25,178 27,172
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $153,000 $181,724
======================= ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FTD CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
--------------------- ------------------
1998 1997 1998 1997
------ ------- ------ -----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Marketplace $14,751 $18,837 $ 40,768 $ 43,531
Clearinghouse 8,629 9,248 25,532 27,088
Mercury Network 8,398 9,298 25,620 27,698
Other 10,409 10,130 28,427 27,905
-------- -------- --------- ---------
Total revenues 42,187 47,513 120,347 126,222
-------- -------- --------- ---------
COSTS:
Products and distribution 11,423 12,354 31,569 30,215
Floral order transmissions and processing services 5,654 7,450 19,278 21,643
Member programs 8,189 7,411 22,430 23,585
-------- -------- --------- ---------
Total cost of goods sold and services
provided 25,266 27,215 73,277 75,443
Selling, general and administrative expense 14,524 13,556 40,493 40,217
-------- -------- --------- ---------
Income from operations 2,397 6,742 6,577 10,562
OTHER INCOME AND EXPENSES:
Interest expense (net of interest income) 2,257 2,846 7,438 8,726
-------- -------- --------- ---------
Net income (loss) before income tax expense,
minority interest and extraordinary item 140 3,896 (861) 1,836
Income tax expense 185 1,604 313 1,284
Minority interest in income (loss) of subsidiary - 22 (1) (7)
-------- -------- --------- ---------
Net income (loss) before extraordinary item (45) 2,270 (1,173) 559
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (net of $490 income tax benefit) - - (835) -
-------- -------- --------- ---------
Net income (loss) ($45) $2,270 ($2,008) $559
======== ======== ========= =========
NET EARNINGS (LOSS) PER SHARE * :
Basic and diluted earnings (loss) per share
before extraordinary item $0.00 $0.15 ($0.08) $0.04
Extraordinary item $0.00 $0.00 ($0.05) $0.00
----- ----- ------ -----
Basic and Diluted earnings (loss) per share $0.00 $0.15 ($0.13) $0.04
===== ===== ====== =====
* Adjusted to reflect the 100% stock dividend declared on February 2, 1998 to
stockholders of record as of February 9, 1998.
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FTD CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
March 31,
--------------------------------------------------
1998 1997
-------------------- ---------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $5,526 $15,511
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,741) (2,339)
Net proceeds on sale of property, plant & equipment 578 -
-------------------- ---------------------
Net cash used in investing activities (3,163) (2,339)
-------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit borrowings 28,546 -
Repayments of long-term debt (54,652) (5,751)
Changes in other equity 37 73
-------------------- ---------------------
Net cash used in financing activities (26,069) (5,678)
-------------------- ---------------------
Effect of exchange rate changes on cash (24) (62)
-------------------- ---------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (23,730) 7,432
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 28,294 26,650
-------------------- ---------------------
END OF PERIOD $4,564 $34,082
==================== =====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $5,283 $6,610
==================== =====================
Income taxes paid $107 $194
==================== =====================
</TABLE>
See accompanying notes to consolidated condensed financial statements
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FTD CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited consolidated condensed financial statements
at March 31, 1998, include the accounts of FTD Corporation and its
wholly owned subsidiary, Florists' Transworld Delivery, Inc. (collectively, the
"Company" or "FTD"). These financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information pursuant to the rules and regulations of the Securities and
Exchange Commission and do not contain all information included in the audited
consolidated financial statements and notes for the year ended June 30, 1997.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest Annual
Report on Form 10-K. In the opinion of FTD management, all adjustments
necessary for a fair presentation of the financial position and results of
operations have been included (and any such adjustments are of a normal,
recurring nature, except as disclosed herein). Due to seasonal variations in
FTD's business, operating results for the three and nine month periods ended
March 31, 1998 are not necessarily indicative of the results that might be
expected for the year ended June 30, 1998.
Certain amounts in the March 31, 1997 consolidated condensed financial
statements have been reclassified to conform to the current period presentation.
Note 2. Accrued Severance and Related Costs
The following table reflects the changes to accrued severance, asset
impairment loss, and other reserves relating to the Company's facility
consolidation for the nine month period ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Severance Relocation
Benefits Costs Other Total
---------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
Liability as of June 30, 1997 $792 $119 $334 $1,245
Costs paid during the nine month period ended
March 31, 1998 $498 $26 $128 $652
-------------------------------------------------------
Liability as of March 31, 1998 $294 $93 $206 $593
=======================================================
</TABLE>
Note 3. Capital Transactions
During the nine month period ended March 31, 1998, pursuant to the
terms of FTD's 1994 Stock Award and Incentive Plan, options to purchase 109,500
shares of the Company's Class A Common Stock which were previously granted,
have been canceled.
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Note 4. Stock Dividend
The Board of directors declared a 100% stock dividend (2 for 1 stock
split) on February 2, 1998 for stockholders of record as of February 9, 1998.
Each stockholder of record received one additional share for every share owned
on the record date. All references to capital stock have been adjusted to
reflect the stock dividend.
Note 5. Earnings Per Share
Basic and diluted earnings (loss) per common share and common
equivalent share has been computed based on the weighted average number of
common and common equivalent shares outstanding of 15,209,426 for the three
month period and 15,219,166 for the nine month period ended March 31, 1998 and
15,386,350 for the three month period and 15,391,750 for the nine month period
ended March 31, 1997.
Note 6. Employee Benefit Obligations
Effective January 1, 1997, amendments to FTD's defined benefit pension
plan were adopted, including the elimination of the accrual of future benefits
under the plan. As a result of these amendments, and the corresponding
remeasurement of the accumulated and projected benefit obligations under the
plan, a pre-tax pension curtailment gain of $0.5 million was recognized through
a reduction in selling, general and administrative costs during the nine month
period ended March 31, 1998.
Note 7. Extinguishment of Long-Term Debt
In November, 1997 FTD entered into a new credit agreement with First
Chicago Capital Markets, Inc. who arranged a $100 million financing package
("the Bank Credit Facilities") with The First National Bank of Chicago acting as
Administrative Agent. The Bank Credit Facilities consist of a $50 million
Revolving Credit Facility and a $50 million Multiple Draw Term Loan Facility,
both maturing on December 31, 2003. The proceeds of the Revolving Credit were
used to provide funds for the refinancing of then existing debt totaling $24.6
million. As a result of entering into the Bank Credit Facilities, $1.3 million
of unamortized deferred financing costs associated with then existing debt were
expensed in November 1997. The related income tax benefit attributable to the
extinguishment of the existing debt was $0.5 million, resulting in a net loss on
extinguishment of debt of $0.8 million which is reflected as an extraordinary
item in the consolidated condensed statements of operations.
Note 8. New Accounting Pronouncements
The Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-I
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" on March 4, 1998. This SOP applies to all non-governmental
entities and is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company intends to adopt this SOP in the fourth
quarter of fiscal 1998 when it begins incurring substantial costs related to
the implementation of its new computer software package.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in fiscal 1997.
This Statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held Common Stock or
potential Common Stock. In the second quarter of fiscal 1998 the Company
adopted SFAS No. 128, "Earnings Per Share," which established a new method for
computing and presenting EPS and replaced the presentation of primary and fully
diluted EPS with basic and diluted EPS. Basic EPS is based on the weighted
average number of shares outstanding and excludes the dilutive effect of
unexercised common stock equivalents. Diluted EPS is based on the weighted
average number of shares outstanding and includes the dilutive effect of
unexercised common stock equivalents. The effect of adopting SFAS No. 128 was
immaterial and no amounts were required to be restated from periods prior to
adopting SFAS No. 128.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that reflect the
Company's expectations regarding its future growth, results of operations,
performance and business prospects and opportunities. Words such as
"anticipates," "believes," "plans," "expects," "estimates," and similar
expressions have been used to identify these forward looking statements, but
are not the exclusive means of identifying these statements. These statements
reflect the Company's current beliefs and are based on information currently
available to the Company. Accordingly, these statements are subject to known
and unknown risks, uncertainties and other factors that could cause the
Company's actual growth, results, performance and business prospects and
opportunities to differ from those expressed in, or implied by, these
statements. These risks, uncertainties and other factors include the Company's
ability to develop and market existing and acquired products, the Company's
ability to adjust to changes in technology, customer preferences, enhanced
competition and new competitors in the floral services industry, current
exchange rate fluctuations, collection of receivables and risks associated with
general economic and business conditions, which may reduce or delay customers'
purchases of the Company's products and services. The Company is not obligated
to update or revise these forward-looking statements to reflect new events or
circumstances.
FTD generates its revenue from four principal areas of operation.
Marketplace represents FTD's wholesale distribution of hardgoods to retail
florists in North America. FTD's Clearinghouse operation provides order billing
and collection services to both the sending and receiving florists, and FTD
receives a percentage of the sales price for this service. Mercury Network is
FTD's proprietary telecommunications network used by florists to transmit orders
through FTD or through competing clearinghouses. Other revenue is derived from
the 1-800-SEND-FTD direct marketing business, FTD's Florists' Online Internet
site (www.ftd.com), credit card authorization and processing, publications and
FTD's Flowers After Hours order taking service.
THREE MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO THREE MONTH PERIOD
ENDED MARCH 31, 1997
The following is a discussion of changes in the Company's financial
condition and results of operations for the three month period ended March 31,
1998, compared with the three month period ended March 31, 1997.
Revenue decreased by $5.3 million, or 11.2%, to $42.2 million for the
three month period ended March 31, 1998, compared to $47.5 million for the three
month period ended March 31, 1997. This decrease in revenue was primarily the
result of decreases in Marketplace, Clearinghouse and Mercury Network revenue
offset, in part, by an increase in Other revenue.
Marketplace revenue decreased by $4.1 million, or 21.8%, to $14.7
million for the three month period ended March 31, 1998 compared to $18.8
million for the three month period ended March 31, 1997. This decrease is
primarily due to the earlier shipment of Valentines Day holiday product to
customers which occurred in the second quarter of fiscal 1998 as compared to the
third quarter in fiscal 1997. Marketplace revenue was 34.8% and 39.6% of total
revenue for the three months ended March 31, 1998 and 1997, respectively.
Clearinghouse revenue decreased by $0.6 million, or 6.5%, to $8.6
million for the three month period ended March 31, 1998 from $9.2 million for
the three month period ended March 31, 1997. This decrease is primarily due to a
decrease in clearinghouse advances due to the timing of the Easter holiday from
the comparable period of the prior year.
Mercury Network revenue decreased by $0.9 million, or 9.7%, to $8.4
million for the
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three months ended March 31, 1998 from $9.3 million for the three month period
ended March 31, 1997. This decrease is primarily due to a decrease in sales of
Advantage Business Systems and a decrease in transmissions income as a result of
the timing of the Easter holiday from the comparable period of the prior year.
Other revenue increased by $0.3 million, or 3.0% to $10.4 million for
the three month period ended March 31, 1998 from $10.1 million for the three
month period ended March 31, 1997. This increase is primarily due to an increase
in the monthly fee charged to FTD member florists of $0.6 million partially
offset by a decrease of $0.2 million relating to FTD's direct marketing
business.
The cost of goods sold and services provided decreased by $1.9 million,
or 7.0%, to $25.3 million for the three month period ended March 31, 1998 from
$27.2 million for the three month period ended March 31, 1997. This decrease is
primarily a result of a decrease in product and distribution costs and floral
order transmissions and processing services partially offset by an increase in
costs relating to member programs. As a percent of revenue, cost of goods sold
and services provided increased 2.7% to 60.0% for the three month period ended
March 31, 1998 from 57.3% for the three month period ended March 31, 1997. Cost
of goods sold and services provided is a greater percent of revenue for the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997 as a result of a reduced gross margin in FTD's effort to offer
competitively priced products to FTD member florists.
Product and distribution costs decreased $0.9 million, or 7.3% to $11.4
million for the three month period ended March 31, 1998 from $12.3 million for
the three month period ended March 31, 1997. This decrease is primarily the
result of proportionately lower cost of goods sold relating to decreases in
Marketplace holiday-product sales and decreases in the related distribution
costs due to the earlier shipments of Valentines Day holiday product to
customers. In the comparable period of the prior year, Valentines Day holiday
product shipped to customers during the third quarter which increased the length
of time that FTD possessed the product and therefore increased the costs FTD
incurred for storage and distribution.
Costs relating to floral order transmissions and processing services
decreased $1.8 million, or 24.0% to $5.7 million for the three month period
ended March 31, 1998 from $7.5 million for the three month period ended March
31, 1997. This decrease is primarily attributable to a decrease in depreciation
expense relating to fully depreciated equipment as of the third quarter of
fiscal 1998.
Costs relating to member programs increased $0.8 million, or 10.8% to
$8.2 million for the three month period ended March 31, 1998 from $7.4 million
for the three month period ended March 31, 1997. This increase is primarily due
to an increase in base order dollars earned by member florists who participate
in FTD's member incentive program as well as an increase in administrative
expenses associated with the member incentive program.
Selling, general and administrative expense increased $0.9 million,
or 6.6% to $14.5 million for the three month period ended March 31, 1998 from
$13.6 million for the three month period ended March 31, 1997. This increase is
primarily due to increased costs of $0.4 million
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associated with data processing, field services and human resources as well as
$0.5 million less in pre-tax pension curtailment credits during the third
quarter of fiscal 1998 as compared to the third quarter of fiscal 1997.
Net interest expense for the three month period ended March 31, 1998
was $2.3 million as compared to $2.8 million for the three month period ended
March 31, 1997. The decrease of $0.5 million was attributable to lower average
debt outstanding as well as lower average interest rates resulting from the
implementation of a new credit agreement which became effective in November 1997
(see Liquidity and Capital Resources).
Income taxes for the three month period ended March 31, 1998 were an
expense of $0.2 million compared to an expense of $1.6 million for the
comparable three month period ended March 31, 1997. This change resulted from
the decrease in taxable income.
Net loss was $0.05 million for the three month period ended March 31,
1998, a decrease of $2.35 million, from a profit of $2.3 million for the three
month period ended March 31, 1997. The change is attributable to the factors
previously discussed.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
The following is a discussion of the changes in the Company's financial
condition and results of operations for the nine month period ended March 31,
1998, compared with the nine month period ended March 31, 1997.
Revenue decreased $5.9 million, or 4.7%, to $120.3 million for the nine
month period ended March 31, 1998, compared to $126.2 million for the nine month
period ended March 31, 1997. This decline in revenue is primarily due to
decreases in Marketplace, Clearinghouse and Mercury Network revenue offset, in
part, by an increase in Other revenue.
Marketplace revenue decreased $2.7 million, or 6.2%, to $40.8 million
for the nine month period ended March 31, 1998 from $43.5 million for the nine
month period ended March 31, 1997. This decrease is primarily due to the lower
sales volume of holiday product.
Clearinghouse revenue decreased $1.6 million, or 5.9%, to $25.5 million
for the nine month period ended March 31, 1998 from $27.1 million for the nine
month period ended March 31, 1997. This decrease in revenue is primarily due to
decreases in clearinghouse advances.
Mercury Network revenue decreased by $2.1 million, or 7.6%, to $25.6
million for the nine month period ended March 31, 1998 from $27.7 million for
the nine month period ended March 31, 1997. This decrease in revenue is
primarily due to decreases in sales of Advantage Business Systems, floral order
transmissions and mercury console rental revenue.
Other revenue increased $0.5 million, or 1.8%, to $28.4 million for the
nine month period ended March 31, 1998 from $27.9 million for the nine month
period ended March 31, 1997. This is primarily due to an increase in the monthly
fee charged to FTD member florists.
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The cost of goods sold and services provided decreased $2.1 million, or
2.8%, to $73.3 million for the nine months ended March 31, 1998 from $75.4
million for the nine months ended March 31, 1997. This is primarily due to
decreased costs relating to floral order transmissions and processing services
and member programs offset, in part, by an increase in product and distribution
costs. As a percent of revenue, cost of goods sold and services provided
increased 1.2% to 60.9% for the nine month period ended March 31, 1998 from
59.7% for the nine month period ended March 31, 1997.
Costs relating to floral order transmissions and processing services
decreased $2.4 million, or 11.1%, to $19.3 million for the nine month period
ended March 31, 1998 from $21.6 million for the nine month period ended March
31, 1997. This decrease is primarily attributable to a decrease in depreciation
expense relating to fully depreciated equipment as of the third quarter of
fiscal 1998.
Costs relating to member programs decreased $1.2 million, or 5.1%, to
$22.4 million for the nine month period ended March 31, 1998 from $23.6 million
for the nine month period ended March 31, 1997. This is primarily due to
decreased costs associated with the FTD Directory being published on a quarterly
basis in fiscal 1998 versus five times per year in fiscal 1997. The FTD
Directory was published three times in the nine month period ended March 31,
1998 as compared to four times in the nine month period ended March 31, 1997.
Product and distribution costs increased $1.4 million, or 4.6%, to
$31.6 million for the nine month period ended March 31, 1998 from $30.2 million
for the nine month period ended March 31, 1997. This increase is primarily due
to increased costs associated with the Marketplace branded product line.
Selling, general and administrative expenses increased by $0.3 million,
or 0.7%, to $40.5 million for the nine month period ended March 31, 1998 from
$40.2 million for the nine month period ended March 31, 1997. This increase is
primarily attributable to an increase in consumer advertising as compared to the
same period of the prior year.
Net interest expense for the nine months ended March 31, 1998 was $7.4
million as compared to $8.7 million in the comparable period of the prior year.
The decrease is attributable to lower average debt outstanding as well as lower
average interest rates resulting from the implementation of a new credit
agreement which became effective in November, 1997 (see Liquidity and Capital
Resources).
Income taxes for the nine month period ended March 31, 1998 were an
expense of $0.3 million as compared to an expense of $1.3 million in the
comparable period of the prior year. The income tax expense of $0.3 million for
the nine month period ended March 31, 1998 consists of a benefit of $0.5 million
relating to the extinguishment of long-term debt (see Liquidity and Capital
Resources), partially offset by $0.2 million of income tax benefit due to the
change in taxable income.
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Net loss increased $2.6 million to $2.0 million for the nine month
period ended March 31, 1998 as compared to a net profit of $0.6 million for the
nine month period ended March 31, 1997. The change is attributable to the
factors previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's $60.0 million aggregate principal
amount of 14% Senior Subordinated Notes (the "Notes") and interest under the
Bank Credit Facilities represent significant liquidity requirements for FTD.
Borrowings under the Bank Credit Facilities 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
Facilities consist of a $50.0 million Multiple Draw Term Loan Facility ( the
"Term Loan Facilities") and a $50.0 million Revolving Credit Facility ( the
"Revolving Credit Facilities") to finance working capital, acquisitions,
certain expenses and letter of credit needs. FTD repaid $24.6 million of
existing loans thereunder in the nine month period ended March 31, 1998.
At March 31, 1998, the Company did not have any borrowings outstanding under
the Revolving Credit Facilities. Any loan outstanding under the Revolving
Credit Facilities will mature on December 31, 2003. The Company believes, based
on current circumstances, that its cash flow, together with borrowings under
the Revolving Credit Facilities, will be sufficient to fund its working capital
needs, capital expenditures, obligations to the Operating Company and potential
acquisitions, and to repay the term loans and make interest payments as they
become due through the term of the Notes and the Bank Credit Facilities.
The Company has conducted a review of its computer systems and has
identified the systems that could be affected by the "Year 2000" issue. The
year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. As of March 31, 1998, FTD has contracted with an
outside consulting firm which has assisted FTD in the evaluation and selection
of a compatible software package based on FTD's system requirements. FTD is
currently developing an implementation and training schedule to have the
software package installed on a timely basis. This new software package will
allow the Company to improve its execution and efficiencies of recording
information in addition to providing a solution for the year 2000 issue.
During the implementation of the software package, the Company will
incur internal staff costs as well as consulting and other costs. The total
cost of the software system project as well as the related potential effect on
the Company's earnings is not expected to have a material effect on its
financial position or results of operations. The total estimated cost to
complete the project over the next twelve to eighteen months is expected to
range between $10.0 and $12.0 million of which approximately $8.0 to $10.0
million of these expenditures are expected to be capital expenditures. The
capitalized items include costs related to hardware, software and other
external direct costs of material and services consumed in developing or
obtaining the internal-use computer software.
Capital expenditures were budgeted to be $5.0 million for fiscal 1998.
For the nine
12
<PAGE> 13
month period ended March 31, 1998 capital expenditures totaled $3.7 million and
consist primarily of the acquisition of a marketing license to advertise
through a search engine on the Internet.
For the nine month period ended March 31, 1998, FTD used cash in the
amount of $23.7 million, as compared to a $7.4 million increase in cash for the
nine month period ended March 31, 1997.
Cash provided by operating activities was $5.5 million for the nine
month period ended March 31, 1998, compared to cash provided by operating
activities of $15.5 million for the nine month period ended March 31, 1997.
Depreciation and amortization was $8.5 million for the nine month period ended
March 31, 1998, and $10.7 million for the nine month period ended March 31,
1997. The decrease in cash is primarily due to the timing of the Easter holiday
credit card transactions which during the comparable period of the prior year
caused a decrease in accounts receivable and an increase in accounts payable of
FTD's floral customers.
Cash used in investing activities, consisting of capital expenditures
net of disposal of assets, was $3.2 million for the nine month period ended
March 31, 1998 compared to $2.3 million for the nine month period ended March
31, 1997. This increase is primarily due to the purchase of a marketing
license during the third quarter of fiscal 1998.
Net cash used in financing activities for the nine month period ended
March 31, 1998 was $26.1 million compared to net cash used of $5.7 million for
the nine month period ended March 31, 1997. This increase primarily consists of
$28.5 million of net proceeds of long-term debt as a result of the new Bank
Credit Facilities and repayments of $54.6 million of principal on the term
loans. During the first quarter of fiscal 1998, the Company repurchased from a
former officer 61,860 shares of Class A Common Stock for approximately $75,000.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The Company's Board of Directors declared a 100% stock dividend (2 for
1 stock split) on February 2, 1998 for stockholders of record on February 9,
1998. Each stockholder of record received one additional share for every share
owned as of the record date. All references to capital stock have been adjusted
to reflect the stock dividend.
Item 5. Other Information
The Company filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended, in the first quarter of fiscal 1998. This
Registration Statement was filed with respect to shares of the Company's Class A
Common Stock for sale solely to certain members of FTD Association. The shares
were offered to satisfy certain of the Company's obligations contained in the
Mutual Support Agreement, dated December 18, 1994, between Florists' Transworld
Delivery, Inc. and FTD Association, as amended. These shares will be subject to
certain restrictions on transfer. The offering price was $10.50 per share and
the subscription period for this offering expired on April 30, 1998.
Approximately 100,000 shares were subscribed for under the offering and the
Company will realize proceeds of approximately $0.5 million, net of offering
expenses. These transactions will be recorded in the fourth quarter of fiscal
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- ------------
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
FTD did not file any reports on Form 8-K during the three month period
ended March 31, 1998.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 11th day of May, 1998.
FTD CORPORATION
By: /s/ Francis C. Piccirillo
-------------------------------
Francis C. Piccirillo
Treasurer
(Principal financial officer and officer
duly authorized to sign on behalf of registrant)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Paper (P)
Exhibit or
Number Description Electronic (E)
- ------- ----------- -------------
<S> <C> <C>
11 Computation of Earnings Per Share E
27 Financial Data Schedule E
</TABLE>
16
<PAGE> 1
EXHIBIT 11
FTD CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE *:
Net income (loss) applicable to common stock before extraordinary item ($45) $2,270 (1,173) 559
Extraordinary item - - (835) -
--------- --------- --------- ---------
Net income (loss) (45) 2,270 (2,008) 559
========= ========= ========= =========
Average number of common shares outstanding 15,209 15,386 15,219 15,392
Common stock equivalents due to dilutive affect
of stock options and warrants 101 - 101 -
--------- --------- --------- ---------
Total average number of common shares outstanding 15,310 15,386 15,320 15,392
Earnings (loss) per share before extraordinary item ($0.00) $0.15 ($0.08) $0.04
Extraordinary item $0.00 $0.00 ($0.05) $0.00
Basic and Diluted earnings (loss) per share** ($0.00) $0.15 ($0.13) $0.04
========= ========= ========= =========
</TABLE>
* Adjusted to reflect the 100% stock dividend declared on February 2, 1998 to
stockholders of record as of February 9, 1998.
** Basic and Diluted earnings (loss) per share is shown as one amount due to
the immaterial effect of dilutive common stock equivalents in the calculation of
Diluted earnings (loss) per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FTD
CORP. 3-MOS ENDED MAR-31-1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,564
<SECURITIES> 0
<RECEIVABLES> 32,773
<ALLOWANCES> 2,698
<INVENTORY> 10,805
<CURRENT-ASSETS> 54,621
<PP&E> 44,932
<DEPRECIATION> 29,494
<TOTAL-ASSETS> 153,000
<CURRENT-LIABILITIES> 61,242
<BONDS> 58,029
0
0
<COMMON> 63
<OTHER-SE> 25,115
<TOTAL-LIABILITY-AND-EQUITY> 153,000
<SALES> 14,751
<TOTAL-REVENUES> 42,187
<CGS> 11,423
<TOTAL-COSTS> 25,266
<OTHER-EXPENSES> 14,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,257
<INCOME-PRETAX> 140
<INCOME-TAX> 185
<INCOME-CONTINUING> (45)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
