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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 33-91582
FTD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3711271
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (630) 719-7800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
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 August 31, 1998 there were 12,369,075 shares of the Registrant's
Class A Common Stock, par value $.01 per share, and 2,948,750 shares of the
Registrant's Class B Common Stock, par value $.0005 per share, issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive information statement (to be filed
pursuant to Regulation 14C) for the 1998 Annual Meeting of Stockholders (the
"Information Statement") are incorporated by reference in Items 10, 11, 12 and
13 of Part III hereof.
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PART I
ITEM 1. BUSINESS
Overview
FTD Corporation ("FTD Corporation" or the "Registrant") 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., a Michigan corporation (the "Operating
Company"). All of the operations of FTD are conducted through the Operating
Company.
FTD is the world's largest floral services organization based on the number
of members of FTD Association (as defined) and affiliated organizations. FTD
Association has a membership of approximately 20,000 retail florist shops
primarily in the U.S. and Canada and, through affiliated or related
organizations, approximately 32,000 additional retail florist shops in over 140
other countries. Through these members FTD offers consumers expedited delivery
of high-quality FTD-branded products in the U.S. and Canada and non-branded
floral products throughout most of the world.
FTD promotes a worldwide brand based on the FTD Mercury Man logo. See "--
Marketing and Advertising." A significant portion of FTD's revenues, operating
income and competitive advantage is derived from FTD's technology-based
transaction processing business, which includes the Mercury Network,
Clearinghouse, Advantage Software and Direct Access (1-800-SEND-FTD and
www.ftd.com). In addition to the foregoing, FTD's operations include Marketplace
and other business units which support and enhance the retail floral industry.
See "-- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
The Operating Company is the successor to a non-profit cooperative
association 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"), 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 Old Association was converted from a non-profit corporation to
a for-profit corporation and renamed "Florists' Transworld Delivery, Inc."
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 nor the Operating Company has any ownership interest
in FTD Association; however, as provided in the Merger Agreement, the Operating
Company and FTD Association entered into the Mutual Support Agreement, dated
December 18, 1994 (the "Mutual Support Agreement") and a Trademark Membership
License Agreement, dated December 18, 1994 (the "Trademark Agreement"; both the
Mutual Support Agreement and the Trademark Agreement are herein after referred
to as the "Association Agreements"), which governed the relationship between the
Operating Company and FTD Association. Pursuant to the Association Agreements,
among other things: (i) existing and future members have the exclusive right,
subject to execution of a Trademark Membership License Agreement with the
Operating Company, to use the FTD logo and other FTD trademarks in connection
with the operation of a retail florist shop; (ii) all members in good standing
are provided access to FTD's Clearinghouse, Mercury Network and certain other
FTD services and products; (iii) payments by the Operating Company equal to a
percentage of the value of every floral order cleared through FTD's
Clearinghouse are made to FTD Association; and (iv) the 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. All references herein to "members"
refer to the members of FTD Association. On April 22, 1998, the Operating
Company notified FTD Association Board of Trustees that FTD Association was
failing to
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comply with certain obligations under the Association Agreements. FTD
Association failed to cure the deficiencies under the Association Agreements,
and the Operating Company notified FTD Association on May 26, 1998, that the
Association Agreements were terminated. Such termination is currently subject to
an arbitration proceeding in Chicago, Illinois filed by FTD Association on May
28, 1998.
MARKETING AND ADVERTISING
FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (via television, radio,
magazines and newspaper supplements) generally promotes FTD florists, FTD
branded products, 1-800-SEND-FTD and FTD Florists' Online Internet site
(www.ftd.com). FTD coordinates cooperative advertising on a local basis with
participating florists. FTD also provides FTD florists with advertising tools
such as billboard paper, slicks for print advertising and television tapes to be
tagged with individual shop information. In addition, FTD provides FTD florists
with customized direct mail pieces, in-shop merchandising materials and FTD
Floral Selections, a counter display catalog featuring FTD products for all
occasions.
FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements which FTD florists clear
through Clearinghouse and components of which are Marketplace's FTD-branded
hardgoods; (ii) feature the FTD Mercury Man logo; and (iii) support the FTD
retail florists generally by encouraging consumers to associate FTD professional
florists with high-quality floral goods and outstanding customer service.
OPERATIONS
For each transaction cleared by FTD, FTD's Clearinghouse operations
collects the billing information from either the Mercury Network or the florist
that fills the order locally (the "Receiving Florist") if the Mercury Network
has not been used, and allocates funds among FTD, the florist with whom a
customer places the delivery order (the "Sending Florist") and the Receiving
Florist. Generally, orders received by the Receiving Florist by 2:00 p.m. will
be delivered to the recipient in the same postal zip code on the same day.
Floral orders between FTD florists are transmitted primarily by FTD's Mercury
Network.
FTD was initially formed to encourage flowers-by-wire transactions between
member florists, but over time FTD has developed a number of additional services
and products that support and enhance the retail floral operations of FTD
professional florists. Currently, FTD's primary operations include its
Marketplace, Clearinghouse, Mercury Network, Direct Access and Publications
businesses.
The following table illustrates the percentage of total revenue generated
by the Operating Company's major operations as a percentage of total revenue for
the three fiscal years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
REVENUE:
Marketplace................................................. 30.2% 31.0% 35.4%
Clearinghouse............................................... 21.9 22.3 23.4
Mercury Network............................................. 21.9 23.1 20.5
Direct Access, Publications, and Other...................... 26.0 23.6 20.7
----- ----- -----
Total Revenue............................................... 100.0% 100.0% 100.0%
</TABLE>
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Certain amounts in 1997 and 1996 have been reclassified to conform to the
current year presentation.
Marketplace. The Company believes that Marketplace is one of the largest
wholesale suppliers of hardgoods to retail florists in the U.S. based on total
sales. Marketplace products include both FTD-branded and non-branded holiday and
everyday floral arrangement containers and products, as well as packaging,
promotional products and a wide variety of other floral-related supplies. By
capitalizing on FTD's sourcing expertise and volume purchases, Marketplace is
able to provide FTD florists with a broad selection of products at attractive
prices.
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Marketplace also enters into promotional partnerships to design, promote
and sell FTD-branded products. To date, FTD has participated in partnerships
with companies such as Mars, Inc. and Disney Enterprises, Inc. The Company
believes that FTD's large retail network and brand recognition make it a
valuable corporate partner for such ventures.
Renaissance Greeting Cards Inc. ("Renaissance"), is included as part of
Marketplace revenue and is a wholly owned subsidiary of the Operating Company.
Renaissance produces greeting cards for special occasions and holidays.
Clearinghouse. FTD's Clearinghouse provides billing and collection services
to both the Sending Florist and the Receiving Florist in flowers-by-wire
transactions. In fiscal 1998, FTD cleared floral orders aggregating
approximately $465 million in retail sales. Revenue from FTD's Clearinghouse is
generated by FTD retaining 7% of the sales price of orders sent through
Clearinghouse. The remaining 93% is allocated as follows: 20% to the Sending
Florist and 73% to the Receiving Florist. In addition, FTD Corporation through
the Operating Company provides FTD Association an amount equal to one-eighth of
one percent (.125%) of the value of every floral order that is cleared or
otherwise processed through FTD's Clearinghouse. See "The Acquisition and
Relationship with FTD Association."
FTD is a joint venture participant in Interflora, Inc., a floral services
organization with non-FTD member florists, which enables florists to transmit
and receive orders outside the Americas.
Mercury Network. FTD's Mercury Network is one of the largest proprietary
telecommunications networks in the world, based on the total number of
participating retail outlets, linking together FTD and approximately
seventy-five percent of the FTD florists. These florists who are linked by the
Mercury Network are able to transmit orders cleared through FTD or through
competing clearinghouses and are able to send messages.
As part of its Mercury Network, FTD offers FTD florists its Advantage Plus
computer software, which operates on the Mercury Network, and is customized to
fit the needs of retail florists. The Advantage Plus software package provides a
comprehensive range of payroll and accounting functions for the retail florist.
During fiscal 1998, FTD successfully released version 6.1 of its Advantage Plus
software.
Also included as part of Mercury Network revenue is the processing of
credit card transactions for participating FTD florists. By pooling the credit
card transactions of such florists, FTD is able to secure more favorable terms
on credit card transactions than they could secure individually.
Direct Access, Publications and Other (includes 1-800-SEND-FTD and
www.ftd.com). FTD's Direct Access business offers retail customers the
opportunity to place orders directly with FTD by dialing a toll free number
(1-800-SEND-FTD), or through FTD's Online Internet site (www.ftd.com) by
utilizing online services such as Compuserve, Netscape and Yahoo. Revenue from
this business unit is generated by FTD's receipt of a percentage of the sales
price as the Sending Florist and a service charge from the consumer.
FTD's Publications business consists of FTD's Directory & Toll Free
Listings ("FTD Directory"), a directory of all current FTD florists, their
locations, product ordering information and minimum order amounts. In a typical
transaction, the Sending Florist is responsible for selecting the Receiving
Florist within the desired locale. Unless the Sending Florist has already
established a relationship with a particular florist in that locale, the Sending
Florist typically consults the FTD Directory to identify a Receiving Florist.
The FTD Directory is published quarterly and is supplied to FTD florists in
printed form. The FTD Directory is also available on CD-ROM.
FTD's monthly access fee to members is also included in this category as
Other revenue.
SEASONALITY
FTD generated 22.0%, 26.5%, 26.4% and 25.1% of total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 1998,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1998. FTD's operating income also fluctuates over the
course of the fiscal year. In Fiscal 1998, FTD experienced increased operating
income for the fiscal quarters ending
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September 30 and June 30. This fluctuation is primarily attributable to: (i)
increased advertising and promotional expenditures during the fiscal quarter
ending December 31 relating to the holiday season; (ii) a decrease in general
and administrative costs during the quarter ending June 30; and (iii) increased
Clearinghouse and Direct Access, Publications and Other revenues during the
fourth quarter relating to the Easter and Mother's Day holidays as well as an
increase in the monthly access fee. FTD's working capital, cash and short-term
borrowings also fluctuate during the year as a result of the factors set forth
above.
TRADEMARKS
The FTD Mercury Man logo is a registered U.S. trademark which distinguishes
FTD's services and products from those offered by others and appears on the shop
window or door of each FTD florist. FTD also owns the rights to a number of
other trademarks, including "FTD," "FTDA" and "Florists' Transworld Delivery"
and trademarks for certain floral products, including the "Chicken Soup
Bouquet," "Thanks a Bunch Bouquet," "Stay in Touch Bouquet," "Pick-Me-Up
Bouquet," "Birthday Party Bouquet," "Anniversary Bouquet" "Puzzle Fun Bouquet"
and "Sweet Dreams Bouquet." FTD has licensed certain of its trademarks,
including the FTD Mercury Man logo, to FTD Association for use with its trade
association activities and to the FTD florists who have executed a Trademark
Membership License Agreement with the Operating Company.
COMPETITION
FTD competes in the extremely fragmented floral services industry against a
large number of wholesalers and service providers. FTD's primary competitors
are: American Floral Services, Inc. and Teleflora LLC. Both of these competing
services offer some products and services which are comparable to those offered
by FTD and most FTD florists subscribe to at least one of these competing
services. The Company believes that it has a competitive advantage in this
segment due to its multi-faceted relationship with retail florists, its depth of
product line and its ability to offer discounted pricing because of FTD's
substantial volume purchases. The primary competitor for the Direct Access
(1-800-SEND-FTD) business is 1-800-FLOWERS, Inc. Several other less significant
companies operate in the toll free and online services markets.
The Operating Company is subject to certain operating restrictions pursuant
to the Modified Final Judgment, dated November 13, 1990, of the United States
District Court for the Eastern District of Michigan in United States of America
v. Florists' Telegraph Delivery Association, Civ. No. 56-15748, and United
States of America v. Florists' Transworld Delivery Association, Civ. No.
66-28784 (collectively referred to as the "Consent Order"). Among its terms, the
Consent Order prohibits restricting FTD Association membership to florists who
are not subscribers to a competing clearinghouse. The Consent Order expires on
August 1, 2005.
EMPLOYEES
As of June 30, 1998, FTD employed approximately 430 full-time employees.
FTD considers its relations with its employees to be good. FTD employees are not
currently covered by any collective bargaining agreement.
ITEM 2. PROPERTIES
FTD's principal executive offices, consisting of approximately 120,000
square feet of office space, are owned by FTD and are located in Downers Grove,
Illinois. FTD leases office space through a subsidiary in Sanford, Maine. FTD
uses independent warehouse and distribution facilities in California, Ohio and
Ontario, Canada for product distribution.
ITEM 3. LEGAL PROCEEDINGS
FTD is involved in various lawsuits and matters arising in the normal
course of business. In the opinion of the management of FTD, although the
outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on FTD's financial position or results of operations.
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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 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information below is included in this report pursuant to instruction 3
to Item 401(b) of Regulation S-K:
<TABLE>
<CAPTION>
NAME AGE EXECUTIVE OFFICERS
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<S> <C> <C>
Robert L. Norton............................................ 51 President
Francis C. Piccirillo....................................... 48 Treasurer
Scott D. Levin.............................................. 36 Secretary
Fred Johnson................................................ 50 Executive Vice President
Technology of the
Operating Company
Michael Soenen.............................................. 28 Vice President Marketing
of the Operating Company
</TABLE>
Mr. Norton has been the President of FTD Corporation since January, 1997.
Mr. Norton is currently the Chief Executive Officer, President and Director of
the Operating Company. Mr. Norton joined the Operating Company in October 1996
as General Manager and became President and Chief Operating Officer in January
1997. From March 1993 until May 1996, Mr. Norton was Vice Chairman and Chief
Financial Officer of Fabri-Centers of America, Inc., a retail chain of fabric
and craft stores. Mr. Norton received a B.S. from Cleveland State University in
1973.
Mr. Piccirillo joined FTD Corporation as Treasurer in August 1997. Mr.
Piccirillo is also Vice President and Chief Financial Officer of the Operating
Company. Prior to that time, Mr. Piccirillo was Vice President/ Treasurer of
Fabri-Centers of America, Inc. for more than five years. Mr. Piccirillo received
a B.S. in Industrial Management in 1971 and an M.B.A. in 1973 from Gannon
University. In addition, Mr. Piccirillo received a J.D. from Cleveland State
University in 1976, and is a Certified Public Accountant.
Mr. Levin joined FTD Corporation as Secretary in May 1996. Mr. Levin also
served as Vice President of FTD Corporation from May 1996 to September 1997. Mr.
Levin also serves as Vice President, General Counsel and Secretary of the
Operating Company. Prior to joining the Company, Mr. Levin practiced law with
Schulte Roth & Zabel LLP, from April 1989 to April 1996. Mr. Levin received a
B.A. in Political Science and Philosophy from Boston College in 1984 and a J.D.
from The National Law Center of George Washington University in 1987.
Mr. Johnson joined the Operating Company as Executive Vice President
Technology in July 1997. Prior to that time, Mr. Johnson was Senior Vice
President MIS for Fabri-Centers of America, Inc. for more than five years. Mr.
Johnson received a B.S. in engineering from Case Institute of Technology in 1969
and an M.B.A. from Case Western Reserve University in 1977.
Mr. Soenen joined the Operating Company as Director of Sales Promotion in
January 1997. In August 1998, he was promoted to Vice President Marketing. Mr.
Soenen was an associate at Perry Capital Corp. from August 1996 to December
1996. Prior to that time, Mr. Soenen worked for Salomon Brothers Inc, an
investment banking firm, from July 1993 to July 1996. Mr. Soenen received a B.A.
in Economics from Kalamazoo College in 1992.
Executive Officers are selected by and serve at the discretion of the Board
of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for FTD Corporation's common
equity. As of August 31, 1998, there were approximately 2,100 holders of Class A
Common Stock, par value $.01 per share, of FTD Corporation, and approximately
four holders of Class B Common Stock, par value $.0005 per share, of FTD
Corporation.
FTD has not paid any cash dividends on its common equity since its
inception. On February 2, 1998, the Board of Directors declared a 100% stock
dividend (2 for 1 stock split) of the Company's Class A Common Stock and Class B
Common Stock for stockholders of record as of February 9, 1998 (the "Stock
Split"). Each stockholder of record received one additional share for every
share owned on the record date. Accordingly, all references in the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 to capital stock
have been adjusted to reflect the Stock Split. Any future determination as to
the payment of dividends will be at the discretion of the Board of Directors of
FTD, 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 FTD
to pay management fees in an amount not to exceed $2.0 million in any one fiscal
year pursuant to the Management Consulting Services Agreement (as hereinafter
defined); (2) payments by the Operating Company to FTD for the reimbursement of
reasonable out-of-pocket expenses permitted pursuant to the Management
Consulting Services Agreement; and (3) payments by the Operating Company to FTD
to repurchase shares of its Common Stock (subject to restrictions).
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical data of the Old
Association for the fiscal year ended June 30, 1994 and the period from July 1,
1994 to December 18, 1994, and of FTD for the period December 19, 1994 to June
30, 1995 and the fiscal years ended June 30, 1996, 1997 and 1998. The selected
historical balance sheet and statement of operations data as of and for the
fiscal year ended June 30, 1994 were derived from the audited consolidated
financial statements of the Old Association. The Acquisition was consummated on
December 19, 1994. The selected historical statement of operations data for the
period from July 1, 1994 to December 18, 1994 were derived from the audited
consolidated financial statements of the Old Association. The selected
historical statement of operating data for the period from December 19, 1994 to
June 30, 1995, and for the years ended June 30, 1996, 1997 and 1998 and the
balance sheet data as of June 30, 1996, 1997 and 1998 were derived from the
audited consolidated financial statements of FTD. The information contained in
this table should be read in conjunction with Item 7 "-- Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of FTD for the years ended June 30, 1996, 1997
and 1998, including the notes thereto, appearing elsewhere in this Form 10-K.
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<TABLE>
<CAPTION>
CONSOLIDATED FTD CORPORATION OLD ASSOCIATION
---------------------------------------------- -------------------------
DECEMBER 19,
1994 JULY 1
YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED
------------------------------- JUNE 30, DECEMBER 18, JUNE 30,
1998 1997 1996 1995 1994 1994(1)
---- ---- ---- ------------ ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR RATIOS AND EARNINGS PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................... $161,325 $162,537 $166,642 $ 96,572 $ 75,342 $166,560
Cost of goods sold and services
provided..................... 94,083 97,395 104,386 59,368 49,489 102,260
Selling, general and
administrative............... 54,540 54,634 58,763 29,992 28,313 57,625
-------- -------- -------- -------- -------- --------
Income (loss) from operations... 12,702 10,508 3,493 7,282 (2,460) 6,675
Other expense, net.............. 9,503 11,839 12,067 5,827 77 795
Income taxes (benefit)(2)....... 2,102 416 (1,813) 1,021 35 92
Minority interest(3)............ (1) (14) (33) 8 -- --
Cumulative effect of accounting
change(4).................... -- -- -- -- -- 6,277
-------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item.............. $ 1,098 $ (1,733) $ (6,728) $ 426 $ (2,572) $ (489)
======== ======== ======== ======== ======== ========
Extraordinary item(5):
Loss on extinguishment of debt
(net of $490 income tax
benefit)..................... (835) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................. $ 263 $ (1,733) $ (6,728) $ 426 $ (2,572) $ (489)
======== ======== ======== ======== ======== ========
Earnings (loss) per share(6)
Basic and Diluted before
extraordinary item........... $ 0.07 $ (0.11) $ (0.50) $ 0.03
Extraordinary item.............. $ (0.05)
Basic and Diluted............... $ 0.02 $ (0.11) $ (0.50) $ 0.03
OTHER DATA:
Depreciation and amortization... $ 9,570 $ 15,606 $ 14,231 $ 6,525 $ 4,911 $ 10,144
Capital expenditures, net....... 1,942 2,614 4,950 3,082 1,413 8,134
Ratio of earnings to fixed
charges(7)................... 1.3X -- -- 1.2X -- 2.9X
BALANCE SHEET DATA:
(at end of period)
Working capital (deficit)....... $ (4,148) $ 5,339 $ 2,718 $ 6,546 $ -- $ 16,918
Total assets.................... 154,486 181,724 196,082 203,864 -- 135,506
Long-term debt, including
current portion.............. 58,130 82,400 96,277 100,757 -- 33,463
Total equity.................... $ 27,924 $ 27,172 $ 29,140 $ 35,080 $ -- $ 36,216
</TABLE>
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(1) Fiscal 1994 has not been restated to conform to current year presentation of
the FTD Floral Selections revenue, credit card interest, and Canadian
exchange due to unavailability of information relating to operations prior
to the Acquisition. The restatements to fiscal 1997, 1996, and 1995 in order
to conform to the current year presentation were between revenue, cost of
goods sold and services provided, and selling, general and administrative
expenses. Income (loss) from operations was not affected by the
reclassifications.
(2) Taxes on income for the fiscal year ended June 30, 1994 and the period July
1 through December 18, 1994 are generally applicable to the Old
Association's Canadian operations. During these periods, the Old Association
conducted substantially all of its business activities as a member-owned
non-profit cooperative association and, accordingly, no provision for U.S.
income taxes was required. Taxes on income for the period December 19, 1994
through June 30, 1995 and for the fiscal years ended June 30, 1996, 1997
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and 1998 represent operations after conversion from a cooperative
association to a for-profit corporation, which resulted in a provision for
U.S. income tax liabilities to be recorded.
(3) Represents FTD's interest in Renaissance. In fiscal 1998, the remaining
minority interest was purchased for cash by FTD.
(4) Effective July 1, 1993, the Old Association and its consolidated
subsidiaries adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
for its unfunded post-retirement health care program.
(5) In November 1997, FTD entered into a new credit agreement with First Chicago
Capital Markets, Inc. As a result of entering into the new credit agreement,
unamortized deferred financing costs associated with the then existing debt
were expensed net of the related income tax benefit of $0.5 million,
resulting in a net loss on extinguishment of debt of $0.8 million. See note
4 to the consolidated financial statements.
(6) The Old Association was a member-owned non-profit cooperative association
and accordingly, no stock was issued. Earnings (loss) per share has been
calculated after giving effect to the Stock Split.
(7) In calculating the ratio of earnings to fixed charges, earnings consists of
net income prior to income taxes, minority interest and cumulative effect of
accounting change, plus net Other expenses. Net Other expenses consist of
net interest expense and the component of rental expense believed by
management to be representative of the interest factor thereon. Earnings for
the period July 1 through December 18, 1994 were insufficient to cover fixed
charges by $2,537. Earnings for the years ended June 30, 1996 and 1997 were
insufficient to cover fixed charges by $8,574 and $1,331, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that reflect the Company's
expectations regarding its future growth, results of operations, performance and
business prospects and opportunities. Words such as "anticipates," "believes,"
"plans," "expects," "estimates," and similar expressions have been used to
identify these forward looking statements, but are not the exclusive means of
identifying these statements. These statements reflect the Company's current
beliefs and are based on information currently available to the Company.
Accordingly, these statements are subject to known and unknown risks,
uncertainties, and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties,
and other factors include the Company's ability to develop and market existing
and acquired products, the Company's ability to adjust to changes in technology,
customer preferences, enhanced competition and new competitors in the floral
services industry, current exchange rate fluctuations, collection of
receivables, the Company's ability to address internal and external Year 2000
issues and risks associated with general economic and business conditions, which
may reduce or delay customers' purchases of the Company's products and services.
The Company is not obligated to update or revise these forward-looking
statements to reflect new events or circumstances.
RESULTS OF OPERATIONS
The following table illustrates the total revenue generated by FTD's major
operations and summarizes FTD's historical results of operations for the three
fiscal years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
--------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Marketplace................................................. $ 48,668 $ 50,257 $ 58,944
Clearinghouse............................................... 35,292 36,301 38,966
Mercury Network............................................. 35,317 37,554 34,134
Direct Access Publications, and Other....................... 42,048 38,425 34,598
-------- -------- --------
Total revenue.......................................... 161,325 162,537 166,642
Cost of goods sold and services provided.................... 94,083 97,395 104,386
Selling, general and administrative......................... 54,540 54,634 58,763
-------- -------- --------
Income from operations...................................... $ 12,702 $ 10,508 $ 3,493
======== ======== ========
</TABLE>
- -------------------------
Certain amounts in 1997 and 1996 have been reclassified to conform to the
current year presentation.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1998 compared
with the year ended June 30, 1997.
Total revenue decreased by $1.2 million, or 0.7%, to $161.3 million for the
year ended June 30, 1998 compared to $162.5 million for the year ended June 30,
1997. The decline in revenue was the net result of decreases in Marketplace,
Clearinghouse and Mercury Network revenue, partially offset by an increase in
Other revenue.
Marketplace revenue decreased by $1.6 million, or 3.2%, to $48.7 million
for the year ended June 30, 1998 compared to $50.3 million for the year ended
June 30, 1997. The decrease from the prior year was the net result of lower
sales volume of holiday products offset in part by an increase in revenue
relating to Renaissance as a result of the increase in the number of retail
outlets in which Renaissance Greeting Cards, are sold and the FTD Floral
Selections. Marketplace revenue was 30.2% and 31.0% of total revenue for the
years ended June 30, 1998 and 1997, respectively.
10
<PAGE> 11
Clearinghouse revenue decreased by $1.0 million, or 2.8%, to $35.3 million
for the year ended June 30, 1998 from $36.3 million for the year ended June 30,
1997. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.9% increase in the average revenue per order in
accordance with overall industry trends. The Company believes the decline in the
volume of orders cleared by FTD is due to competition from other clearinghouse
services, and the general decline in industry clearings which has resulted from
the overall decline in the market share of retail florists. Clearinghouse
revenue was 21.9% and 22.3% of total revenue for the years ended June 30, 1998
and 1997, respectively.
Mercury Network revenue decreased by $2.2 million, or 5.9%, to $35.3
million for the year ended June 30, 1998 from $37.6 million for the year ended
June 30, 1997. A decrease in computer console rental income and sales of
Advantage floral business systems were the major factors contributing to the
revenue decrease. Mercury Network revenue was 21.9% and 23.1% of total revenue
for the years ended June 30, 1998 and 1997, respectively.
Other revenue experienced a net increase of $3.6 million, or 9.4%, to $42.0
million for the year ended June 30, 1998 from $38.4 million for the year ended
June 30, 1997. This increase was primarily due to an increase in the monthly
access fee charged to FTD florists as well as incremental revenue for fiscal
1998 relating to FTD's Internet site www.ftd.com. Other revenue was 26.0% and
23.6% of total revenue for the year ended June 30, 1998 and 1997, respectively.
The cost of goods sold and services provided decreased by $3.3 million, or
3.4%, to $94.1 million for the year ended June 30, 1998 from $97.4 million for
the year ended June 30, 1997. This is primarily the result of lower costs
relating to floral order transmissions and processing services and customer
programs partially offset by an increase in costs relating to products and
distribution. As a percentage of revenue, cost of goods sold and services
provided decreased slightly to 58.3% for the year ended June 30, 1998 from 59.9%
for the year ended June 30, 1997.
Costs relating to floral order transmissions and processing services
decreased $4.0 million, or 13.4%, to $25.8 million for the year ended June 30,
1998 from $29.8 million for the year ended June 30, 1997. This decrease is
primarily attributable to a decrease in depreciation expense relating to fully
depreciated equipment as of December 31, 1997.
Costs relating to customer programs decreased $0.2 million, or 0.5%, to
$31.5 million for the year ended June 30, 1998 from $31.7 for the year ended
June 30, 1997. This is primarily the net result of decreased costs relating to
the FTD Directory being published on a quarterly basis in fiscal 1998 versus
five times per year in fiscal 1997 and net increased costs associated with FTD's
customer incentive program and other miscellaneous expenses.
Product and distribution costs increased by $0.8 million, or 2.2% to $36.7
million for the year ended June 30, 1998 from $35.9 million for the year ended
June 30, 1997. This increase is primarily due to increased costs associated with
the Marketplace branded product line and costs associated with product sourcing.
Selling, general and administrative expenses decreased by $0.1 million, or
0.2%, to $54.5 million for the year ended June 30, 1998 from $54.6 million for
the year ended June 30, 1997. This decrease is primarily due to the net result
of increased national advertising expenses and decreased general and
administration expenses in comparison to fiscal 1997.
Net interest expense for the years ended June 30, 1998 and 1997 was $9.5
million and $11.3 million, respectively. The decrease of $1.8 million was
attributable to lower average debt outstanding as well as lower average interest
rates resulting from the implementation of a new credit agreement which became
effective in November 1997. See "-- Liquidity and Capital Resources."
Income taxes on income from continuing operations for the year ended June
30, 1998 reflect an expense of $2.1 million compared to an expense of $0.4
million in the prior year. This increase is due to the increase in taxable
income.
As a result of the factors described above, a net profit before
extraordinary item of $1.1 million was achieved for the year ended June 30,
1998, an improvement of $2.8 million from a net loss of $1.7 million for
11
<PAGE> 12
the year ended June 30, 1997. In November 1997, FTD entered into a new credit
agreement with First Chicago Capital Markets, Inc. which resulted in $1.3
million of unamortized deferred financing costs associated with the then
existing debt to be expensed. The related income tax benefit attributable to the
extinguishment of the existing debt was $0.5 million, resulting in a net loss on
extinguishment of debt of $0.8 million which is reflected as an extraordinary
item in the consolidated condensed statements of operations. Net profit after
the extraordinary item was $263 thousand, an improvement of $2.0 million from a
net loss of $1.7 million for the year ended June 30, 1997.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1997 compared
with the year ended June 30, 1996.
Revenue decreased by $4.1 million, or 2.5%, to $162.5 million for the year
ended June 30, 1997 compared to $166.6 million for the year ended June 30, 1996.
The decline in revenue was the net result of decreases in Marketplace and
Clearinghouse revenue, partially offset by increases in Mercury Network and
Other revenue.
Marketplace revenue decreased by $8.7 million, or 14.8%, to $50.2 million
for the year ended June 30, 1997 compared to $58.9 million for the year ended
June 30, 1996. The decrease from the prior year was the result of lower sales
volume of holiday products. Marketplace revenue was 30.9% and 35.4% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Clearinghouse revenue decreased by $2.7 million, or 6.8%, to $36.3 million
for the year ended June 30, 1997 from $39.0 million for the year ended June 30,
1996. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.5% increase in the average revenue per order in
accordance with overall industry trends. The Company believes the decline in the
volume of orders cleared by FTD is due to competition from other clearinghouse
services, and the general decline in industry clearings which has resulted from
the general decline in the market share of retail florists. Clearinghouse
revenue was 22.3% and 23.4% of total revenue for the years ended June 30, 1997
and 1996, respectively.
Mercury Network revenue increased by $3.4 million, or 10.0%, to $37.6
million for the year ended June 30, 1997 from $34.1 million for the year ended
June 30, 1996. An increase in terminal leasing revenue, order transmission
income and sales of Advantage floral business systems were the major factors in
the revenue increase. Mercury Network revenue was 23.1% and 20.5% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Other revenue experienced a net increase of $3.8 million, or 11.1%, to
$38.4 million for the year ended June 30, 1997 from $34.6 million for the year
ended June 30, 1996. This increase was primarily due to growth in the order
volume of Direct Access (1-800-SEND-FTD) and publications revenue. Other revenue
was 23.6% and 20.8% of total revenue for the year ended June 30, 1997 and 1996,
respectively.
The cost of goods sold and services provided decreased by $7.0 million, or
6.7%, to $97.4 million for the year ended June 30, 1997 from $104.4 million for
the year ended June 30, 1996. This is primarily the result of lower costs
associated with products and distribution as well as decreased costs relating to
floral order transmissions and processing services and customer programs. As a
percentage of revenue, cost of goods sold and services provided decreased
slightly to 59.9% for the year ended June 30, 1997 from 62.7% for the year ended
June 30, 1996.
Product and distribution costs decreased by $5.3 million, or 12.9%, to
$35.9 million for the year ended June 30, 1997 from $41.2 million for the year
ended June 30, 1996. This is primarily the result of lower costs of goods sold
related to lower Marketplace sales as discussed above.
Costs relating to floral order transmissions and processing services
decreased $0.8 million, or 2.6%, to $29.8 million for the year ended June 30,
1997 from $30.6 million for the year ended June 30, 1996. This decrease is
primarily attributable to decreased costs associated with computer operations
and systems and programming offset in part by an increase in costs related to
data processing.
12
<PAGE> 13
Costs relating to customer programs decreased $0.9 million, or 2.8%, to
$31.7 million for the year ended June 30, 1997 from $32.6 million for the year
ended June 30, 1996. This decrease is primarily attributable to decreased costs
associated with FTD's customer incentive program and credit cards offset in part
by an increase in costs associated with the sales of Advantage floral business
systems.
Selling, general and administrative expenses decreased by $4.1 million, to
$54.6 million for the year ended June 30, 1997 from $58.8 million for the year
ended June 30, 1996. This decrease is primarily due to FTD's decreased
advertising and promotional expenditures in fiscal 1997. In addition, a pension
curtailment gain of $2.7 million, a $0.8 million postretirement curtailment gain
and a $0.5 million pension settlement gain were partially offset by costs of
$4.5 million due to FTD's facility consolidation efforts including the write-off
of the trained workforce intangible asset and other related actions.
Net interest expense for the years ended June 30, 1997 and 1996 was $11.3
million and $12.1 million, respectively. The decrease of $0.8 million resulted
from a reduction in debt during the year ended June 30, 1997. See "-- Liquidity
and Capital Resources."
Income taxes for the year ended June 30, 1997 reflect an expense of $0.4
million compared to a benefit of $1.8 million in the prior year. This increase
is a result of the decrease in the net loss from the prior year.
As a result of the factors described above, a net loss of $1.7 million was
achieved for the year ended June 30, 1997, an improvement of $5.0 million from a
net loss of $6.7 million for the year ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's $60.0 million aggregate principal amount
of 14% Senior Subordinated Notes due December 15, 2001 (the "Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act") and interest
payments under the Company's $100 million Credit Agreement dated as of November
20, 1997 with First Chicago Capital Markets Inc. (the "Bank Credit Facilities")
represent significant liquidity requirements for FTD. Borrowings available under
the Bank Credit Facilities consist of a $50.0 million Multiple Draw Term Loan
Facility and a $50.0 million Revolving Credit Facility to finance working
capital, acquisitions, certain expenses associated with the Bank Credit
Facilities and letter of credit needs. FTD has repaid $24.6 million of existing
loans under the "Old Bank Credit Agreement" with Bankers Trust dated December
19, 1994 with the proceeds of the Bank Credit Facilities during fiscal 1998. At
June 30, 1998, the Company did not have any borrowings outstanding under the
Bank Credit Facilities. Any loan outstanding under the Bank Credit Facilities
will mature on December 31, 2003. The Company believes, based on current
circumstances, that its cash flow, together with borrowings under the Bank
Credit Facilities, will be sufficient to fund its working capital needs, capital
expenditures, obligations to the Operating Company, potential acquisitions and
to make interest and principal payments as they become due under the terms of
the Notes and the Bank Credit Facilities.
As of June 30, 1998, the Company is in compliance with the covenants of
their debt agreements. See Note 4 (Financing Arrangements) to the consolidated
financial statements.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures, Year 2000 Compliance costs
and working capital needs. In the fiscal years ended June 30, 1998 and 1997,
FTD's net capital expenditures were $1.9 million and $2.6 million, respectively,
related primarily in 1998 to the implementation of new software packages and
building improvements, and in 1997 to the purchase of additional office
equipment. FTD's expected capital expenditures for fiscal 1999 are estimated to
be in the range of $5.0 to $7.0 million and will primarily be used for new
computer software and related information technology purchases. The Company
believes that cash flow from operations, together with borrowings available
under the Bank Credit Facilities, will be sufficient to fund anticipated capital
expenditures and working capital needs.
Cash provided by operating activities was $13.0 million for the year ended
June 30, 1998 compared to cash provided of $12.5 million for the year ended June
30, 1997. Contributing to the increase in cash was a decrease in inventory of
$4.3 million.
13
<PAGE> 14
Cash used in investing activities was $2.0 million for the year ended June
30, 1998, compared to cash provided by investing activities of $3.6 million for
the year ended June 30, 1997. In fiscal 1998, the cash used in investing
activities primarily consisted of the acquisition of components relating to the
new software package and the purchase of the remaining minority interest in
Renaissance.
Cash used in financing activities was $25.6 million for the year ended June
30, 1998 compared to cash used of $14.4 million for the year ended June 30,
1997. The net cash used in financing activities in the year ended June 30, 1998,
reflects primarily the net proceeds of long term debt as a result of entering
into the new Bank Credit Facilities and repayments of principal on the then
existing term loans under the old Bank Credit Agreement.
Effective January 1, 1997, amendments to FTD's defined benefit pension plan
were adopted, including the elimination of the accrual of future benefits under
the plan. As a result of these amendments, and the corresponding remeasurement
of the accumulated and projected benefit obligations under the plan, a pre-tax
pension settlement gain of $0.4 million and a pre-tax pension curtailment gain
of $1.0 million were recognized in income as a reduction in Selling, General and
Administrative costs during fiscal 1998. FTD has established a new 401(k)
savings plan for all of its eligible employees.
On January 3, 1997, FTD's Board of Directors approved a plan to consolidate
corporate staff and operations into its Downers Grove, Illinois facility, which
has enabled FTD to improve program execution and is helping FTD to better serve
its customers. Leased office space in Boston, Massachusetts was subleased, and
land and buildings in Southfield, Michigan were sold. FTD's then existing bank
credit agreement required FTD to use the net proceeds from the sale of assets to
reduce the outstanding term loan and as a result, future interest costs were
reduced. In accordance with EITF Consensus no. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
non-recurring charges in connection with the consolidation including severance,
asset impairment losses, and other costs aggregating $3.0 million were
recognized as Selling, General and Administrative costs during fiscal 1997.
During fiscal 1998 the Company reduced the liability for non-recurring charges
in connection with the consolidation by $0.4 million, as a result of over
estimates in anticipated consolidation expenses associated with severance,
relocation and other costs.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems and has
identified the systems that could be affected by the "Year 2000" issue. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculation. The Year 2000 issue may also affect the systems and applications
of the Company's vendors or customers. As of June 30, 1998, FTD has contracted
with an outside consulting firm which has assisted FTD in the evaluation and
selection of a compatible software package based on FTD's system requirements.
FTD is currently in the implementation and training process of a new software
package and expects the project to be completed by June 30, 1999. This new
software package will allow the Company to improve its execution and efficiency
in recording information in addition to providing a solution to the Year 2000
issue with respect to the Company's internal computer systems.
The Company has not completed its assessment of the Year 2000 issue as it
relates to customers and third party vendors with whom the Company does
business. However, it should be noted that the Company has over 20,000 customers
none of which individually accounts for a material portion of the Company's
revenues or profits. As it relates to vendors and suppliers, the Company's plan
includes contacting key third parties, including financial institutions and
communication and transportation providers with whom the Company does business
to address the compatibility of systems.
The economy in general may be adversely affected by risks associated with
the Year 2000 issue. The Company's business, financial condition, and results of
operations could be materially adversely affected if systems that it operates or
systems that are operated by other parties with whom the Company does business,
are not Year 2000 Compliant in time. There can be no assurance that these third
party systems will continue
14
<PAGE> 15
to properly function and interface and will otherwise be Year 2000 Compliant.
Although the Company is not aware of any threatened claims related to the Year
2000, the Company may be subject to litigation arising from such claims and,
depending on the outcome, such litigation could have a material adverse affect
on the Company.
During the implementation of the new software package, the Company will
incur internal staff costs as well as consulting and other costs. The total
estimated cost to complete the project over the next 12 to 18 months is expected
to range between $10.0 and $12.0 million of which approximately $8.0 to $10.0
million of these expenditures are expected to be capital expenditures. The
capitalized items include the costs related to hardware, software and other
external direct costs of material and services consumed in developing the
internal-use computer software. If the Company is unsuccessful in implementing
the software or if the software does not function as it is expected to, the
related potential effect on the Company's earnings is expected to have a
material effect on the Company's business, financial condition and results of
operations. The Company intends to develop and implement, if necessary,
appropriate contingency plans to mitigate to the extent possible any significant
Year 2000 noncompliance.
The expected costs and completion dates for the Year 2000 project are
forward looking statements based on management's best estimates, which were
derived using numerous assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
Actual results could differ materially from these estimates as a result of
factors such as the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant 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
Not applicable.
15
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is hereby
incorporated herein by reference to the section, "Election of Directors"
contained in the Company's Information Statement. See also Item 4-A, "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby incorporated
herein by reference to the sections, "Management-Executive Compensation,"
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Fiscal
Year-End Option Values" and "Director Compensation for the Last Fiscal Year" in
the Company's Information Statement. The sections, "Board of Directors Report on
Executive Compensation" and "Stockholder Return Comparison," in the Company's
Information Statement are not incorporated by reference herein. Such sections
are furnished solely for information and shall not be deemed to be soliciting
material or to be "filed" as part of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is hereby incorporated herein by reference to the sections,
"Security Ownership of Certain Beneficial Owners and Management" and "Principal
Stockholders," in the Company's Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is hereby incorporated herein by reference to the section, "Relationship with
Affiliates," in the Company's Information Statement.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) & (2) The consolidated financial statements and schedule which are
filed with this Form 10-K are set forth in the Index to Consolidated Financial
Statements and Schedule at Page F-1 which immediately precedes such documents.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder upon written request, any exhibit listed in the accompanying Index
to Exhibits upon payment by such stockholders of the Company's reasonable
expenses in furnishing any such exhibits. Such exhibits are, as indicated in the
index, either filed herewith or have heretofore been filed with the Securities
and Exchange Commission under the Securities Act and are referred to and
incorporated herein by reference to such filings.
(B) REPORTS ON FORM 8-K
No forms 8-K were filed by the Company during the fourth quarter of fiscal
1998.
(C) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
See accompanying Index to Exhibits.
17
<PAGE> 18
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/ ROBERT L. NORTON
-----------------------------------
Name: Robert L. Norton
Title: President
Date: September 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD C. PERRY Chairman of the Board and Director September 24, 1998
- ------------------------------------------
Richard C. Perry
/s/ ROBERT L. NORTON President (Principal Executive September 24, 1998
- ------------------------------------------ Officer)
Robert L. Norton
/s/ FRANCIS C. PICCIRILLO Treasurer (Principal Accounting and September 24, 1998
- ------------------------------------------ Financial Officer)
Francis C. Piccirillo
/s/ VERONICA K. HO Director September 24, 1998
- ------------------------------------------
Veronica K. Ho
/s/ GARY K. SILBERBERG Director September 24, 1998
- ------------------------------------------
Gary K. Silberberg
/s/ GEOFFREY REHNERT Director September 24, 1998
- ------------------------------------------
Geoffrey Rehnert
/s/ HABIB GORGI Director September 24, 1998
- ------------------------------------------
Habib Gorgi
</TABLE>
18
<PAGE> 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1998 and 1997.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996.............................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996.................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996.............................. F-6
Notes to Consolidated Financial Statements as of June 30,
1998 and 1997............................................. F-7
Independent Auditors' Report on Financial Statement
Schedule.................................................. F-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> 20
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
FTD Corporation
We have audited the accompanying consolidated balance sheets of FTD
Corporation (the Company), as of June 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FTD Corporation as of June
30, 1998 and 1997, and the results of its operations and cash flows for each of
the years in the three-year period ended June 30, 1998, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
August 28, 1998
F-2
<PAGE> 21
FTD CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 13,615 $ 28,294
Accounts receivable, less allowance for doubtful accounts
($1,854 in 1998 and $2,211 in 1997)....................... 24,104 24,979
Inventories, principally finished goods, net................ 13,261 14,992
Deferred income taxes....................................... 5,216 7,242
Other current assets........................................ 857 2,034
-------- --------
Total current assets.................................... 57,053 77,541
PROPERTY AND EQUIPMENT:
Land and improvements....................................... 1,600 1,600
Building and improvements................................... 7,996 7,601
Mercury consoles............................................ 21,835 22,472
Furniture and equipment..................................... 14,370 12,832
-------- --------
Total................................................... 45,801 44,505
Less accumulated depreciation............................... 30,108 23,925
-------- --------
Property and equipment, net............................. 15,693 20,580
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
($4,861 in 1998 and $2,724 in 1997)....................... 2,711 3,394
Other noncurrent assets..................................... 4,244 1,979
Goodwill and other intangibles, less accumulated
amortization
($10,599 in 1998 and $7,528 in 1997)...................... 74,785 78,230
-------- --------
Total other assets...................................... 81,740 83,603
-------- --------
Total assets............................................ $154,486 $181,724
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ -- $ 9,297
Accounts payable............................................ 29,863 29,237
Accrued member incentive programs........................... 14,047 13,816
Accrued severance costs..................................... 193 1,245
Other accrued liabilities................................... 6,533 5,765
Members' deposits........................................... 9,962 9,991
Unearned income............................................. 603 2,724
-------- --------
Total current liabilities............................... 61,201 72,075
Long-term debt, less current maturities..................... 58,130 73,103
Post-retirement benefits, less current portion.............. 5,572 6,577
Accrued pension obligations, less current portion........... 497 876
Deferred income taxes....................................... 1,162 1,765
Minority interest in subsidiary............................. -- 156
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;
12,613,727 shares issued and 12,395,719 outstanding at
June 30, 1998; 12,461,734 shares issued and 12,280,384
outstanding at June 30,1997............................. 126 125
Class B, $0.0005 par value, 3,000,000 shares authorized,
issued and outstanding at June 30, 1998 and 1997........ 2 2
Paid-in Capital............................................. 36,741 35,575
Accumulated deficit......................................... (7,812) (8,013)
Notes receivable............................................ -- (32)
Unamortized restricted stock................................ (511) --
Treasury stock.............................................. (622) (485)
-------- --------
Total stockholders' equity.............................. 27,924 27,172
-------- --------
Total liabilities and stockholders' equity.............. $154,486 $181,724
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
FTD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Marketplace................................................. $ 48,668 $ 50,257 $ 58,944
Clearinghouse............................................... 35,292 36,301 38,966
Mercury Network............................................. 35,317 37,554 34,134
Direct Access, Publications and Other....................... 42,048 38,425 34,598
-------- -------- --------
Total revenues......................................... 161,325 162,537 166,642
COSTS:
Products and distribution................................... 36,701 35,897 41,209
Floral order transmissions and processing services.......... 25,837 29,803 30,562
Member programs............................................. 31,545 31,695 32,615
-------- -------- --------
Total cost of goods sold and services provided......... 94,083 97,395 104,386
Selling, general and administrative expense................. 54,540 54,634 58,763
-------- -------- --------
Income from operations................................. 12,702 10,508 3,493
OTHER INCOME AND EXPENSES:
Interest income............................................. (1,079) (1,480) (1,431)
Interest expense............................................ 10,582 12,789 13,498
Loss on sale of Southfield, Michigan facility............... -- 530 --
-------- -------- --------
Total other income and expenses........................ 9,503 11,839 12,067
-------- -------- --------
Income (loss) before income tax expense, minority
interest and extraordinary item...................... 3,199 (1,331) (8,574)
Income tax expense (benefit)................................ 2,102 416 (1,813)
Minority interest in loss of subsidiary..................... (1) (14) (33)
-------- -------- --------
Net income (loss) before extraordinary item............ 1,098 (1,733) (6,728)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt (net of $490 income tax
benefit).................................................. (835) -- --
-------- -------- --------
Net income (loss)...................................... $ 263 $ (1,733) $ (6,728)
======== ======== ========
EARNINGS (LOSS) PER SHARE:
Basic and Diluted earnings (loss) per share before
extraordinary item........................................ $0.07 $(0.11) $(0.50)
Extraordinary item.......................................... (0.05) -- --
-------- -------- --------
Basic and Diluted earnings (loss) per share................. $0.02 $(0.11) $(0.50)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
FTD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Class A, shares outstanding
Balance at beginning of year.............................. 12,280 12,403 6,029
Common stock issued to effect 1998 Stock Offering....... 97
Retroactive restatement for 2 for 1 stock split in the
form of a stock dividend effective 2/2/98.............. 6,029
Purchase of common stock from initial investors......... (971)
Sales of common stock in public offering................ 1,318
Repurchase of common stock.............................. (79) (131) (66)
Sale of common stock to officers........................ 98 8 64
------- ------- -------
Balance at end of year.................................... 12,396 12,280 12,403
------- ------- -------
Class B, shares outstanding
Balance at beginning of year.............................. 3,000 3,000 442
Repurchase of common stock.............................. (134)
Retroactive restatement for 2 for 1 stock split in the
form of a stock dividend effective 2/2/98.............. 442
Exercise of common stock warrants....................... 2,250
------- ------- -------
Balance at end of year.................................... 3,000 3,000 3,000
------- ------- -------
Common stock at stated value
Balance at beginning of year.............................. $ 127 $ 127 $ 66
Repurchase of initial investment........................ (5)
Retroactive restatement for 2 for 1 stock split in the
form of a stock dividend effective 2/2/98.............. 64
Additional common stock issued.......................... 1
Sale of treasury stock.................................. (1)
Sale of common stock in public offering................. 6
Change in par value of class B shares................... (4)
Exercise of common stock warrants....................... 1
------- ------- -------
Balance at end of year.................................... $ 128 $ 127 $ 127
======= ======= =======
Paid-in Capital
Balance at beginning of year.............................. $35,575 $35,543 $35,385
Repurchase of initial investment........................ (2,949)
Retroactive restatement for 2 for 1 stock split in the
form of a stock dividend effective 2/2/98.............. (64)
Additional common stock issued.......................... 593
Sale of treasury stock.................................. (499)
Sale of common stock in public offering................. 3,516
Repurchase of common stock.............................. 80
Sale of common stock to officers........................ 573 32 135
Change in par value of class B shares................... 4
Cancellation of shareholder receivable related to
repurchase of common stock............................. (65)
------- ------- -------
Balance at end of year.................................... $36,741 $35,575 $35,543
======= ======= =======
Retained Earnings (Accumulated Deficit)
Balance at beginning of year.............................. $(8,013) $(6,275) $ 449
Net income (loss)....................................... 263 (1,733) (6,728)
Foreign currency translation adjustment................. (62) (5) 4
------- ------- -------
Balance at end of year.................................... $(7,812) $(8,013) $(6,275)
======= ======= =======
Notes Receivable and Unamortized Restricted Stock
Balance at beginning of year.............................. $ (32) $ (128) $ (319)
Payment of officer note receivable...................... 32
Repurchase of initial investment........................ 68
Deferred Compensation................................... (620)
Sales of Common Stock to Officers....................... (32) (12)
Amortization of deferred compensation................... 109
Amortization of shareholder notes receivable............ 70
Cancellation of shareholder receivable related to
repurchase of common stock............................. 65
Forgiveness of officers loan............................ 128
------- ------- -------
Balance at end of year.................................... $ (511) $ (32) $ (128)
======= ======= =======
Treasury Stock, Class A
Balance at beginning of year.............................. $ (485) $ (127) $ (500)
Repurchase of common stock.............................. (252) (358) (162)
Sale of treasury stock.................................. 500
Sale of common stock to officers........................ 115 35
------- ------- -------
Balance at end of year.................................... $ (622) $ (485) $ (127)
======= ======= =======
Total Stockholders' Equity.................................. $27,924 $27,172 $29,140
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
FTD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 263 $ (1,733) $(6,728)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 9,570 15,606 14,231
Amortization of deferred financing costs and original
issue discount.......................................... 2,519 1,405 1,359
Post-retirement benefits other than pensions.............. (1,005) (586) 401
Pension................................................... (379) (2,756) (120)
Minority interest in loss of subsidiary................... (1) (14) (32)
Undistributed loss of unconsolidated affiliate............ (8) (31) (67)
Loss on sale or disposal of assets........................ -- 530 663
Increase (decrease) in cash due to change in:
Accounts receivable..................................... 875 (899) (3,219)
Inventories............................................. 1,731 (2,524) 1,027
Deferred income taxes................................... 1,423 286 (2,035)
Other current assets.................................... 1,177 (316) (159)
Other noncurrent assets................................. (1,979) -- --
Accounts payable........................................ 626 877 1,491
Accrued member incentive programs....................... 231 867 6,194
Accrued severance costs................................. (678) (74) (1,504)
Other accrued liabilities, unearned income, and members'
deposits.............................................. (1,382) 1,837 (417)
-------- -------- -------
Net cash provided by operating activities............. 12,983 12,475 11,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................... (1,942) (2,614) (4,950)
Proceeds from the sale of the Southfield, Michigan
facility.................................................. -- 6,224 --
Purchase of minority interest in Renaissance................ (103) -- --
-------- -------- -------
Net cash provided by (used in) investing activities... (2,045) 3,610 (4,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit borrowings................. 28,546 -- --
Repayments of long-term debt................................ (54,652) (14,206) (4,762)
Issuance of common stock, net of expenses................... 656 -- 3,681
Repurchase of common stock, net............................. (137) (358) (3,037)
Issuance of common stock warrants........................... -- -- 1
Payments received from stockholders......................... 32 128 138
-------- -------- -------
Net cash used in financing activities................. (25,555) (14,436) (3,979)
Effect of foreign exchange rate changes on cash............. (62) (5) 12
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (14,679) 1,644 2,168
Cash and cash equivalents at beginning of year.............. 28,294 26,650 24,482
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 13,615 $ 28,294 $26,650
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................... $ 5,283 $ 11,458 $12,113
======== ======== =======
Income taxes................................................ $ 110 $ 237 $ 201
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
FTD Corporation ("the Company"), is a supplier of non-perishable hardgoods,
order clearing services, marketing support and other services, including
greeting cards, publications and credit card authorization and processing to the
retail floral industry and operates a toll free number and internet web site
that offer consumers the opportunity to place orders directly with the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company at June 30, 1998, 1997
and 1996 include the accounts of FTD Corporation and its wholly owned
subsidiary, Florists' Transworld Delivery, Inc. ("the Operating Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company considers all investments purchased
with maturities of three months or less at the date of purchase to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable, accrued member incentive programs,
accrued severance costs, other accrued liabilities, unearned income, member
deposits and long-term debt. At June 30, 1998, because of the short maturity of
those instruments other than long-term debt, the fair value of these financial
instruments approximates the carrying amount. Long-term debt is discussed in
Note 4.
INVENTORIES
Inventories consist principally of finished goods and are stated at the
lower of cost, principally on a first in, first out basis, or market (net
realizable sales value).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. The useful lives are ten
to 31.5 years for building and improvements, five years for Mercury consoles,
and five to ten years for furniture and equipment. Assets acquired on December
19, 1994 (see Note 2), have been recorded at their fair value at acquisition
date.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and any
gain or loss incurred in the ordinary course of business is included as selling,
general and administrative expense in the accompanying consolidated statements
of operations. Maintenance and repairs are charged to expense as incurred.
Expenditures which improve or extend the life of existing property and equipment
are capitalized.
SYSTEMS SOFTWARE
Systems software, included in other noncurrent assets, is recorded at
purchase cost and is being amortized over its expected economic life of five
years using the straight-line method. Assets acquired on December 19, 1994 (see
Note 2), have been recorded at their fair value at acquisition date.
F-7
<PAGE> 26
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" on March 4, 1998. The Company adopted this SOP in fiscal 1998.
INTANGIBLES
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized using the
straight line method over 30 years. Other intangibles consist of trademarks and
software and are being amortized over 40 and 5 years, respectively, using the
straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred indicate that the remaining balance of goodwill and other
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors indicate that goodwill and other
intangibles should be evaluated for possible impairment, the Company uses an
estimate of undiscounted future cash flows to measure whether the goodwill and
other intangibles is recoverable, and over what period (see Notes 2 and 3).
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date (see Note
7).
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, balance sheet accounts of the Company's
foreign operations are translated from Canadian currency into U.S. dollars at
year-end or historical rates, while income and expenses are translated at the
weighted average exchange rates for the year. Translation gains or losses
related to net assets located outside the United States are included in retained
earnings. Gains and losses resulting from foreign currency transactions are
included in net income.
EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share", Basic earnings
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding and excludes the dilutive effect of
unexercised common stock equivalents. Diluted earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding and includes the dilutive effect of unexercised common
stock equivalents. On February 2, 1998, the Board of Directors declared a 100%
stock dividend (2 for 1 stock split) of the Company's Class A Common Stock and
Class B Common Stock for stockholders of record as of February 9, 1998 (the
"Stock Split"). Accordingly, all historical weighted average share and per share
amounts have been restated to reflect the stock split.
F-8
<PAGE> 27
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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.
STOCK-BASED COMPENSATION
Prior to July 1, 1996 the Company accounted for its stock options in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On July 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as an expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the fair
value-based method defined in SFAS No. 123 has been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and apply the
pro forma disclosure provisions of SFAS No. 123 (see Note 11).
USE OF ESTIMATES
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and related disclosures to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued, SFAS No. 130,
"Reporting Comprehensive Income" in June 1997. This Statement establishes
Standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. This statement will be
effective in the fiscal 1999 consolidated financial statements.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" in February 1998. This statement is expected to affect
the disclosure requirements for fiscal 1999 consolidated financial statements.
The Company is evaluating the impact of this statement.
The FASB also issued Statement No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits" in February 1998. This statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair value of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when FASB statements No. 87, "Employers' Accounting for
Pensions", No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions", were
issued. This Statement will be effective in the fiscal 1999 consolidated
financial statements.
F-9
<PAGE> 28
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial statements have
been reclassified to conform to the 1998 presentation.
(2) ACQUISITION
On December 19, 1994 (the "Merger Date"), FTD Corporation, a Delaware
corporation, completed an acquisition of all of the outstanding equity of
Florists' Transworld Delivery Association, a Michigan nonprofit cooperative
association (the "Acquired Company"), pursuant to the terms of an Agreement and
Plan of Merger (the "Merger Agreement") dated August 2, 1994. The acquisition
was effected through the merger (the "Merger") of FTD Acquisition Corp., a
wholly owned subsidiary of FTD Corporation, with and into the Acquired Company,
with the Acquired Company surviving the Merger as a wholly owned subsidiary of
FTD Corporation. Concurrent with the Merger, the Acquired Company was converted
from a nonprofit cooperative association to a for-profit corporation and renamed
"Florists' Transworld Delivery, Inc." (from and after the Merger Date, the
"Operating Company").
The Company has accounted for the Merger under the purchase method of
accounting, and accordingly, the Company's consolidated financial statements,
reflect the allocation of the total purchase price to the tangible and
intangible assets acquired and liabilities assumed of the Acquired Company as of
December 19, 1994, based on their respective estimated fair values. (See Note
3).
On January 3, 1997, the Operating Company's Board of Directors approved a
plan to consolidate corporate staff and operations into its Downers Grove,
Illinois facility. Leased office space in Boston, Massachusetts was sub-leased,
and land and buildings, in Southfield, Michigan were sold. The Company's then
existing bank credit agreement required it to use the net proceeds from the sale
of assets to reduce the outstanding term loan. In accordance with EITF Consensus
No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity," non-recurring charges in connection with this
consolidation, including severance, asset impairment losses, and other costs
aggregating $3.0 million, were recognized as selling, general and administrative
costs in the accompanying Consolidated Statement of Operations for Fiscal year
1997. The severance costs results from the planned termination of approximately
183 employees who performed corporate and operating functions at the Southfield
and Boston locations. In addition, based on the consolidation of the Company's
facilities and the termination of a majority of the workforce as a result of the
closed facilities, the unamortized balance of $2.1 million, net of $0.6 million
of amortization, representing an intangible asset of trained workforce was
written off during the year ended
F-10
<PAGE> 29
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) ACQUISITION -- CONTINUED
June 30, 1997. The activity in such reserves during the years ended June 30,
1996, 1997 and 1998 can be summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEVERANCE RELOCATION
BENEFITS COSTS OTHER TOTAL
--------- ---------- ----- -----
<S> <C> <C> <C> <C>
Liability as of June 30, 1995.......................... $ 4,730 $ 600 $ 631 $ 5,961
Costs paid during the year ending June 30, 1996........ (1,310) (41) (153) (1,504)
Change in estimate..................................... (2,370) (480) (288) (3,138)
------- ----- ------- -------
Remaining liability as of June 30, 1996................ 1,050 79 190 1,319
Additional liability recognized due to consolidation... 1,292 93 1,575 2,960
Cost paid during the year ending June 30, 1997......... (1,550) (53) (1,431) (3,034)
------- ----- ------- -------
Remaining liability as of June 30, 1997................ 792 119 334 1,245
Costs Paid during the year ending June 30, 1998........ (479) (69) (130) (678)
Change in estimate..................................... (220) (50) (104) (374)
------- ----- ------- -------
Remaining Liability as of June 30, 1998................ $ 93 $ -- $ 100 $ 193
======= ===== ======= =======
</TABLE>
(3) INTANGIBLES
At June 30, 1998 and 1997 goodwill and other intangible assets relating to
the Acquisition (see Note 2) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill.................................................... $68,384 $68,758
Trademarks.................................................. 15,000 15,000
Software.................................................... 2,000 2,000
------- -------
85,384 85,758
Less accumulated amortization............................... 10,599 7,528
------- -------
Total....................................................... $74,785 $78,230
======= =======
</TABLE>
(4) FINANCING ARRANGEMENTS
In November, 1997 FTD entered into a new credit agreement with First
Chicago Capital Markets, Inc. who arranged a $100 million financing package (the
"Bank Credit Facilities") with The First National Bank of Chicago acting as
Administrative Agent. The Bank Credit Facilities consist of a $50 million
Multiple Draw Term Loan Facility and a $50 million Revolving Credit Facility,
both maturing on December 31, 2003. The proceeds of the Revolving Credit
Facility were used to provide funds for the refinancing of the then existing
debt totaling $24.6 million. As a result of entering into the Bank Credit
Facilities, $1.3 million of unamortized deferred financing costs associated with
the then existing debt were expensed in November, 1997. The related income tax
benefit attributable to the extinguishment of the then existing debt was $0.5
million, resulting in a net loss on extinguishment of debt of $0.8 million which
is reflected as an extraordinary item in the accompanying consolidated
statements of operations.
The Company's debt agreements include covenants which, among other things,
require that the Company maintain certain financial ratios and a minimum level
of consolidated net worth. The Company is in compliance with all debt covenants
at June 30, 1998. The Company's debt agreements also include restrictions on the
declaration and payment of dividends.
F-11
<PAGE> 30
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) FINANCING ARRANGEMENTS -- CONTINUED
LINE OF CREDIT
Interest on borrowings made under the Bank Credit Facilities are calculated
using Libor. The Bank Credit Facilities provide a maximum commitment for letters
of credit of $15 million and requires various quarterly commitment fees on the
unused portion of the commitment. As of June 30, 1998, the Company has trade
letters of credit of approximately $3.1 million outstanding under the terms of
the Revolving Credit Facility. There were no borrowings outstanding under the
Revolving Credit Facility or the Multiple Draw Term Loan Facility as of June 30,
1998.
LONG-TERM DEBT (IN THOUSANDS)
At June 30, 1998 and 1997 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Series B Senior Subordinated Notes, interest payable
semiannually at 14% due December 15, 2001, net of
unamortized discount of $1,870 and $2,252 at June 30, 1998
and 1997 respectively..................................... $58,130 $57,748
Term loan, payable quarterly at various amounts, plus
interest at a weighted average floating Eurodollar rate of
8.8% at June 30, 1997..................................... -- 24,619
Other....................................................... -- 33
------- -------
Total long-term debt.............................. $58,130 82,400
Less current maturities..................................... -- 9,297
------- -------
Long-term debt, less current maturities........... $58,130 $73,103
======= =======
</TABLE>
The principal payments required for each of the following five fiscal years
are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................. $ --
2000.................................................. --
2001.................................................. --
2002.................................................. 60,000
-------
Total....................................... $60,000
=======
</TABLE>
As of June 30, 1998 the estimated fair value of the Series B Senior
Subordinated Notes (the "Notes"), discounted at current rates, was $65,400,000.
The Notes will be redeemable at the Company's option on and after December 15,
1998 at the following redemption prices (expressed as percentages of the
aggregate principal amount):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998................................................... 107.00%
1999................................................... 103.50%
2000 and thereafter.................................... 100.00%
</TABLE>
F-12
<PAGE> 31
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(5) LEASES
AS LESSOR
The Company leases Mercury consoles to members through leases classified as
operating leases for accounting purposes. The net investment in equipment leased
to members under operating leases, including equipment used for maintenance
purposes, was as follows at June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mercury consoles............................................ $21,835 $22,472
Less: Accumulated Depreciation.............................. 20,738 17,710
------- -------
Net Investment......................................... $ 1,097 $ 4,762
======= =======
</TABLE>
AS LESSEE
Rental expense with respect to operating leases related to facilities and
equipment was $1,121,000, $1,005,000 and $802,000 for fiscal 1998, 1997 and
1996, respectively. The minimum aggregate annual operating lease obligations are
as follows (in thousands):
<TABLE>
<S> <C>
1999................................................... $1,085
2000................................................... 621
2001................................................... 333
2002................................................... 106
Thereafter............................................. 0
------
Total........................................ $2,145
======
</TABLE>
The total minimum lease payments have not been reduced by minimum sublease
rentals of $1,034,000 due in the future under non-cancelable subleases.
(6) ADVERTISING AND SALES PROMOTION COSTS
The Company expenses advertising time and space costs and related residual
rights and contracts at the time the advertising is first broadcast or
displayed. Production and promotion costs are charged to expense when incurred.
Cash Rebate Dollars earned by FTD members under the Company's sales incentive
program are charged to expense when earned.
In the years ended June 30, 1998, 1997 and 1996, advertising and sales
promotion expense was $31 million, $28 million and $32 million, respectively.
F-13
<PAGE> 32
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES
At June 30, 1998 and 1997, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued member incentive obligations...................... $2,576 $2,824
Accrued severance costs................................... 81 399
Allowance for doubtful accounts........................... 686 814
Unearned income........................................... 224 970
Inventory................................................. 1,153 1,075
Accrued vacation.......................................... 182 132
Other..................................................... 314 1,028
------ ------
Current deferred tax assets................................. 5,216 7,242
------ ------
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 3,952 3,131
Postretirement benefit obligations........................ 2,062 2,433
Accrued pension........................................... 184 324
Other..................................................... 253 254
------ ------
Noncurrent deferred tax assets.............................. 6,451 6,142
Noncurrent deferred tax liabilities -- tax over book
depreciation and difference in basis...................... 6,112 6,407
------ ------
Net noncurrent deferred tax assets (liabilities)............ 339 (265)
------ ------
Deferred tax assets -- valuation allowance.................. (1,500) (1,500)
------ ------
Net deferred tax assets..................................... $4,055 $5,477
====== ======
</TABLE>
The deferred tax assets are subject to certain asset realization tests.
Company management believes that, under the principles of SFAS No. 109, based on
their evaluation of taxable income in future years and the uncertainty of fully
realizing the noncurrent deferred tax assets with very long lives, a valuation
allowance of $1.5 million is appropriate at June 30, 1998 and 1997.
The Company's net operating loss carryforwards at June 30, 1998 and 1997,
of approximately $10.7 million, and $8.5 million, respectively, the tax benefits
of which are included above as noncurrent deferred tax assets, will expire if
unused, as follows: $2.4 million in 2007; $2.3 million in 2008; $0.8 million in
2009; and $5.2 million in 2010.
The provision for income taxes consists of the following components (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $ 190 $130 $ 189
Deferred.................................................... $1,912 286 (2,002)
------ ---- -------
Income Tax expense (benefit)................................ $2,102 $416 $(1,813)
====== ==== =======
</TABLE>
F-14
<PAGE> 33
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES -- CONTINUED
The provision for income taxes for the years ended June 30, 1998, 1997 and
1996, differs from the amount computed by applying the U.S. federal income tax
rate (35%) to pretax income because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S. federal income tax rate..... $1,120 $ (466) $(3,001)
State income taxes (benefit), net of federal income tax
benefit................................................. 64 (27) (172)
Amortization of purchased goodwill........................ 803 893 842
Valuation allowance....................................... -- -- 500
Other items, net.......................................... 115 16 18
------ ------- -------
Reported income tax (benefit) expense..................... $2,102 $ 416 $(1,813)
====== ======= =======
</TABLE>
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provided certain postretirement health care benefits to
employees who retired with a minimum of 10 years of service and had attained 60
years of age. The plan retirees are required to share in the cost of the
benefit. During 1997, the consolidation of corporate staff and operations into
one facility (see Note 2), together with other factors, resulted in the
termination of numerous employees which significantly reduced the expected years
of future service of those employees and the Company's corresponding liability
for certain postretirement benefits. These terminations caused a decrease in the
Company's postretirement obligation and generated a pretax curtailment gain of
$1.0 million and $0.8 million which was recorded as a reduction in selling,
general and administrative expenses as of June 30, 1998 and 1997 respectively.
In addition, the Operating Company amended its postretirement benefit plan
effective January 1, 1997, and no longer provides such benefits to employees
hired after January 1, 1997.
At June 30, 1998 and 1997 the status of the plan consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Retirees.................................................... $2,807 $4,448
Fully eligible active participants.......................... -- --
Other active participants................................... -- 860
------ ------
Accumulated postretirement benefit obligation............... 2,807 5,308
Unrecognized net gain....................................... 3,022 1,526
------ ------
Accrued postretirement benefit liability.................... $5,829 $6,834
====== ======
</TABLE>
Net periodic postretirement benefit costs for the years ended June 30,
1998, 1997 and 1996 included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $ 72 $190 $194
Interest cost.............................................. 232 434 438
Unrecognized prior period gain............................. (276) (45) (54)
----- ---- ----
Total............................................ $ 28 $579 $578
===== ==== ====
</TABLE>
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 6.75% at and for the year ended June 30, 1998,
7.75% at and for the year ended June 30, 1997 and 7.5% at and for the year ended
June 30, 1996. The assumed health care cost trend rate used in measuring the
APBO was 9.88% and graded down to 5.75% over 11 years at June 30, 1998, 9.8% and
graded down to 5.75% over
F-15
<PAGE> 34
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- CONTINUED
11 years at June 30, 1997, and 10.0% and graded down to 5.5% over 12 years at
June 30, 1996. If the current health care cost trend rate assumption was
increased by one percent, the APBO as of June 30, 1998, would increase
approximately $316,000, or 11.3%, while the periodic cost for the fiscal year
ended June 30, 1998, would have increased approximately $38,000, or 12.5%.
(9) PENSION PLANS
Prior to January 1, 1997, the Company had both a defined benefit and a
defined contribution plan (the "Pension Plan") which covered substantially all
domestic employees. The Company's funding policy was to contribute annually to
the defined benefit plan the amount deductible for income tax purposes. No
contributions were made in 1998, 1997 and 1996 to the defined benefit plan. The
Company's matching contributions to the defined contribution plan are determined
at the discretion of its Board of Directors. No matching contributions were made
in 1998, 1997 or 1996 to the defined contribution plan.
Effective January 1, 1997, amendments to the Company's Pension Plan were
adopted, including the elimination of the accrual of future benefits under the
plan. As a result of these amendments, and the corresponding remeasurement of
the accumulated and projected benefit obligations under the plan, a pre-tax
pension curtailment gain of $2.7 million as well as a pre-tax settlement gain of
$0.5 million were recognized in income as a reduction in selling, general and
administrative costs for the fiscal year ended June 30, 1997. During the fiscal
year ended June 30, 1998, a pre-tax pension settlement gain of $0.4 million was
recognized in income as a reduction in selling, general and administrative
costs.
Benefits under the Pension Plan are based on the employee's age, years of
service, and the highest consecutive five-year average compensation.
During the fiscal year end June 30, 1998, $9,000 of income was recognized
in relation to the Pension Plan. Pension expense, including administrative
costs, charged to the operations for the above-mentioned plan amounted to
$370,000 and $903,000 in 1997 and 1996 respectively.
Plan assets for the defined benefit plan consist of investments in common
stock, real estate properties, fixed income securities, and short-term
investments. Pension expense for the defined benefit plan in 1998, 1997 and 1996
was computed as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost.......................................... $ -- $ 299 $ 616
Interest cost......................................... 187 546 820
Actual gain on plan assets............................ (104) (495) (1,434)
Net amortization and deferral......................... (92) 20 901
----- ------- -------
Net Periodic Pension expense/(income)................. (9) 370 903
Settlement gain....................................... (366) (936) --
Curtailment gain...................................... -- (2,665) --
----- ------- -------
Total Pension Cost/(Gain)............................. $(375) $(3,231) $ 903
===== ======= =======
</TABLE>
F-16
<PAGE> 35
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) PENSION PLANS -- CONTINUED
At June 30, 1998 and 1997 the funded status of the defined benefit plan was
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligations................................ $2,173 $2,457
Nonvested benefit obligations............................. 151 573
------ ------
Accumulated benefit obligations........................... 2,324 3,030
====== ======
Projected benefit obligations............................... 2,334 3,144
Plan assets at fair value................................... 1,047 2,562
------ ------
Projected benefit obligations in excess of plan assets...... 1,287 582
Unrecognized net gain....................................... 191 1,272
------ ------
Total accrued pension obligations........................... $1,478 $1,854
====== ======
</TABLE>
For the period July 1, 1995 through March 1, 1996, the weighted average
discount rate was 7.75% preretirement and 6% postretirement for those
participating in the defined benefit plan on November 1, 1976, and 7.75% for all
others. For any benefits accrued after March 1, 1996, the weighted average
discount rate was 7.75% for both preretirement and postretirement for all plan
participants. The discount rate used to calculate the projected benefit
obligation at June 30, 1996 was decreased to 7.5%. The discount rate used to
calculate the projected benefit obligation at June 30, 1997 was decreased to
7.0% for the period January 1, 1997 through June 30, 1997. The discount rate
used to calculate the projected benefit obligation at June 30, 1998 was 7.75%.
For Fiscal 1998, 1997 and 1996, the rate of increase in future compensation
levels was 5.0% and the expected long-term rate of return on assets was 9.0%.
Effective January 1, 1997, the Company has established a 401(k) savings
plan for all of its eligible employees to replace the Pension Plan. Company
contributions to the 401(k) plan for fiscal 1998 and 1997 were $211,312 and
$117,174 respectively.
(10) NOTE RECEIVABLE AND OTHER RELATED PARTY TRANSACTIONS
The Company incurred expenses of $2.0 million, $1.0 million and $1.0
million for the years ended June 30, 1998, 1997 and 1996 respectively related to
the payment for management consulting services to certain investors of the
Company.
The Company loaned an Officer of the Company $150,000 pursuant to a five
year interest bearing note dated June 30, 1997, with accrued interest at 7% per
annum with principal due at maturity.
The Company and the Operating Company, pursuant to an employment
arrangement in 1997, granted the current president Non-Qualified Stock Options
to purchase (I) 120,000 shares of Class A Common Stock at an exercise price of
$3.75 per share and (ii) 100,000 shares of Class A Common Stock at an exercise
price of $12.50 per share.
(11) 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% of the initial equity capital of the Company upon the consummation of the
Merger.
The Plan provides for the granting of incentive stock options ("ISOs");
options which do not qualify as ISO's, 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
F-17
<PAGE> 36
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) 1994 STOCK AWARD AND INCENTIVE PLAN -- CONTINUED
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.
During the year ended June 30, 1997, employees were granted options to
purchase: (i) at an exercise price of $3.75 per share, 327,000 shares of the
Company's Common Stock; and (ii) at an exercise price of $12.50 per share,
183,000 shares of the Company's Common Stock. During the year ended June 30,
1998, employees were granted options to purchase: (i) at an exercise price of
$7.75 per share, 117,000 shares of the Company's Common Stock; and (ii) at an
exercise price of $15.00 per share, 90,000 shares of the Company's Common Stock.
These options vest and become exercisable in four or five equal installments. As
of June 30, 1998 and 1997, options covering 519,000 and 434,000 shares
respectively of Class A Common Stock were outstanding of which 12,500 and 15,000
shares were vested, respectively and 7,500 shares were exercised during the year
ended June 30, 1998. No options were exercised during the year ended June 30,
1997.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan and accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Plan been determined
based on the fair value at the grant dates for options under the Plan consistent
with SFAS No. 123, the Company's net income (loss) and earnings (loss) per share
would have been reduced to the Pro-Forma amounts shown in the table below:
PRO FORMA RESULTS
<TABLE>
<CAPTION>
1998 1998 1997 1997
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss) (in thousands)........... $ 263 $ (294) $(1,733) $(2,051)
Earnings per share:
Basic.................................... $0.02 $(0.02) $ (0.11) $ (0.13)
Diluted.................................. $0.02 $(0.02) $ (0.11) $ (0.13)
</TABLE>
The pro forma disclosures shown are not representative of the future
effects on net earnings and earnings per share.
The fair values of the options granted under the Plan during fiscal 1998
and 1997 were determined at the grant date using the Black-Scholes option
pricing model. The significant assumptions used to calculate the fair value of
option grants were: risk-free interest rates ranging from 5.87% to 6.33%,
expected volatility of 50%, expected lives of 3.07 to 3.73 years and no expected
dividends for the shares.
F-18
<PAGE> 37
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) 1994 STOCK AWARD AND INCENTIVE PLAN -- CONTINUED
SUMMARY STOCK OPTION ACTIVITY
<TABLE>
<CAPTION>
CLASS A WEIGHTED AVERAGE
# OF OPTIONS EXERCISE $
------------ ----------------
<S> <C> <C>
Outstanding @ June 30, 1995............................... 670,000 5.89
Granted................................................. 350,000 7.26
Canceled................................................ 160,000 5.89
------- ------
Outstanding @ June 30, 1996............................... 860,000 6.45
Granted................................................. 510,000 6.89
Canceled................................................ 936,000 6.44
------- ------
Outstanding @ June 30, 1997............................... 434,000 6.98
Granted................................................. 207,000 10.90
Exercised............................................... 7,500 2.68
Canceled................................................ 114,500 6.12
------- ------
Outstanding @ June 30, 1998............................... 519,000 8.79
======= ======
Exercisable @ June 30, 1998............................... 12,500 $ 9.00
Weighted Average of Fair Value of options granted in
Fiscal 1998............................................. $2.70
Weighted Average of Fair Value of options granted in
Fiscal 1997............................................. $1.04
</TABLE>
STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CLASS A OPTIONS EXERCISE WEIGHTED AVERAGE REMAINING
OUTSTANDING PRICE (RANGE) EXERCISE $ CONTRACTUAL LIFE
- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C>
299,000.... $3.75- 7.75 $ 5.32 9.02 years
220,000.... 12.50-15.00 13.52 9.15 years
------- ------------ ------ ----------
519,000.... $3.75-15.00 $ 8.79 9.07 years
======= ============ ====== ==========
</TABLE>
(12) 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.
(13) 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.
During Fiscal 1997, the Company repurchased into treasury 130,086 shares of
Class A Common Stock at a cost of approximately $358,000.
During Fiscal 1998, the Company repurchased into treasury 79,258 shares of
Class A Common Stock at a cost of approximately $252,000.
F-19
<PAGE> 38
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(13) CAPITAL STOCK -- CONTINUED
On February 2, 1998, the Board of Directors declared a 100% stock dividend
(two-for-one stock split) of the Company's common stock. As a result of this
action, 6,278,250 shares of Class A Common Stock and 1,500,000 shares of Class B
Common Stock were issued to shareholders of record on February 9, 1998. Class A
Common Stock continues to have a par value of $0.01 per share and Class B Common
Stock continues to have a par value of $0.0005. An amount equal to $63,533 was
transferred from paid in capital to common stock representing the aggregate par
value of the Class A shares and Class B shares issued under the stock split. All
references throughout this report to number of shares, per share amounts, stock
option data, and market prices of the Company's common stock have been restated.
In order to satisfy certain obligations of FTD Corporation pursuant to the
Mutual Support Agreement between FTD Corporation and FTD Association, FTD
Corporation executed an equity offering to members of FTD Association (the
"Offering") during Fiscal 1998. Per the Mutual Support Agreement, FTD
Corporation was to execute an equity offering to members of FTD Association
within three years from the effectiveness of the Merger on December 19, 1994.
FTD Corporation offered equity securities in an aggregate amount equal to seven
and one-half percent of the then outstanding common stock of FTD Corporation at
the time of the Offering. The Offering of Class A Common Stock was made solely
to active members of FTD Association. As a result of the Offering, the number of
shares of Class A Common Stock outstanding increased by approximately 97,000.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER
SHARE DATA):
<TABLE>
<CAPTION>
FISCAL 1998 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue....................... $35,544 $42,717 $42,523 $40,541
Income from operations............ 3,313 867 2,397 $ 6,125
Extraordinary item................ -- (835) -- --
Net income (loss)................. 180 (2,143) (45) $ 2,271
Basic & diluted earnings (loss)
per share*:
Net earnings (loss) per share
before extraordinary item....... $ 0.01 $ (0.09) $ (0.00) $ 0.15
Extraordinary item................ 0.00 (0.05) 0.00 0.00
Basic & diluted earnings (loss)
per share....................... $ 0.01 $ (0.14) $ (0.00) $ 0.15
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenue....................... $37,020 $41,784 $47,991 $35,742
Income from operations............ 2,403 1,417 6,742 (54)
Net income (loss)................. (548) (1,162) 2,270 (2,293)
Basic and diluted earnings (loss)
per share*...................... $ (0.04) $ (0.08) $ 0.15 $ (0.15)
</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.
F-20
<PAGE> 39
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
FTD Corporation:
We have audited and reported separately herein on the financial statements
of FTD Corporation as of and for the years ended June 30, 1998 and 1997.
Our audits were made for the purpose of forming an opinion on the basic
financial statements of the Company taken as a whole. The supplementary
information included in Schedule II is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ KPMG PEAT MARWICK LLP
Detroit, Michigan
August 28, 1998
F-21
<PAGE> 40
FTD CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS UNCOLLECTIBLE
-------------------------- COLLECTION ACCOUNTS
BALANCE CHARGED TO OF ACCOUNTS AND BALANCE AT
BEGINNING OF COST AND PREVIOUSLY INVENTORY END OF
PERIOD EXPENSES WRITTEN OFF WRITE OFFS PERIOD
------------ ---------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR 1998
Allowance for doubtful accounts (shown
as deduction from Accounts Receivable
in balance sheet).................... $2,211 $ 511 $47 $ 915 $1,854
Inventory valuation reserve (included
in Inventories, net in balance
sheet)............................... $1,705 $ -- $-- $ 30 $1,675
YEAR 1997
Allowance for doubtful accounts (shown
as deduction from Accounts Receivable
in balance sheet).................... $1,412 $1,105 $75 $ 381 $2,211
Inventory valuation reserve (included
in Inventories, net in balance
sheet)............................... $ 394 $1,363 -- $ 52 $1,705
YEAR 1996
Allowance for doubtful accounts (shown
as deduction from Accounts Receivable
in balance sheet).................... $1,589 $ 895 $80 $1,152 $1,412
Inventory valuation reserve (included
in Inventories, net in balance
sheet)............................... $ 345 $1,325 -- $1,276 $ 394
</TABLE>
F-22
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (the "1997 Form 10-K").)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the 1997 Form 10-K.)
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.
(Incorporated by reference to Exhibit 4.1 of the Florists'
Transworld Delivery, Inc. Registration Statement on Form S-1
(File No. 33-88628) (the "FTDI S-1").)
4.2 Supplemental Indenture, dated as of December 19, 1994.
(Incorporated by reference to Exhibit 4.3 of the FTDI S-1.)
4.3 Form of Subscription Agreement among FTD and certain
stockholders of FTD. (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) (the
"1995 FTD S-1").)
4.4 Form of Subscription Agreement among FTD and Participating
Members. (Incorporated by reference to Exhibit 4.4 of
Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 (File No. 333-37303) (the "1997 FTD S-1").)
10.1 Credit Agreement, dated as of November 20, 1997, among the
Registrant, Florists' Transworld Delivery, Inc., the various
lending institutions party thereto and The First National
Bank of Chicago, as Agent. (Incorporated by reference to
Exhibit 10.1 of the 1997 FTD S-1.)
10.2 Pledge Agreement, dated November 20, 1997, by and among the
Registrant, Florists' Transworld Delivery, Inc., and the
First National Bank of Chicago, as Agent. (Incorporated by
reference to Exhibit 10.2 of the 1997 FTD S-1.)
10.3 Security Agreement, dated November 20, 1997, by and among
the Registrant, Florists' Transworld Delivery, Inc., and the
First National Bank of Chicago as Agent. (Incorporated by
reference to Exhibit 10.3 of the 1997 FTD S-1.)
10.4* Consultation Agreement and Covenant Not to Compete, dated as
of August 2, 1994, by and between Florists' Transworld
Delivery, Inc. and John A. Borden. (Incorporated by
reference to Exhibit 10.8 of the FTDI S-1.)
10.5 Mutual Support Agreement, dated as of December 18, 1994, by
and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.9 of
the FTDI S-1.)
10.6 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between Florists' Transworld Delivery, Inc.
and FTD Association. (Incorporated by reference to Exhibit
10.9 of the 1997 Form 10-K.)
10.7 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 FTDI S-1.)
10.8 Securityholders' and 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 1995 FTD S-1.)
</TABLE>
i
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ------
<S> <C> <C>
10.9 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 FTDI
S-1.)
10.10 Stockholders' Agreement, dated as of December 19, 1994, delete
among the Registrant and certain stockholders of the
Registrant. (Incorporated by reference to Exhibit 10.13 of
the 1995 FTD S-1.)
10.11* FTD Corporation 1994 Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.14 of the 1995 FTD
S-1).
10.12* Letter dated August 18, 1998 regarding Norton employment
arrangements.
10.13* Form of Secured Promissory Note to be made by Robert Norton.
10.14* Description of Key Management Incentive Plan (Incorporated
by reference to Exhibit 10.b of the Florists' Transworld
Delivery, Inc. Form 10-Q, filed March 31, 1997.)
10.15* Promissory Note, dated June 30, 1997, made by Scott D.
Levin. (Incorporated by reference to Exhibit 10.18 of the
Registrant's 1997 Form 10-K.)
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTD S-1.)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Management contract or compensatory plan required to be filed as an Exhibit to
the Form 10-K pursuant to Item 14(a)3.
ii
<PAGE> 1
EXHIBIT 10.12
August 18, 1998
Mr. Robert Norton
Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Dear Bob:
This letter sets forth the terms of your employment with Florists'
Transworld Delivery, Inc. ("FTD").
Duties. You shall serve as President and Chief Executive
Officer of FTD through September 30, 2003 and shall perform the duties
assigned by FTD from time to time that are consistent with your position.
You shall devote your entire business time to the affairs of FTD, to the
performance of your duties under this Agreement and to the promotion of FTD's
interests.
Compensation. As full compensation for the performance by you of your
duties under this Agreement, FTD shall compensate you as follows:
(a) Salary. During the term of this Agreement, FTD shall pay
to you a salary of $300,000 per year, payable in the periodic installments
ordinarily paid by FTD to employees of FTD at comparable levels to you. You
shall be entitled to such merit increases in base salary as the Board of
Directors may determine, in its discretion.
(b) Performance Bonus. FTD shall pay to you a performance
bonus ("Performance Bonus") as set by the Board of Directors based upon
performance criteria to be set by the Board. Your Performance Bonus for 1999
and an "Additional Special Performance Bonus" are set forth in the schedule
attached hereto as Exhibit A.
(c) Stock Option Plan and Stock Subscription Plan. You (i)
have been entitled to participate in FTD's stock option plan pursuant to a
non-qualified stock option agreement substantially in the form of Exhibit B,
(ii) have been afforded the opportunity to purchase FTD's stock pursuant to a
stock subscription agreement substantially in the form of Exhibit C, and (iii)
have been awarded Company stock pursuant to two restricted stock award
agreements substantially in the form of Exhibits D and E.
(d) Paid vacation. You shall be entitled to four weeks of
paid vacation for each year of employment.
(e) Benefits. You shall be entitled to all additional
employment-related benefits that are made available from time to time to
employees of FTD at comparable levels to you.
<PAGE> 2
(f) Expense reimbursement. FTD shall reimburse you, in
accordance with the practice from time to time in effect for other employees of
FTD, for all reasonable and necessary traveling expenses and other
disbursements incurred by you, for or on behalf of FTD, in the performance of
your duties under this Agreement.
Severance. FTD shall have the right to terminate your employment by giving
you written notice of the effective date of the termination. If your
employment is terminated without cause by FTD, FTD will pay you continued
salary for 24 months from such effective date or until September 30, 2003,
whichever is earliest. FTD's severance obligations are subject to your best
efforts to mitigate. FTD shall have no further obligation hereunder.
Confidential Information and Non-Competition. You agree to enter into a
separate agreement with FTD (attached hereto as Exhibit F) which provides for
(i) non-disclosure of confidential information, (ii) non-competition and (iii)
non-solicitation of customers, suppliers and employees. Such agreement will be
effective until three years after your employment with FTD is terminated.
Miscellaneous. This Agreement shall be governed by the laws of the State of
Illinois, excluding the conflicts-of-laws principles thereof. You and FTD
consent to jurisdiction and venue in any federal or state court in the City of
Chicago. This Agreement and the accompanying Exhibits A-F state our entire
agreement and understanding regarding your employment with FTD. This Agreement
may be amended only by a written document signed by both you and FTD. No delay
or failure to exercise any right under this Agreement waives such rights under
the Agreement. If any provision of this Agreement is partially or completely
invalid or unenforceable, then that provision shall only be ineffective to such
extent of its invalidity or unenforceability, and the validity or enforceability
of any other provision of this Agreement shall not be affected. Any controversy
relating to this Agreement shall be settled by arbitration in Chicago, Illinois
in accordance with the commercial arbitration rules of the American Arbitration
Association, except as otherwise provided in the confidentiality and
non-competition agreement attached hereto as Exhibit F. In the event of any
inconsistency between this Agreement and any personnel policy or manual of FTD
with respect to any matter, this Agreement shall govern the matter.
Sincerely,
/s/ Richard Perry
Richard Perry
Chairman of the Board
Accepted as of this
18th day of August, 1998
/s/ Robert L. Norton
- ----------------------------
Robert L. Norton
-2-
<PAGE> 1
EXHIBIT 10.13*
SECURED PROMISSORY NOTE
$200,000 [DATE]
FOR VALUE, RECEIVED, ROBERT L. NORTON ("Payor"), promises to pay to the
order of Florists' Transworld Delivery, Inc., a Michigan corporation (together
with its successors and assigns, "Payee"), at its principal place of business,
3113 Woodcreek Drive, Downers Grove, Illinois 60515, or at such other place as
Payee may designate, the principal sum of Two Hundred Thousand Dollars
($200,000).
The principal amount of this Promissory Note (the "Note") shall be payable
on August 31, 2003 in accordance with the terms of this Note; provided; however,
the principal amount of this Note shall immediately be due and payable upon
Payor's termination of employment.
The outstanding principal amount of this Note shall bear simple interest at
seven percent (7%) per annum. Accrued interest shall be payable at maturity
(whether at final maturity or earlier) of this Note.
All payments of principal of and interest on this Note shall be payable in
lawful currency of the United States of America at the office of the Payee
described above, in immediately available funds.
Payor shall have the right to pay all or any part of the unpaid principal
hereunder without premium or penalty at any time and shall be accompanied by all
interest accrued thereon through such date; provided, however, that each partial
prepayment shall be in an aggregate principal amount not less than $50,000.
In addition to, and not in limitation of the foregoing, Payor agrees to pay
all expenses, including, without limitation, attorney's fees and legal expenses,
incurred by the holder of this Note in connection with endeavoring to collect
any amounts payable hereunder which are not paid when due.
In order to secure obligations of Payor under this Note, Payor has granted
to Payee a security interest in, and lien and charge over, certain collateral
pursuant to the terms of that certain Pledge Agreement dated as of the date
hereof between Payor and Payee.
All parties hereto waive presentment of payment, demand, protest and
notice of dishonor.
<PAGE> 2
Payor shall make all payments hereunder immediately when due without any
set-off, counterclaim, defenses, withholding (for taxes or otherwise), or
reduction of any kind. Payee shall have the right to set-off any amounts owing
or to be owing (by acceleration or otherwise) by Payee to Payor.
No delay on the part of Payee in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Payee of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy.
Payee shall have the right at any time to sell, assign, transfer, negotiate
or pledge all or part of its interest in this Note. Payor may not assign any of
his obligations hereunder without the prior written consent of Payee. This Note
shall be binding on Payor and his legal representatives.
No amendment, modification, or waiver of, or consent with respect to any
provision of this Note shall in any event be effective unless the same shall be
in writing and signed and delivered by Payee or any other holder hereof.
After maturity of this Note, the outstanding principal amount of this Note
and all accrued and unpaid interest shall be unconditionally payable upon
demand.
For the avoidance of doubt, Payee shall have full recourse against Payor.
NOTE IS MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK. Wherever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Note and shall be interpreted so as to be effective and
valid.
SIGNED AND DELIVERED as of the date first written above.
_____________________________
Robert L. Norton, Payor
-2-
<PAGE> 1
EXHIBIT 11.1
FTD CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE*:
Net earnings (loss) applicable to common stock
before extraordinary item $ 1,098 $ (1,733) $ (6,728)
Extraordinary item (835) - -
-------- --------- ---------
Net income (loss) $ 263 $ (1,733) $ (6,728)
======== ========= =========
Weighted Average number of common shares
outstanding 15,208 15,371 13,337
Common stock equivalents due to dilutive affect
of stock options and warrants 150 - -
-------- --------- ---------
Total weighted average number of common shares
outstanding 15,358 15,371 13,337
======== ========= =========
Earnings (loss) per share before extraordinary item $ 0.07 $ (0.11) $ (0.50)
Extraordinary item (0.05) - -
-------- --------- ---------
Basic and Diluted earnings (loss) per share** $ 0.02 $ (0.11) $ (0.50)
======== ========= =========
</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 (A) FTD
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 24,104
<SECURITIES> 0
<RECEIVABLES> 25,958
<ALLOWANCES> 1,854
<INVENTORY> 13,261
<CURRENT-ASSETS> 57,053
<PP&E> 45,801
<DEPRECIATION> 30,108
<TOTAL-ASSETS> 154,486
<CURRENT-LIABILITIES> 61,201
<BONDS> 58,130
0
0
<COMMON> 128
<OTHER-SE> 27,796
<TOTAL-LIABILITY-AND-EQUITY> 154,486
<SALES> 48,668
<TOTAL-REVENUES> 161,325
<CGS> 36,701
<TOTAL-COSTS> 94,083
<OTHER-EXPENSES> 54,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,582
<INCOME-PRETAX> 3,199
<INCOME-TAX> 2,102
<INCOME-CONTINUING> 1,098
<DISCONTINUED> 0
<EXTRAORDINARY> (835)
<CHANGES> 0
<NET-INCOME> 263
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
