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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, 1997
COMMISSION FILE NUMBER 33-88628
FLORISTS' TRANSWORLD DELIVERY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
38-0546960
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code (630) 719-7800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the registrant's voting stock was held by nonaffiliates of the
registrant as of September 25, 1997. As of September 25, 1997, 100 shares of the
registrant's Common Stock, par value $.01 per share, were outstanding.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Florists' Transworld Delivery, Inc., a Michigan corporation (the "Company"
or "FTD"), is the world's largest floral services organization based on the
number of members of FTD Association (as defined below) and affiliated
organizations. FTD Association has a membership of approximately 21,000 retail
florist shops primarily in the U.S. and Canada and, through affiliated or
related organizations, approximately 32,000 additional retail florist shops in
approximately 140 other countries. Through these members FTD offers consumers
expedited delivery of high-quality FTD-branded products in the U.S. and Canada
and non-branded floral products throughout most of the world.
FTD promotes a worldwide brand based on the FTD Mercury Man logo, one of
the most recognized corporate logos in the world according to consumer
recognition studies. 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 businesses, which include the
Mercury Network, Clearinghouse, Advantage Software and Direct Access
(1-800-SEND-FTD). In addition to the foregoing, FTD's operations include
Marketplace and other businesses which support and enhance the retail florist
industry. See "-- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
The Company is the successor to a non-profit cooperative organization
founded by a group of retail florists in the United States in 1910. The Company
was the surviving corporation after the acquisition (the "Acquisition") on
December 19, 1994 by FTD Corporation, a Delaware corporation ("FTD
Corporation"), of all of the outstanding equity of Florists' Transworld Delivery
Association, a Michigan non-profit cooperative association (the "Old
Association"), pursuant to an Agreement and Plan of Merger, dated August 2, 1994
(the "Merger Agreement"), among FTD Corporation, FTD Acquisition Corporation, a
Delaware corporation, and the Old Association. Upon consummation of the
Acquisition, the Company became a wholly-owned subsidiary of FTD Corporation.
Immediately following the Acquisition, the Old Association was converted from a
non-profit corporation to a for-profit corporation and renamed "Florists'
Transworld Delivery, Inc."
The Company operates all of the businesses conducted by the Old Association
prior to the Acquisition except for certain trade association activities which
are being conducted by FTD Association, an Ohio non-profit corporation organized
in connection with the Acquisition and structured as a member-owned trade
association ("FTD Association"). Neither FTD Corporation nor the Company has any
ownership interest in FTD Association; however, as provided in the Merger
Agreement, the Company and FTD Association have entered into the Mutual Support
Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), which
governs the relationship between the Company and FTD Association. Pursuant to
the Mutual Support Agreement, among other things: (i) existing and future
members have the exclusive right, subject to execution of a Trademark Membership
License Agreement with the Company, to use the FTD logo and other FTD trademarks
in connection with the operation of a retail florist shop; (ii) all members in
good standing are provided access to FTD's Clearinghouse, Mercury Network and
certain other FTD services and products; (iii) the Company's prices to members
for specified services will not be increased above those charged on July 1, 1994
prior to December 19, 1997 (except for adjustments for inflation); (iv) payments
by the Company equal to a percentage of the value of every floral order cleared
through FTD's Clearinghouse will be made to FTD Association; and (v) the Company
and FTD Association may designate up to 20% but not fewer than two individuals
to be elected to the other's board of directors. All references herein to
"members" refer to members of FTD Association.
MARKETING AND ADVERTISING
FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (via television, radio,
magazines and Sunday newspaper supplements) generally promotes
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FTD florists, FTD-branded products, 1-800-SEND-FTD and FTD Florists' On-line
Internet site (www.ftd.com). FTD coordinates cooperative advertising on a local
basis with participating florists. FTD also provides FTD florists with
advertising tools such as billboard paper, slicks for print advertising and
television and radio tapes to be tagged with individual shop information. In
addition, FTD provides FTD Florists with customized direct mail pieces, in-shop
merchandising materials and FTD Floral Selections, a counter display catalog
featuring FTD products for all occasions.
FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements which FTD florists clear
through Clearinghouse and components of which are Marketplace's FTD-branded
hardgoods; (ii) feature the FTD Mercury Man logo; and (iii) support the FTD
retail florists generally by encouraging consumers to associate FTD professional
florists with high-quality floral goods and outstanding customer service.
OPERATIONS
For each transaction cleared by FTD, FTD's Clearinghouse operations
collects the billing information from either the Mercury Network or the florist
that fills the order locally (the "Receiving Florist") if the Mercury Network
has not been used, and allocates funds among FTD, the florist with whom a
customer places the delivery order (the "Sending Florist") and the Receiving
Florist. Generally, orders received by the Receiving Florist by 2:00 p.m. will
be delivered to the recipient in the same postal zip code on the same day.
Floral orders between FTD florists are transmitted primarily by FTD's Mercury
Network.
FTD was initially formed to encourage flowers-by-wire transactions between
member florists, but over time FTD has developed a number of additional services
and products that support and enhance the retail floral operations of FTD
professional florists. Currently, FTD's primary operations are Marketplace,
Clearinghouse, Mercury Network and Other (including Direct Access).
The following table illustrates the percentage of total revenue generated
by the Company's major businesses as a percentage of total revenue for the three
fiscal years ended June 30, 1995, 1996 and 1997:
1997 1996 1995
---- ---- ----
REVENUE:
Marketplace................................................. 30.6% 34.8% 37.3%
Clearinghouse............................................... 21.1 22.3 23.8
Mercury Network............................................. 23.1 20.5 18.3
Other (including Direct Access)............................. 25.2 22.4 20.6
----- ----- -----
Total Revenue 100.0% 100.0% 100.0%
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Marketplace. FTD's Marketplace is one of the largest wholesale suppliers of
hardgoods to retail florists in the U.S. based on total sales. Marketplace
products include both FTD-branded and non-branded holiday and everyday floral
arrangement containers and products, as well as packaging, promotional products
and a wide variety of other floral-related supplies. By capitalizing on FTD's
sourcing expertise and volume purchases, Marketplace is able to provide FTD
florists with a broad selection of products at attractive prices.
Marketplace also enters into promotional partnerships to design, promote
and sell FTD-branded products. To date, FTD has participated in partnerships
with companies such as Gerber Products Company, Mars, Inc. and Disney
Enterprises, Inc. For example, collectible containers featuring Winnie the Pooh
and his friends have been developed for friendship, new baby, Christmas,
Valentine's Day and Easter floral arrangements. M&M's have been included in the
Sweet Surprise floral arrangement since 1993. The Company believes that FTD's
large retail network and brand recognition make it a valuable corporate partner
for such ventures.
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 1997, FTD cleared floral orders aggregating
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in excess of $492 million in retail sales. Revenue from FTD's Clearinghouse is
generated by FTD retaining a percentage of the sales price of orders sent
through Clearinghouse.
FTD is a joint venture participant in Interflora, Inc., a 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 16,400 of
the 21,000 FTD florists. FTD's on-line florists may use the Mercury Network to
transmit orders cleared through FTD or through competing clearinghouses and to
send messages. In fiscal 1997, the Mercury Network transmitted approximately
14.5 million orders among U.S. and Canadian members.
Direct Access. 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), through online services such as Compuserve or through FTD
Florists' Online Internet site (www.ftd.com). Revenue from the Direct Access
business is generated by FTD's receipt of a percentage of the sales price as the
Sending Florist and a service charge from the consumer.
OTHER BUSINESSES
FTD has developed several other businesses to support and enhance FTD
florists' retail floral operations, including greeting cards, Advantage Software
for florists' operations, publications, and credit card authorization and
processing services.
Renaissance Greeting Cards. Through Renaissance Greeting Cards, Inc.
("Renaissance"), a subsidiary of the Company acquired in 1992, FTD produces
greeting cards for special occasions and holidays which are sold in over 7,900
retail outlets nationwide. Renaissance cards are made using only recycled paper.
Advantage Software. FTD offers FTD florists computer software, which
operates on the Mercury computer system, that is customized to the needs of
retail florists. The Advantage Plus software package provides a comprehensive
range of payroll and accounting functions for the retail florist. In addition,
the package was expanded in 1997 with modules which streamline the delivery
process. These modules automatically calculate delivery rates, confirm accuracy
of addresses, build efficient delivery routes, print delivery maps and capture
recipient data for future marketing.
FTD Directory & Toll Free Listings. FTD produces the FTD Directory & Toll
Free Listings ("FTD Directory"), a directory of all current 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 FTD Directory to identify a Receiving Florist. FTD
Directory is published periodically and is supplied to FTD florists in printed
form. FTD Directory is also available on CD-ROM.
Credit Card Authorization and Processing. FTD offers processing of credit
card transactions to participating 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. Credit card
authorizations can be obtained by telephone, with a dedicated authorization
terminal, or by using the accounting software offered to retail florists by FTD.
FTD also provides an address verification system to minimize fraud, as well as
statement and adjustment services. Revenue from FTD's credit card program is
generated by a monthly subscriber fee and discounts charged for transactions.
SEASONALITY
FTD generated 22.8%, 25.6%, 29.2% and 22.4% of total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 1997,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1997. FTD's operating income also fluctuates over the
course of
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the fiscal year, with FTD generating slightly more of its operating income in
the fiscal quarters ending September 30 and March 31. This fluctuation is
primarily attributable to (i) increased advertising and promotional expenditures
during the holiday seasons in the fiscal quarters ending December 31 and June 30
and (ii) a Clearinghouse volume incentive program, which experiences higher
expenses as a result of increased volume during these quarters. FTD's working
capital, cash and short-term borrowings also fluctuate during the year as a
result of the factors set forth above.
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 member. FTD also owns the rights to a number of other
trademarks, including "FTD," "FTDA" and "Florists' Transworld Delivery" and
trademarks for certain floral products, including the "Chicken Soup Bouquet,"
"Thanks a Bunch Bouquet," "Stay in Touch Bouquet," "Pick-Me-Up Bouquet,"
"Birthday Party Bouquet," "Anniversary Bouquet," "Puzzle Fun Bouquet" and "Sweet
Dreams Bouquet." FTD has licensed certain of its trademarks, including the FTD
Mercury Man logo, to FTD Association for use with its trade association
activities and to the FTD florists who have executed a Trademark Membership
License Agreement with the Company.
COMPETITION
FTD's Clearinghouse operation has two primary competitors: American Floral
Services, Inc. and Teleflora LLC ("Teleflora"). Both of these competing services
offers 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.
FTD's Clearinghouse processes more orders than any competing service.
FTD's Marketplace operation competes in an extremely fragmented industry
against a large number of wholesalers. The Company believes that it has a
competitive advantage in this segment due to its multi-faceted relationship with
retail florists, its depth of product line and its ability to offer discounted
pricing because of FTD's substantial volume purchases.
The primary competitor for the Direct Access (1-800-SEND-FTD) business is
1-800-FLOWERS, Inc. Several other less significant companies operate in the toll
free and online services markets.
The Company is subject to certain operating restrictions pursuant to the
Modified Final Judgment, dated November 13, 1990, of the United States District
Court for the Eastern District of Michigan in United States of America v.
Florists' Telegraph Delivery Association, Civ. No. 56-15748, and United States
of America v. Florists' Transworld Delivery Association, Civ. No. 66-28784
(collectively referred to as the "Consent Order"). Among its terms, the Consent
Order prohibits restricting FTD Association membership to florists who are not
subscribers to a competing clearinghouse. The Consent Order expires on August 1,
2005.
EMPLOYEES
As of June 30, 1997, FTD employed approximately 380 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.
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ITEM 3. LEGAL PROCEEDING
On July 16, 1997, Teleflora instituted an arbitration proceeding against
FTD in Southfield, Michigan. The arbitration was filed under the Commercial
Arbitration Rules of the American Arbitration Association alleging that FTD
breached a 1991 Agreement by which FTD provides certain Mercury Network services
to Teleflora (the "1991 Agreement"). The specific claim is that FTD has failed
to negotiate in good faith a new contract on expiration of the 1991 Agreement as
required by its terms. Unspecified damages are alleged. FTD has filed an
answering statement that denies the allegations made by Teleflora. FTD
management believes that it has meritorious defenses to this action and intends
to contest Teleflora's allegations vigorously. An adverse decision could have a
material adverse effect on the Company's financial position and results of
operations.
On July 21, 1997, Teleflora filed a complaint against FTD in United States
District Court for the Central District of California. On August 7, 1997,
Teleflora filed a first amended and supplemental complaint in that action. The
first amended and supplemental complaint contains six counts alleging
monopolization and attempted monopolization in violation of Section 2 of the
Sherman Act, discriminatory pricing in violation of Section 2 of the Clayton
Act, unfair competition in violation of California Business and Professions Code
Sections 17200 et seq., and a claim for breach of contract. The allegations
pertain to the 1991 Agreement. Teleflora seeks compensatory and treble damages
and declaratory relief, and has moved for a preliminary injunction. FTD
management believes that it has meritorious defenses to this action, and intends
to contest Teleflora's allegations vigorously. An adverse decision could have a
material adverse effect on the Company's financial position and results of
operations.
FTD is involved in various other lawsuits and matters arising in the normal
course of business. In the opinion of the management of FTD, although the
outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on FTD's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for the Company's common
equity. As of September 25, 1997, all 100 shares of the Company's outstanding
Common Stock, par value $.01 per share (the "Common Stock"), were held by FTD
Corporation.
The Company has not paid any dividends on its Common Stock for the fiscal
years ended June 30, 1996 and 1997. Under the terms of its borrowings, the
Company may not declare or pay any dividend or make any distribution (other than
dividends or distributions payable solely in capital stock of the Company) on
shares of its common stock to holders of such common stock if at the time of
such proposed dividend, or immediately after giving effect thereto, certain
financial conditions are not satisfied. Notwithstanding the foregoing, the
following, among other things, are permitted: (1) payments by the Company to or
on behalf of FTD Corporation to fund certain operating expenses of FTD
Corporation; (2) payments by the Company to FTD Corporation pursuant to a tax
sharing agreement between such parties as in effect on December 19, 1994 or any
amendment thereto or replacement agreement thereof; (3) payments by the Company
to FTD Corporation to fund payments by FTD Corporation for management services
provided to the Company; (4) payments of dividends from the proceeds of a public
equity offering by the Company or FTD Corporation (if the proceeds are
distributed to the Company), subject to restrictions; and (5) payments by the
Company to FTD Corporation to effect certain stock repurchases by FTD
Corporation.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical data of the Old
Association for the fiscal years ended June 30, 1993 and 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 and 1997. The
selected historical balance sheet and statement of operations data as of and for
the fiscal years ended June 30, 1993 and 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
and 1997, and the balance sheet data as of June 30, 1995, 1996 and 1997 were
derived from the audited consolidated financial statements of FTD. The
information contained in this table should be read in conjunction with Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for
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the years ended June 30, 1995, 1996 and 1997, of FTD, including the notes
thereto, appearing elsewhere in this Form 10-K.
FLORISTS' TRANSWORLD DELIVERY, INC. OLD ASSOCIATION
------------------------------------- ----------------------------------
DECEMBER 19,
1994 JULY 1
YEAR ENDED JUNE 30, THROUGH THROUGH YEAR ENDED JUNE 30,
--------------------- JUNE 30, DECEMBER 18, -------------------
1997 1996 1995 1994 1994 1993
---- ---- ------------ ------------ ---- ----
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $162,583 $166,255 $ 96,518 $75,333 $166,560 $169,195
Cost of goods sold and services
provided.................... 96,306 104,386 58,567 49,109 102,260 103,622
Selling, general and
administrative.............. 55,700 58,337 30,669 28,684 57,625 61,073
-------- -------- -------- ------- -------- --------
Income (loss) from
operations.................. 10,577 3,532 7,282 (2,460) 6,675 4,500
Other expense, net(1).......... 11,842 12,080 5,836 77 795 1,178
Income taxes (benefit)(2)...... 410 (1,807) 1,020 35 92 42
Minority interest(3)........... (14) (33) 8
Cumulative effect of accounting
change(4)................... 6,277
-------- -------- -------- ------- -------- --------
Net income (loss).............. $ (1,661) $ (6,708) $ 418 $(2,572) $ (489) $ 3,280
======== ======== ======== ======= ======== ========
OTHER DATA:
Depreciation and
amortization................ 15,606 $ 14,231 $ 6,525 $ 4,911 $ 10,144 $ 9,043
Capital expenditures........... 2,614 4,950 3,082 1,413 8,134 18,200
Ratio of earnings to fixed
charges(5).................. -- -- 1.2x -- 2.9x 2.0x
BALANCE SHEET DATA:
(at end of period)
Working capital................ 3,363 $ 314 $ 4,906 $ 16,918 $ 12,581
Total assets................... 181,724 195,955 203,681 135,506 125,816
Long-term debt, including
current portion............. 82,400 96,277 100,757 33,463 33,746
Total equity................... $ 25,069 $ 26,736 $ 33,440 $ 36,216 $ 40,521
- - -------------------------
(1) Interest expense in fiscal 1993 is net of $185 of interest capitalized as
construction in progress.
(2) Taxes on income for the fiscal years ended June 30, 1993 and 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 and 1997
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.
(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. See note 8 to the
consolidated financial statements of the Company.
(5) In calculating the ratio of earnings to fixed charges, earnings consists of
net income prior to income taxes, minority interest and cumulative effect of
accounting change, plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings for the period July
1 through December 18, 1994 were insufficient to cover fixed charges by
$2,537. Earnings for the year ended June 30, 1996 and 1997 were insufficient
to cover fixed charges by $8,548 and $1,265, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause FTD's actual
results to differ significantly from the results discussed in the
forward-looking statements, including without limitation, the effect of economic
and market conditions and the impact of competitive activities. The following
discussion should be read in conjunction with the Consolidated Financial
Statements including the notes thereto included elsewhere in this report.
EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS
The Acquisition was consummated on December 19, 1994. Accordingly, the
results of operations from December 19, 1994 through June 30, 1995 and for the
years ended June 30, 1996 and 1997 represent those of FTD Corporation and its
consolidated subsidiaries. Results of operations prior to December 19, 1994 are
those of the Old Association. The Acquisition generally affected FTD's results
of operations as follows: (i) certain trade association activities previously
conducted by FTD are now being conducted by FTD Association; (ii) immediately
following the consummation of the Acquisition, the Company was converted from a
non-profit cooperative association owned by its members to a for-profit
corporation; (iii) in connection with the Acquisition, FTD recorded a $7.0
million liability subsequently adjusted to $3.9 million for the costs of
termination benefits and other expenses associated with FTD's employee headcount
reduction and the planned consolidation of FTD's data processing facilities;
(iv) as a result of the Acquisition, FTD's balance sheet carries significant
goodwill; (v) certain provisions of the Mutual Support Agreement may impact,
among other things, product pricing in transactions with members; and (vi) the
Company has implemented or plans to implement several cost reduction strategies,
including a reduction in costs related to the Company's Board of Directors, the
elimination of costs associated with trade activities of the Old Association and
a reduction in various general and administrative expenses of the Old
Association (offset by additional costs related to the new management team and
out-sourcing certain functions).
RESULTS OF OPERATIONS
The following table illustrates the total revenue generated by FTD's major
businesses and summarizes FTD's historical results of operations for the three
fiscal years ended June 30, 1995, 1996 and 1997:
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
---- ---- ----
REVENUE:
Marketplace................................................. $ 49,738 $ 57,924 $ 64,016
Clearinghouse............................................... 34,383 37,070 40,831
Mercury Network............................................. 37,558 34,138 31,483
Other....................................................... 40,904 37,123 35,521
-------- -------- --------
Total revenue.......................................... 162,583 166,255 171,851
Cost of goods sold and services provided.................... 96,306 104,386 107,676
Selling, general and administrative......................... 55,700 58,337 59,353
-------- -------- --------
Income from operations...................................... $ 10,577 $ 3,532 $ 4,822
======== ======== ========
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 $3.7 million, or 2.2%, to $162.6 million for the year
ended June 30, 1997 compared to $166.3 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.
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Marketplace revenue decreased by $8.2 million, or 14.2%, to $49.7 million
for the year ended June 30, 1997 compared to $57.9 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 30.6% and 34.8% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Clearinghouse revenue decreased by $2.7 million, or 7.3%, to $34.4 million
for the year ended June 30, 1997 from $37.1 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 clearing-house
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 21.1% and 22.3% of total revenue for the years ended June 30, 1997
and 1996, respectively.
Mercury Network revenue increased by $3.5 million, or 10.3%, 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 10.2%, to
$40.9 million for the year ended June 30, 1997 from $37.1 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 25.2% and 22.4% of total revenue for the year ended June 30, 1997 and 1996,
respectively.
The cost of goods sold and services provided decreased by $8.1 million, or
7.8%, to $96.3 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 cost of
goods sold related to lower Marketplace sales discussed above. In addition, FTD
realized cost reductions resulting from improvements in customer service
operations. As a percentage of revenue, cost of goods sold and services provided
decreased slightly to 59.2% for the year ended June 30, 1997 from 62.8% for the
year ended June 30, 1996.
Selling, general and administrative expenses decreased by $2.6 million, to
$55.7 million for the year ended June 30, 1997 from $58.3 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 writeoff
of the trained workforce intangible asset and other related actions.
Interest income for the years ended June 30, 1997 and 1996 was $1.5 million
and $1.4 million, respectively. The increase is attributable to higher average
invested cash. Interest expense for the year ended June 30, 1997 was $12.8
million as compared to $13.5 million in the prior year. The decrease of $0.7
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. The tax
expenses for the year ended June 30, 1997 represents the current year reduction
to the Company's deferred tax assets. The tax benefit for the year ended June
30, 1996 represents the amount of deferred tax benefit recognized as a result of
the pretax loss incurred for the year.
As a result of the factors described above, a net loss of $1.7 million
resulted 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.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1996 compared
with the year ended June 30, 1995. For purposes of presenting a meaningful
comparison, as stated above, the year ended June 30, 1995 includes both: (i)
results of the
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Company's predecessor (Florists' Transworld Delivery Association) for the period
prior to the acquisition on December 19, 1994; and (ii) the results of the
Company from December 19, 1994 through June 30, 1995.
Revenue decreased by $5.6 million, or 3.3%, to $166.3 million for the year
ended June 30, 1996 compared to $171.9 million for the year ended June 30, 1995.
The decline in revenue was partly due to the elimination of $2.7 million in
revenue from trade association activities in the prior comparable period which,
since the Acquisition, have no longer been conducted by the Company. The balance
of the decline in revenue was the net result of decreases in Marketplace and
Clearinghouse, partially offset by Mercury Network and Other revenue.
Marketplace revenue decreased by $6.1 million, or 9.5%, to $57.9 million
for the year ended June 30, 1996 compared to $64.0 million for the year ended
June 30, 1995. The decrease from the prior year was the result of lower sales of
holiday, seasonal and non-branded everyday containers. This was partially offset
by increased sales of the expanded perishables product line and FTD branded
everyday products. Marketplace revenue was 34.8% and 37.3% of total revenue for
the years ended June 30, 1996 and 1995, respectively.
Clearinghouse revenue decreased by $3.7 million, or 9.2%, to $37.1 million
for the year ended June 30, 1996 from $40.8 million for the year ended June 30,
1995. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.1% increase in the average revenue per order in
accordance with overall industry trends. The Company believes the decline in the
volume of orders cleared by FTD is due to competition from other clearinghouse
services, and the general decline in industry clearings which has resulted from
the general decline in the market share of retail florists. Clearinghouse
revenue was 22.3% and 23.8% of total revenue for the years ended June 30, 1996
and 1995, respectively.
Mercury Network revenue increased by $2.6 million, or 8.4%, to $34.1
million for the year ended June 30, 1996 from $31.5 million for the year ended
June 30, 1995. An increase in terminal leasing revenue, order transmission
income and equipment sales were the major factors in the revenue increase.
Mercury Network revenue was 20.5% and 18.3% of total revenue for the years ended
June 30, 1996 and 1995, respectively.
Excluding the trade association related revenues from the prior year
discussed above, Other revenue experienced a net increase of $4.3 million, or
13.1%, to $37.1 million for the year ended June 30, 1996 from $32.8 million for
the year ended June 30, 1995. This increase was primarily due to growth in the
order volume of the Direct Access business and in the volume of listings in the
FTD Directory. Other revenue was 22.4% and 20.6% of total revenue for the year
ended June 30, 1996 and 1995, respectively.
The cost of goods sold and services provided decreased by $3.3 million, or
3.1%, to $104.4 million for the year ended June 30, 1996 from $107.7 million for
the year ended June 30, 1995. The decrease in cost of goods sold and services
provided is primarily due to a $6.2 million reduction in costs for products and
distribution related to the lower Marketplace sales volume and a $1.8 million
decrease due to lower costs of member programs which have not been conducted by
the Company since the Acquisition. Offsetting these decreases was a depreciation
expense increase of $1.1 million from the prior year primarily due to computer
hardware and software acquisitions. Other offsetting cost increases resulted
from the increase in Direct Access order volume, additional FTD Directory costs,
field service costs and Mercury Network product and other costs. As a percentage
of revenue, cost of goods sold and services provided remained relatively
constant, with an increase to 62.8% for the year ended June 30, 1996 from 62.7%
for the year ended June 30, 1995.
Selling, general and administrative expenses decreased by $1.1 million, or
1.9%, to $58.3 million for the year ended June 30, 1996 from $59.3 million for
the year ended June 30, 1995. Several factors contributed to the net decrease:
(i) non-recurring Acquisition related costs of $4.1 million were incurred by the
Company during the year ended June 30, 1995; (ii) the elimination of
approximately $1.3 million in costs of certain trade association activities in
fiscal 1995 which, since the Acquisition, have not been conducted by the
Company; (iii) various overhead reductions of $0.8 million affecting promotional
costs; (iv) advertising activities related to the Company's member incentive
program which was implemented during the year ended June 30, 1996 which amounted
to $4.7 million; and (v) amortization of goodwill and other intangibles
increased by $1.8 million for the year ended June 30, 1996 from the prior
comparable period which included a
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partial year of amortization. Selling, general and administrative expenses
increased, as a percent of revenue, to 35.1% from 34.5% for the year ended June
30, 1996 compared to the comparable period in 1995.
Interest income for the years ended June 30, 1996 and 1995 was $1.4 million
and $2.8 million, respectively. The decrease is attributable to lower average
invested cash due to cash utilized to effect the Acquisition. Interest expense
for the year ended June 30, 1996 was $13.5 million as compared to $8.7 million
in the prior year. The increase of $4.8 million resulted from a full year of
interest on the debt in fiscal 1996 versus a partial year of interest on the
debt in fiscal 1995. See "-- Liquidity and Capital Resources."
Income taxes for the year ended June 30, 1996 reflect a benefit of $1.8
million compared to an expense of $1.0 million for the prior year. The expense
in the prior year was due to the Company's conversion from a cooperative
association to a for-profit corporation on December 19, 1994, the date of the
Acquisition, resulting in recognition of primarily deferred tax expense for the
period from December 19, 1994 through June 30, 1995. Income tax expense prior to
December 19, 1994 was entirely related to the Old Association's Canadian
operations. The tax benefit for the year ended June 30, 1996 represents the
amount of deferred tax benefit recognized as a result of the pretax loss
incurred for the year.
As a result of the factors described above, a net loss of $6.7 million
resulted for the year ended June 30, 1996, an increase of $4.5 million from a
net loss of $2.2 million for the year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's $60.0 million aggregate principal amount
of 14% Senior Subordinated Notes due 2001 (the "Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act") and interest and
principal payments on obligations under a credit agreement dated December 19,
1994, as amended (the "Bank Credit Agreement") represent significant liquidity
requirements for FTD. Borrowings under the Bank Credit Agreement bear interest
at floating rates and require interest payments on varying dates depending on
the interest rate option selected by FTD. Borrowings available under the Bank
Credit Agreement consist of a $45.0 million term loan facility and a $25.0
million revolving credit facility to finance working capital and letter of
credit needs. FTD has repaid $20.4 million of the term loans through June 30,
1997 and is required to repay principal amounts of $9.3 million in fiscal 1998,
$10.1 million in fiscal 1999 and $5.3 million in fiscal 2000. Any loans
outstanding under the revolving credit facility will mature on December 19,
1999. Under the terms of the Bank Credit Agreement, borrowings under the
revolving credit facility are required to be reduced to zero for 30 consecutive
days in each annual period. None of the $25.0 million revolving credit facility
available under the Bank Credit Agreement was borrowed from the date of
Acquisition through June 30, 1997. The Company believes, based on current
circumstances, that its cash flow, together with borrowings under the revolving
credit facility, will be sufficient to fund operations, including planned
capital expenditures, and to repay the term loans and make interest payments as
they become due through the term of the Notes and the Bank Credit Agreement.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures and working capital needs. In
the fiscal years ended June 30, 1997 and 1996, FTD's capital expenditures were
$2.6 million and $5.0 million, respectively, related primarily in 1997 to the
purchase of additional office equipment and in 1996 to the upgrade of its
Mercury Network communications facilities through the purchase of its new
Mercury 3000 terminals that are leased to FTD florists. FTD's expected capital
expenditures for fiscal 1998 are estimated to be approximately $5.0 million and
will primarily be used for improvements of internal customer service and
information systems and the Mercury Network. The Company believes that cash flow
from operations, together with borrowings available under the revolving credit
facility, will be sufficient to fund anticipated capital expenditures and
working capital needs.
The Bank Credit Agreement contains certain restrictive covenants with
respect to the Company that, among other things, create limitations (subject to
certain exceptions) on the declaration or payment of any dividend or making of
any distribution by the Company on shares of its common stock.
Cash provided by operating activities was $12.4 million for the year ended
June 30, 1997 compared to cash provided of $11.9 million for the year ended June
30, 1996. Factors contributing to this change in cash
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flow were: pension benefits of $2.9 million and an inventory build of $3.5
million, offset by certain program obligations to members.
Cash provided by investing activities was $3.6 million for the year ended
June 30, 1997 compared to cash used of $5.0 million for the year ended June 30,
1996. In fiscal 1997, the cash provided by investing activities primarily
consisted of the sale of the Company's previous headquarters in Southfield,
Michigan, which was offset by capital expenditures.
Cash used in financing activities was $14.2 million for the year ended June
30, 1997 compared to cash used of $4.8 million for the year ended June 30, 1996.
The net cash used in the year ended June 30, 1997, reflects primarily payment of
principal on the term loans.
Effective January 1, 1997, amendments to FTD's defined benefit pension plan
(the "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 of
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 during fiscal 1997.
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 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 will be
reduced. In accordance with EITF Consensus no. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Cost to Exit an Activity,"
non-recurring charges in connection with the consolidation including severance,
asset impairment losses, and other costs aggregating $2.3 million were
recognized as Selling, General and Administrative costs during fiscal 1997.
Additional non-recurring expenses of $0.7 million were also incurred in
connection with the consolidation resulting in a total of $3.0 million in
non-recurring costs being recorded in fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the registrant required by this item are set
forth on pages F-1 through F-17 and the related schedule is set forth on page
F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the current directors and executive officers
of FTD. All directors are elected annually to serve until the next annual
meeting of stockholders and until their successors have been elected and
qualified. All executive officers of FTD serve at the pleasure of the Board of
Directors of FTD.
NAME AGE POSITION
---- --- --------
Richard C. Perry..................... 42 Chairman of the Board of Directors
Robert L. Norton..................... 50 President, Chief Executive Officer and Director
Veronica K. Ho....................... 37 Director
Gary K. Silberberg................... 37 Director
Habib Y. Gorgi....................... 41 Director
Vice President Administration, General Counsel and
Scott D. Levin....................... 35 Secretary
Francis C. Piccirillo................ 47 Vice President and Chief Financial Officer
William P. Phelan.................... 41 Director
Catherine A. Hickman................. 46 Director
Anthony P. Thonnerienx............... 50 Director
Rock A. Davis........................ 42 Vice President Marketplace
Fred Johnson......................... 49 Executive Vice President Technology
The principal stockholders of FTD Corporation, the parent of the Company,
are Perry Acquisition Partners L.P. ("Perry Partners"), a group of five
investment funds (the "Bain Funds") controlled by Bain Capital, Inc. ("Bain"),
and three investment funds (the "Fleet Funds"), two of which are controlled by
Fleet Financial Group, Inc. ("FFG"), and one of which is controlled by an
affiliate of an FFG subsidiary (referred to collectively herein as the
"Principal Stockholders").
FTD Corporation and the Principal Stockholders have entered into a
stockholders' agreement, dated December 19, 1994 (the "Stockholders'
Agreement"), which provides, among other things, for the composition of the
Board of Directors of FTD. The Board of Directors of FTD consists of ten
directors, of which Perry Partners are entitled to nominate six, the Bain Funds
are entitled to nominate two, and FTD Association are entitled to nominate two.
Each of the Principal Stockholders has agreed to take all actions necessary,
including voting all of the securities owned by it, to cause such nominees to be
elected to the Board of Directors of FTD. Currently, the Board of Directors is
comprised of four Perry Partners nominees, two Bain Funds nominees and, two FTD
Association nominees, with two directorships remaining vacant. See "DESCRIPTION
OF CAPITAL STOCK -- Stockholders' Agreement." Mr. Perry, Ms. Ho, Mr. Silberberg
and Mr. Norton were elected to the Board of Directors as designees of Perry
Partners. Mr. Phelan and Mr. Gorgi were elected to the Board of Directors as
designees of the Bain Funds. Ms. Hickman and Mr. Thonnerieux were elected to the
Board of Directors as designees of FTD Association.
Directors' Fees. Each non-employee director who is not affiliated with any
of the Principal Stockholders receives $1,000 for each Board of Directors
meeting attended. All directors are reimbursed for the reasonable expenses
incurred in connection with each meeting attended.
Set forth below is certain biographical information about each of the
Company's directors and executive officers:
RICHARD C. PERRY
Chairman of the Board of Directors
Mr. Perry has been Chairman of the Board of Directors of the Company since
December 1994. Mr. Perry is also Chairman of the Board of Directors of FTD
Corporation. Mr. Perry is the President and founder of Perry Corp., a private
money management firm. Prior to forming Perry Corp. in 1988, Mr. Perry was with
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Goldman, Sachs & Co. Mr. Perry is an Adjunct Associate Professor at the New York
University Stern School of Business Administration. He is also a director of
Radio & Records, Inc. and a trustee of the Allen Stevenson School and the Board
of Facing History and Ourselves. Mr. Perry received a B.S. from the Wharton
School of the University of Pennsylvania in 1977 and an M.B.A. from New York
University Graduate School of Business Administration in 1980.
ROBERT L. NORTON
Chief Executive Officer, President and Director
Mr. Norton has been the President and Director of the Company since
January, 1997, and Chief Executive Officer since July 1997. Mr. Norton was
General Manager of the Company from October 1996 to January 1997. Mr. Norton is
currently also the President of FTD Corporation. From March 1993 until May 1996,
Mr. Norton was Vice Chairman and Chief Financial Officer of Fabri-Centers of
America, Inc., a retail chain of fabric and craft stores. Mr. Norton received a
B.S. from Cleveland State University in 1973.
VERONICA K. HO
Director
Ms. Ho has been a member of the Board of Directors of the Company since
December 1994. Ms. Ho is also a member of the Board of Directors of FTD
Corporation and a Managing Director of Perry Corp. Before joining Perry Corp. in
April 1993, Ms. Ho was Chief Financial Officer of Whitehall Corporation, a
producer of defense, electronics, and technology systems, from April 1991 to
March 1993. From 1986 to 1991, she was with several private merchant banking
firms specializing in management buyouts. Ms. Ho is also a member of the Board
of Directors of Radio & Records, Inc. and the New York Advisory Board of Facing
History and Ourselves. She received a B.A. from Brown University in Economics
and Applied Mathematics in 1982 and an M.B.A. from the Harvard Graduate School
of Business Administration in 1986. Ms. Ho is married to Mr. Silberberg.
GARY K. SILBERBERG
Director
Mr. Silberberg has been a member of the Board of Directors of the Company
since December 1994. Mr. Silberberg is also a member of the Board of Directors
of FTD Corporation. Mr. Silberberg is a Managing Director of Perry Corp. Prior
to joining Perry Corp. in April 1994, Mr. Silberberg was a principal of Baker
Nye Investments, where he managed an investment portfolio for seven years.
Before that time, Mr. Silberberg practiced corporate law with Skadden, Arps,
Slate, Meagher & Flom, where he worked on a variety of transactions, including
strategic mergers and restructurings. Mr. Silberberg received an Sc.B. in
Economics and Applied Mathematics from Brown University in 1982 and a J.D. from
Yale Law School in 1985. Mr. Silberberg is married to Ms. Ho.
HABIB Y. GORGI
Director
Mr. Gorgi has been a member of the Board of Director of the Company since
January 1997. Mr. Gorgi is also a member of the Board of Directors of FTD
Corporation. Mr. Gorgi was the Executive Vice President of various investment
funds controlled by Fleet Financial Group, Inc. ("FGR") from January 1986 to
December 1995, when he became President of FGR. Mr. Gorgi serves on the Board of
Directors of several non-public companies. Mr. Gorgi earned a A.B. from Brown
University in 1978, and an M.B.A. from Columbia University in 1983.
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SCOTT D. LEVIN
Vice President Administration, General Counsel and Secretary
Mr. Levin joined the Company as Vice President, General Counsel and
Secretary in May 1996. Mr. Levin became Vice President Administration in January
1997. Mr. Levin also serves as Secretary of FTD Corporation. Prior to joining
the Company, Mr. Levin practiced law with Schulte Roth & Zabel LLP specializing
in corporate and securities transactions from April 1989 to April 1996. Mr.
Levin received a B.A. in Political Science and Philosophy from Boston College in
1984 and a J.D. from The National Law Center of George Washington University in
1987.
FRANCIS C. PICCIRILLO
Vice President and Chief Financial Officer
Mr. Piccirillo joined the Company as Vice President and Chief Financial
Officer in August 1997. Mr. Piccirillo is also Treasurer of FTD Corporation.
Prior to that time, Mr. Piccirillo was Vice President/Treasurer of Fabri-Centers
of America, Inc. 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.
WILLIAM P. PHELAN
Director
Mr. Phelan has been a member of the Board of Directors of the Company since
December 1994. Mr. Phelan has been President of Chatham Capital Management,
Inc., a private equity capital firm, since January 1995. From January 1992
through March 1995, Mr. Phelan was a partner in Fleet Private Equity Co., Inc.
From 1988 through December 1991, Mr. Phelan was a Senior Vice President at Cowen
& Company, an investment banking firm specializing in healthcare and
technology-related investment banking. He is a member of the Board of Directors
of Cryenco Sciences, Inc. Mr. Phelan received a B.B.A. in Accounting from Siena
College in 1978 and his M.S. in Taxation from City College of New York in 1983.
CATHERINE A. HICKMAN
Director
Ms. Hickman has been a member of the Board of Directors of the Company
since December 1994. Ms. Hickman was President of FTD Association from August
1996 to August 1997. Ms. Hickman has owned and operated a retail florist
business in Long Beach, California for the past 25 years. Ms. Hickman received a
teaching degree from California State University at Long Beach in 1993.
ANTHONY P. THONNERIEUX
Director
Mr. Thonnerieux has been a member of the Board of Directors of the Company
since December 1996. Mr. Thonnerieux currently serves as the President and is a
member of the Board of Trustees of FTD Association. Mr. Thonnerieux has been an
active partner in a retail florist business in Newton, New Jersey, for the past
25 years. He received a B.S. degree from Rider University in 1969.
ROCK A. DAVIS
Vice President Marketplace
Mr. Davis has been Vice President Marketplace of the Company since January
1997 and joined the Company as Vice President Direct Access in April 1995.
Previously, Mr. Davis was Senior Vice President of The Signature Group from June
1982 to July 1994. Prior to joining The Signature Group, Mr. Davis was in the
Audit Division of Arthur Andersen & Company. Mr. Davis received a B.S. in
General Management from
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Purdue University in 1977 and a Masters of Management from Northwestern
University in 1986. Mr. Davis is a Certified Public Accountant.
FRED JOHNSON
Executive Vice President Technology
Mr. Johnson joined the Company as Executive Vice President Technology in
July 1997. Prior to that time, Mr. Johnson was Senior Vice President MIS for
Fabri Centers of America, Inc. 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.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal years,
the compensation of those persons who were, at June 30, 1997, the chief
executive officer and the other four most highly compensated executive officers
of the Company and the Company's former chief executive officer and two persons
who each would have been one of four most highly compensated executive officers
during fiscal 1997 but was not serving on June 30, 1997 (the "Named Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------------- -----------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION($)
--------------------------- ---- ------ ----- ---------- ---------------
Robert L. Norton(2)...................... 1997 $185,096 $ -- 110,000 2,147(3)
President and Chief
Executive Officer
Margaret C. Whitman(4)................... 1997 160,115 99,500 -- 130,421(5)
Former President and Chief 1996 258,038 -- -- 100,517(6)
Executive Officer 1995 85,600 100,000 255,000 7,018(7)
Rock A. Davis............................ 1997 152,788 6,000 5,000 2,800(3)
Vice President Marketplace 1996 125,288 11,000 30,000 2,693(3)
1995 2,404 -- -- 52(3)
Scott D. Levin........................... 1997 137,885 25,000 30,000 18,127(8)
Vice President Administration, 1996 17,788 -- -- 11,271(9)
General Counsel and Secretary
Douglas L. Hagemann(10).................. 1997 149,730 -- -- 11,808(11)
Former Vice President 1996 149,730 -- -- 2,859(3)
Finance and Stockholder 1995 144,422 16,500 -- 17,136(12)
Relations
Louis E. Nagy, Jr.(13)................... 1997 153,004 -- -- 100,054(14)
Former Vice President 1996 125,192 -- 30,000 14,516(15)
Marketing and Product Development 1995 40,866 17,500 -- 777(3)
- - -------------------------
(1) Includes cash bonuses paid in the referenced fiscal year with respect to
services rendered in the prior fiscal year. Excludes cash bonuses paid in
the following fiscal year with respect to services rendered in the
referenced fiscal year, which cash bonuses paid in fiscal 1998 with respect
to services rendered in fiscal 1997 are as follows: Rock A. Davis
($80,000), Scott D. Levin ($75,000) and Douglas L. Hagemann ($10,000). The
bonuses for Mr. Davis and Mr. Levin were paid pursuant to the Company's Key
Management Incentive Plan. See "-- Key Management Incentive Plan."
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(2) Excludes a cash bonus to be paid to Mr. Norton in the first quarter of
fiscal 1998 with respect to services rendered by Mr. Norton from the
commencement of his employment with the Company through September 30, 1997
pursuant to the Norton Employment Arrangements. The estimated amount of
such bonus is $275,000. See "-- Norton Employment Arrangements."
(3) Represents flexible dollars for use in connection with FTD's benefit plans.
(4) Ms. Whitman was President and Chief Executive Officer from March 1995 until
the termination of her employment agreement on January 3, 1997.
(5) Reflects $128,419 for the forgiveness of debt, and $2,002 for flexible
dollars for use in connection with FTD's benefits plans.
(6) Reflects $3,461 for flexible dollars for use in connection with FTD's
benefit plans and $97,056 for the forgiveness of debt used to purchase
shares of Common Stock.
(7) Reflects $1,370 for flexible dollars for use in connection with FTD's
benefit plans and $5,648 for the forgiveness of debt used to purchase
shares of Common Stock.
(8) Reflects $2,424 for flexible dollars for use in connection with FTD's
benefit plans and $15,703 for moving expenses.
(9) Reflects $275 for flexible dollars for use in connection with FTD's benefit
plans and $10,996 for moving expenses.
(10) Mr. Hagemann was Vice President Finance and Stockholder Relations from July
1996 until September 1997.
(11) Reflects $8,874 for Universal Life Insurance and $2,934 for flexible
dollars for use in connection with FTD's benefit plans.
(12) Reflects $14,327 for Universal Life insurance and $2,809 for flexible
dollars for use in connection with FTD's benefit plans.
(13) Mr. Nagy was Vice President Marketing and Product Development of the
Operating Company from March 1995 until April 1997.
(14) Reflects $8,062 paid to Mr. Nagy as part of his severance arrangement with
the Company, $89,552 for moving and related expenses and $2,440 for
flexible dollars for use in connection with FTD's benefit plans.
(15) Reflects $2,963 for flexible dollars for use in connection with FTD's
benefit plans and $11,553 for moving expenses.
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The following table sets forth individual grants of stock options made to
the Named Officers during the fiscal year ended June 30, 1997. Options are
exercisable for Class A Common Stock, par value $.01 per share, of FTD
Corporation.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ------------- ------------- ----------- ---------- ----- ------
Robert L. Norton............. 60,000(2) 23.5% $ 7.50 6/6/2007 $248,078 $611,076
50,000(2) 19.6% 25.00 6/6/2007
Rock A. Davis................ 5,000(2) 2.0% 7.50 3/20/2007 20,675 50,923
Scott D. Levin............... 10,000(3) 3.9% 7.50 10/1/2006 41,350 101,846
15,000(3) 5.9% 25.00 10/1/2006
5,000(4) 2.0% 7.50 3/20/2007 20,675 50,923
- - -------------------------
(1) Options granted under the FTD Corporation 1994 Stock Award and Incentive
Plan.
(2) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being September 30, 1998 for Mr.
Norton, and February 1, 1999 for Mr. Davis.
(3) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being April 18, 1998.
(4) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being February 1, 1999.
The following table sets forth the June 30, 1997 aggregate value of
unexercised options held by each of the Named Officers.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Robert L. Norton............. -- -- 0 110,000 $ -- $480,000
Rock A. Davis................ -- -- 7,500 27,500 38,063 154,188
Scott D. Levin............... -- -- 0 30,000 $ -- $120,000
- - -------------------------
(1) Because no established public trading market exists for the underlying
securities, fiscal year-end option values were based on an assumed stock
price of $15.50 per share, which price is currently used by FTD for purposes
of granting additional options under the FTD Corporation 1994 Stock Award
and Incentive Plan. There can be no assurance that such price per share
represents the actual fair market value of a Share.
No options were exercised during the fiscal year ended June 30, 1997.
19
20
Pension Plan. The following table shows the estimated annual pension
benefits payable to a covered participant upon normal retirement at age 65 under
the Pension Plan, based on the renumeration that is covered under the Pension
Plan and years of service with the Company and its subsidiaries:
YEARS OF SERVICE
---------------------------------------------------------------------------------------
RENUMERATION 5 10 15 20 25 30
- - ------------ - -- -- -- -- --
$ 50,000............... 4,150 8,300 12,450 16,600 20,750 24,900
60,000............... 5,025 10,050 15,075 20,100 25,125 30,150
70,000............... 5,900 11,800 17,700 23,600 29,500 35,400
80,000............... 6,775 13,550 20,325 27,100 33,875 40,650
90,000............... 7,650 15,300 22,950 30,600 38,250 45,900
100,000............... 8,625 17,050 25,575 34,100 42,625 51,150
110,000............... 9,400 18,800 28,200 37,600 47,000 56,400
120,000............... 10,275 20,550 30,825 41,100 51,375 61,650
130,000............... 11,150 22,300 33,450 44,600 55,750 66,900
140,000............... 12,025 24,050 36,075 48,100 60,125 72,150
150,000............... 12,900 25,600 38,700 51,600 64,500 77,400
to
270,000
Pension Plan benefits, as shown above, are calculated based upon total
years of services to a maximum of 30 years and the average of the five highest
consecutive calendar years' salary, bonus and certain elements of other
compensation and assume that participants have contributed all years to the Tax
Deferred Account-Mandatory under the Company's 401(k) Retirement Savings Plan
(as amended, the "401(k) Plan"). The annual pension benefits shown are computed
as a straight life annuity with ten years certain period beginning at age 65,
and assume that participants will transfer the balance of the Tax Deferred
Account-Mandatory from the 401(k) Plan to the Pension Plan. The amounts paid
under the Pension Plan are not offset by any social security payments. Mr.
Hagemann is the only Named Officer eligible to receive benefits under the
Pension Plan. Mr. Hagemann's covered compensation and the estimated years of
service as of June 30, 1997 is $158,604 and 15.75 years.
Norton Employment Arrangements. FTD Corporation and the Company have
entered into employment arrangements with Mr. Norton to serve as President of
FTD Corporation and President and Chief Executive Officer of the Company.
Although Mr. Norton does not have an employment agreement with FTD, pursuant to
the terms of letters from the Company to Mr. Norton dated October 17, 1996 and
June 6, 1997 (collectively, the "Norton Employment Arrangements"), Mr. Norton is
to receive an initial annual base salary of $275,000 plus an annual bonus and
salary increase based on performance criteria established by the Board of
Directors. Mr. Norton's annual bonus is paid at the end of the first quarter of
the fiscal year based upon performance criteria met as the end of the
immediately preceding fiscal year.
Pursuant to the Norton Employment Arrangements, Mr. Norton was granted
Non-Qualified Stock Options to purchase (i) 60,000 shares of Class A Common
Stock at an exercise price of $7.50 per share and (ii) 50,000 shares of Class A
Common Stock at an exercise price of $25.00 per share. Also, pursuant thereto,
Mr. Norton purchased 30,000 shares of Class A Common Stock at a price of $7.50
per share and FTD Corporation issued Mr. Norton 20,000 additional shares of
Class A Common Stock, which are subject to restrictions on transfer and
forfeiture in the event of termination of employment prior to the expiration of
a specified period of time.
The Norton Employment Arrangements provide that Mr. Norton shall be paid an
amount equal to twelve month's salary if his employment is terminated (other
than for cause) by the Company at any time after October 28, 1997.
Levin Note. The Company loaned $150,000 to Mr. Levin pursuant to a
five-year, interest bearing recourse note dated June 30, 1997 (the "Levin
Note"), with accrued interest and principal due and payable at maturity. The
Levin Note bears interest at 7% per annum.
20
21
Severance Arrangement. The Company has agreed with Mr. Hagemann that he
will be entitled to receive, among other things, salary continuation until the
age of 62 (November 8, 1998) if his employment with the Company or an affiliate
of the Company were terminated by the Company for any reason other than cause
(as defined in the Merger Agreement) prior to such time. Mr. Hagemann's
severance benefit currently would equal approximately $199,640. The Company has
agreed to provide Mr. Nagy with up to 12 months salary continuation unless Mr.
Nagy obtains employment prior to the end of such 12-month period.
Key Management Incentive Plan. Mr. Davis and Mr. Levin are participants in
the Company's Key Management Incentive Plan which covers approximately 30 key
employees of FTD and provides bonuses in the event that (i) the company achieves
one or more targets based on FTD's EBITDA (earnings before interest, taxes,
depreciation and amortization), and (ii) the individual achieves specified
goals.
Compensation Committee Interlocks and Insider Participation. The Company
does not have a compensation Committee. All matters which would otherwise be
determined by a Compensation Committee are considered by the Board of Directors.
21
22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FTD Corporation owns 100% of the Common Stock of the Company. In connection
with the Bank Credit Agreement, the Company, FTD Corporation, certain other
direct and indirect subsidiaries of the Company and Bankers Trust Company, as
Agent for the lenders party to the Bank Credit Agreement, entered a pledge
agreement, dated December 19, 1994, pursuant to which FTD Corporation pledged
all of the Common Stock to Bankers Trust Company as collateral security for FTD
Corporation's obligations under the Bank Credit Agreement. Upon the occurrence
of a continuing event of default under the Bank Credit Agreement, Bankers Trust
Company would, in certain circumstances, have the right to sell or exercise the
voting rights of the pledged Common Stock, thereby effecting a change in control
of the Company.
The following table sets forth certain information concerning the ownership
of FTD Corporation common stock as of September 25, 1997, by each director and
each of the Named Officers owning equity securities of FTD Corporation and all
executive officers and directors of the Company as a group. To the knowledge of
the Company, each of such stockholders has sole voting and dispositive power as
to the shares beneficially owned unless otherwise noted.
CLASS B
CLASS A COMMON STOCK
COMMON STOCK (NONVOTING)
--------------------- ---------------------
NUMBER OF PERCENT NUMBER OF PERCENT
SHARES OF CLASS SHARES OF CLASS
--------- -------- --------- --------
Perry Partners......................................... 3,729,431 61.40 -- --
599 Lexington Avenue
New York, NY 10022
Bain Funds............................................. 770,802 12.69 -- --
Two Copley Plaza
Boston, MA 02116
Richard Perry(1)....................................... 3,729,431 61.40 -- --
Habib Y. Gorgi(2)...................................... 148,766 2.45 310,944 19.85
William P. Phelan(3)................................... 13,247 * 25,625 *
Robert L. Norton(4).................................... 50,000 * -- --
Rock A. Davis(5)....................................... 12,500 * -- --
Scott D. Levin(6)...................................... 3,333 * -- --
All executive officers and directors of FTD as a group
(13 people)(7)....................................... 4,714,832 77.63 310,944 19.85
- - -------------------------
* Represents less than 1%
(1) The address of Mr. Perry is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. All of the shares shown are held by Perry Partners.
Mr. Perry has a controlling interest in Perry Investors, L.L.C., the general
partner of Perry Partners. Accordingly, Mr. Perry may be deemed to have
voting and dispositive power with respect to the Shares held by Perry
Partners. Mr. Perry disclaims beneficial ownership of such Shares.
(2) The address of Mr. Gorgi is c/o Fleet Equity Partners, 50 Kennedy Plaza,
Providence, Rhode Island 02903. Includes shares owned by FGR, Fleet Equity
Partners VII, L.P. ("FEP"), and Chisholm Partners II, L.P. ("CPII"). Mr.
Gorgi is the President of FGR, Silverado V Corp. ("SVC"), and Silverado II
Corp. ("SIIC"). FGR and SVC are general partners of FEP, and SIIC is the
general partner of Silverado II L.P. ("SIILP"), which is the general partner
of CPII. Mr. Gorgi is also a limited partner of FEP and SIILP. As President
of FGR, SVC and SIIC, Mr. Gorgi may be deemed to share voting and
dispositive power with Robert M. Van Degna, Chairman & CEO of those
entities. Mr. Gorgi disclaims beneficial ownership of all shares which are
directly owned by FGR and those shares which are directly owned by FEP and
CPII, except for his pecuniary interest therein.
22
23
(3) The address of Mr. Phelan is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. All of the shares shown are owned by Turnberry
Partners, L.P. ("Turnberry"). Mr. Phelan is the President and sole
stockholder of Chatham Capital Management, Inc., the general partner of
Turnberry and is deemed to have voting and dispositive power as to the
shares held by Turnberry.
(4) The address of Mr. Norton is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 20,000 restricted Shares which will vest in
three equal annual installments commencing September 30, 1999. The Shares
owned by Mr. Norton are subject to certain restrictions on transfer.
(5) The address of Mr. Davis is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 7,500 Shares issuable upon exercise of
outstanding options which are currently exercisable. The Shares owned by Mr.
Davis are subject to certain restrictions on transfer.
(6) The address of Mr. Levin is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. The Shares owned by Mr. Levin are subject to certain
restrictions on transfer.
(7) Includes 20,000 restricted Shares which will vest in three equal annual
installments commencing September 30, 1999 and includes 7,500 Shares
issuable upon exercise of outstanding options which are currently
exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Services Agreement. Parties related to each of the
Principal Stockholders have entered into an agreement for management consulting
services (the "Management Consulting Services Agreement") with FTD Corporation
pursuant to which they will make available to the Company's management,
financial and other corporate advisory services. Subject to certain limitations
contained in the Bank Credit Agreement and the Indenture with respect to the
Notes, for each fiscal year of the Company ending after June 30, 1995, the
Company will pay dividends to FTD Corporation sufficient to allow FTD
Corporation to pay such affiliates the annual fee of $400,000 per year plus up
to an additional $1.6 million per year conditioned upon the achievement of
certain levels of operating income, and reimbursement of reasonable
out-of-pocket expenses. Subject to certain conditions, such fee will be shared
by the parties thereto in proportion to their relative ownership interests in
FTD Corporation. Pursuant to the Management Consulting Services Agreement, the
Principal Stockholders will receive $1.0 million for the year ended June 30,
1997.
Certain directors of FTD will receive indirectly a portion of the
management fee as a result of their ownership interest in or other relationship
with the entities providing services to FTD. Mr. Gorgi, a director of the
Company designated by the Bain Funds, is the President of certain entities which
own Shares, directly or indirectly through general partnership interests. Mr.
Phelan, a director of the Company, also designated by the Bain Funds, is
entitled to receive a portion of the fees to be paid by the Company under the
Management Consulting Services Agreement to Fleet Growth Resources, Inc.
pursuant to an agreement with such entity, so long as Mr. Phelan remains a
director of the Company. Mr. Perry, Ms. Ho, and Mr. Silberberg, directors of the
Company designated by Perry Partners, have an interest in Perry Investors, LLC.
Assuming the relative ownership interest among the Principal Stockholders
remains unchanged, Bain Capital, Inc., Fleet Growth Resources, Inc. and Perry
Investors, LLC will be entitled to 23.33%, 11.67% and 65%, respectively, of the
fees to be paid by the Company under the Management Consulting Services
Agreement. The portion of such fee each of such directors will receive, if any,
is discretionary.
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, each of
the Principal Stockholders has agreed, among other things, (i) to vote its
shares of common stock in order to elect and maintain a board of directors of
FTD Corporation and each of its subsidiaries (including the Company), which
consists of a designated number of nominees of Perry Partners and the Bain Funds
and, in the case of the Company, FTD Association nominees as well, (ii) that
certain actions taken by the Company require the approval of two of the
directors nominated by Perry Partners and two of the directors nominated by the
Bain Funds and (iii) to certain restrictions and to grants to the other
Principal Stockholders certain rights with respect to the sale of its common
stock of FTD Corporation.
23
24
Business with Directors. Ms. Hickman has an ownership interest in three
retail florist businesses: A Beautiful California Florist in Long Beach,
California, Fifth Avenue Florist in Huntington Beach, California and Los Altos
Florist in Long Beach, California. Mr. Thonnerieux has an ownership interest in
Wards Flowers & Gifts, a retail florist business in Newton, New Jersey. Each of
these businesses use the Company's services in the normal course of business. In
fiscal 1997, the aggregate amount of revenues recorded by the Company from
business done with Ms. Hickman's and Mr. Thonnerieux's businesses was
approximately $28,000 and $103,000, respectively.
Mutual Support Agreement. For the fiscal year ended June 30, 1997, an
amount equal to approximately $598,000 was paid by the Company to FTD
Association pursuant to the Mutual Support Agreement. See Item 1 -- "Business --
The Acquisition and Relationship with FTD Association." Mr. Thonnerieux is
President of FTD Association and a member of the FTD Association Board of
Trustees.
24
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) & (2) The consolidated financial statements and schedule which are
filed with this Form 10-K are set forth in the Index to Consolidated Financial
Statements and Schedule at Page F-1 which immediately precedes such documents.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder upon written request, any exhibit listed in the accompanying Index
to Exhibits upon payment by such stockholders of the Company's reasonable
expenses in furnishing any such exhibits. Such exhibits are, as indicated in the
index, either filed herewith or have heretofore been filed with the Securities
and Exchange Commission under the Securities Act and are referred to and
incorporated herein by reference to such filings.
(B) REPORTS ON FORM 8-K
No forms 8-K were filed by the Company during the fourth quarter of fiscal
1997.
(C) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
See accompanying Index to Exhibits.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report covering the registrant's last fiscal year has been sent
to security holders of the registrant.
25
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ ROBERT L. NORTON
------------------------------------
Robert L. Norton
President and Chief Executive
Officer
Date: September 25, 1997
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD C. PERRY Chairman of the Board of Directors September 25, 1997
- - ------------------------------------------
Richard C. Perry
/s/ ROBERT L. NORTON President, Chief Executive Officer September 25, 1997
- - ------------------------------------------ and Director (Principal Executive
Robert L. Norton Officer)
/s/ FRANCIS C. PICCIRILLO Vice President and Chief Financial September 25, 1997
- - ------------------------------------------ Officer (Principal Accounting and
Francis C. Piccirillo Financial Officer)
/s/ VERONICA K. HO Director September 25, 1997
- - ------------------------------------------
Veronica K. Ho
/s/ GARY K. SILBERBERG Director September 25, 1997
- - ------------------------------------------
Gary K. Silberberg
/s/ HABIB Y. GORGI Director September 25, 1997
- - ------------------------------------------
Habib Y. Gorgi
/s/ WILLIAM P. PHELAN Director September 25, 1997
- - ------------------------------------------
William P. Phelan
/s/ CATHERINE A. HICKMAN Director September 25, 1997
- - ------------------------------------------
Catherine A. Hickman
/s/ ANTHONY P. THONNERIEUX Director September 25, 1997
- - ------------------------------------------
Anthony P. Thonnerieux
26
27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1997 and 1996 and the periods December 19, 1994
through June 30, 1995 and July 1, 1994 through December
18, 1994.................................................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997 and 1996 and the periods
December 19, 1994 through June 30, 1995 and July 1, 1994
through December 18, 1994................................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1997 and 1996 and the periods December 19, 1994
through June 30, 1995 and July 1, 1994 through December
18, 1994.................................................. F-6
Notes to Consolidated Financial Statements as of June 30,
1997 and 1996............................................. F-7
Independent Auditors' Report on Financial Statement
Schedule.................................................. F-19
Schedule II -- Valuation and Qualifying Accounts............ F-20
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
28
KPMG LETTERHEAD
INDEPENDENT AUDITORS' REPORT
Board of Directors
Florists' Transworld Delivery, Inc.
We have audited the accompanying consolidated balance sheets of Florists'
Transworld Delivery, Inc. as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1997 and 1996 and the periods December 19, 1994 through
June 30, 1995 and July 1, 1994 through December 18, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Florists' Transworld Delivery, Inc. as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for the years ended June 30,
1997 and 1996 and the periods December 19, 1994 through June 30, 1995 and July
1, 1994 through December 18, 1994, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Detroit, Michigan
August 14, 1997
F-2
29
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND 1996
1997 1996
---- ----
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 28,294 $ 26,535
Accounts receivable, less allowance for doubtful accounts
($2,211 in 1997 and $1,412 in 1996)....................... 24,979 24,068
Inventories, principally finished goods, net................ 14,992 12,468
Deferred income taxes....................................... 7,242 5,569
Other current assets........................................ 2,034 1,718
-------- --------
Total current assets.................................... 77,541 70,358
PROPERTY AND EQUIPMENT:
Land and improvements....................................... 1,600 2,500
Building and improvements................................... 7,601 13,169
Mercury consoles............................................ 22,472 23,187
Furniture and equipment..................................... 12,832 11,630
-------- --------
Total................................................... 44,505 50,486
Less accumulated depreciation............................... 23,925 15,158
-------- --------
Property and equipment, net............................. 20,580 35,328
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
($2,724 in 1997 and $1,648 in 1996)....................... 3,394 4,470
Deferred income taxes....................................... -- 194
Other noncurrent assets..................................... 1,979 2,191
Goodwill and other intangibles, less accumulated
amortization ($7,528 in 1997 and $4,874 in 1996).......... 78,230 83,414
-------- --------
Total other assets...................................... 83,603 90,269
-------- --------
Total assets............................................ $181,724 $195,955
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 9,297 $ 8,496
Accounts payable............................................ 31,346 30,765
Accrued member incentive programs........................... 13,816 12,949
Accrued severance costs..................................... 1,245 1,319
Other accrued liabilities................................... 5,759 5,931
Members' deposits........................................... 9,991 8,876
Unearned income............................................. 2,724 1,708
-------- --------
Total current liabilities............................... 74,178 70,044
Long-term debt, less current maturities..................... 73,103 87,781
Postretirement benefits, less current portion............... 6,577 7,163
Accrued pension obligations................................. 876 4,061
Deferred income taxes....................................... 1,765 --
Minority interest in subsidiary............................. 156 170
STOCKHOLDERS' EQUITY:
Preferred stock, 30,000 shares authorized, no shares issued,
par value $0.01........................................... -- --
Common stock, 30,000 shares authorized, 100 shares issued
and outstanding, par value $0.01.......................... -- --
Paid-in capital............................................. 33,000 33,000
Accumulated deficit......................................... (7,931) (6,264)
-------- --------
Total stockholders' equity.............................. 25,069 26,736
-------- --------
Total liabilities and stockholders' equity.............. $181,724 $195,955
======== ========
See accompanying notes to consolidated financial statements.
F-3
30
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND FOR THE PERIODS
FROM DECEMBER 19, 1994 THROUGH JUNE 30, 1995 AND JULY 1, 1994 THROUGH DECEMBER
18, 1994
PREDECESSOR
COMPANY
DECEMBER 19, ------------
1994 JULY 1, 1994
THROUGH THROUGH
JUNE 30, DECEMBER 18,
1997 1996 1995 1994
---- ---- ------------ ------------
REVENUES:
Marketplace..................................... $ 49,738 $ 57,924 $35,460 $28,556
Clearinghouse................................... 34,383 37,070 24,738 16,093
Mercury Network................................. 37,558 34,138 17,618 13,865
Other........................................... 40,904 37,123 18,702 16,818
-------- -------- ------- -------
Total revenues............................. 162,583 166,255 96,518 75,332
COSTS:
Products and distribution....................... 35,897 41,209 25,736 21,639
Floral order transmissions and processing
services...................................... 29,803 30,562 14,923 11,571
Member programs................................. 30,606 32,615 17,908 15,899
-------- -------- ------- -------
Total cost of goods sold and services
provided................................. 96,306 104,386 58,567 49,109
Selling, general and administrative expense..... 55,700 58,337 30,669 28,683
-------- -------- ------- -------
Income (loss) from operations.............. 10,577 3,532 7,282 (2,460)
OTHER INCOME AND EXPENSES:
Interest income................................. (1,477) (1,418) (1,710) (1,095)
Interest expense................................ 12,789 13,498 7,546 1,172
Loss on sale of Southfield, Michigan facility... 530 -- --
-------- -------- ------- -------
Total other income and expenses............ 11,842 12,080 5,836 77
Income (loss) before income tax expense
(benefit) and minority interest.......... (1,265) (8,548) 1,446 (2,537)
Income tax expense (benefit).................... 410 (1,807) 1,020 35
Minority interest in earnings (loss) of
subsidiary.................................... (14) (33) 8 --
-------- -------- ------- -------
Net income (loss).......................... $ (1,661) $ (6,708) $ 418 $(2,572)
======== ======== ======= =======
See accompanying notes to consolidated financial statements.
F-4
31
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND FOR THE PERIODS
FROM DECEMBER 19, 1994 THROUGH JUNE 30, 1995 AND JULY 1, 1994 THROUGH DECEMBER
18, 1994
CREDIT RETAINED
DEPOSIT COOPERATIVE EARNINGS
PREDECESSOR COMPANY FUND FUND (DEFICIT) TOTAL
------------------- ------- ----------- --------- -----
Balance, July 1, 1994................................... $2,191 38,127 (4,101) 36,217
Distribution of operating margin, net of income taxes... -- (1,181) (1,391) (2,572)
Minority interest....................................... -- -- 17 17
Additional credit deposits.............................. 40 -- -- 40
Redemption of ex-members' credit deposits and patronage
equities.............................................. (58) (862) -- (920)
Foreign currency translation adjustment................. -- -- 17 17
------ ------- ------- -------
Balance, December 18, 1994.............................. $2,173 $36,084 $(5,458) 32,799
====== ======= ======= =======
NUMBER OF RETAINED
SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ------- --------- -----
Balance, December 19, 1994..................... 100 $ -- 33,000 -- 33,000
Net income..................................... -- -- -- 418 418
Foreign currency translation adjustment........ -- -- -- 22 22
--- ----- ------ ------- -------
Balance, June 30, 1995......................... 100 -- 33,000 440 33,440
Net loss....................................... -- -- -- (6,708) (6,708)
Foreign currency translation adjustment........ -- -- -- 4 4
--- ----- ------ ------- -------
Balance, June 30, 1996......................... 100 $ -- 33,000 (6,264) 26,736
--- ----- ------ ------- -------
Net loss....................................... -- -- -- (1,661) (1,661)
Foreign currency translation adjustment........ -- -- -- (6) (6)
--- ----- ------ ------- -------
Balance, June 30, 1997......................... 100 -- 33,000 (7,931) 25,069
=== ===== ====== ======= =======
See accompanying notes to consolidated financial statements.
F-5
32
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND FOR THE PERIODS
FROM DECEMBER 1, 1994 THROUGH JUNE 30, 1995 AND JULY 1, 1994 THROUGH DECEMBER
18, 1994
PREDECESSOR
COMPANY
DECEMBER 19, 1994 JULY 1, 1994
THROUGH THROUGH
1997 1996 JUNE 30, 1995 DECEMBER 18, 1994
---- ---- ----------------- -----------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (1,661) $ (6,708) $ 418 $ (2,572)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 15,606 14,231 6,525 4,911
Amortization of deferred financing costs and original
issue discount.......................................... 1,404 1,359 708 --
Postretirement benefits................................... (586) 401 361 504
Pension................................................... (2,756) (120) -- --
Minority interest in earnings (loss) of subsidiary........ (14) (32) 8 --
Undistributed (earnings) losses of unconsolidated
affiliate............................................... (30) (67) (54) --
Loss on sale or disposal of assets........................ 530 663 -- --
Increase (decrease) in cash due to change in:
Accounts receivable..................................... (911) (3,283) 12,918 (13,788)
Inventories............................................. (2,524) 1,027 1,524 (2,915)
Deferred income taxes................................... 286 (2,035) 507 --
Other current assets.................................... (316) (159) 2,336 (1,706)
Accounts payable........................................ 581 1,669 (28,722) 18,749
Accrued member incentive programs....................... 867 6,194 (2,819) (1,699)
Accrued severance costs................................. (74) (1,504) (1,075) --
Other accrued liabilities, unearned income, and members'
deposits.............................................. 1,959 224 1,891 2,747
-------- -------- --------- --------
Net cash provided by (used in) operating activities... 12,361 11,860 (5,474) 4,231
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional restricted cash related to credit deposit fund
investments............................................... -- -- -- (59)
Release of restricted cash related to credit deposit fund
investments............................................... -- -- -- 83
Proceeds from acquisition................................... -- -- 2,173
Payment to effect merger.................................... -- -- (109,028) --
Capital expenditures, net................................... (2,614) (4,950) (3,082) (1,413)
Proceeds from sale of Southfield, Michigan facility......... 6,224 -- --
-------- -------- --------- --------
Net cash used in investing activities................. 3,610 (4,950) (109,937) (1,389)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to deferred financing costs....................... -- -- (126) --
Proceeds from long-term debt................................ -- -- 95,436 --
Repayments of long-term debt................................ (14,206) (4,762) (35,101) (1,885)
Issuance of common stock.................................... -- -- 30,000 --
Equity contribution from parent............................. -- -- 3,000 --
Additional credit deposits.................................. -- -- -- 40
Return of members' equity................................... -- -- -- (920)
-------- -------- --------- --------
Net cash provided by (used in) financing activities... (14,206) (4,762) 93,209 (2,765)
Effect of foreign exchange rate changes on cash............. (6) 12 -- --
-------- -------- --------- --------
Net increase in cash and cash equivalents................... 1,759 2,160 (22,202) 77
Cash and cash equivalents at beginning of period............ 26,535 24,375 46,577 46,500
-------- -------- --------- --------
Cash and cash equivalents at end of period.................. $ 28,294 $ 26,535 $ 24,375 $ 46,577
======== ======== ========= ========
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (1,661) $ (6,708) $ 418 $ (2,572)
Adjustments to reconcile net income (loss) to net
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................... $ 11,458 $ 12,114 $ 6,704 $ 1,249
======== ======== ========= ========
Income taxes paid........................................... $ 237 $ 201 $ 260 $ 242
======== ======== ========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Florists' Transworld Delivery Association (the "Acquired Company") was acquired by FTD Corporation (the "Company") on
December 19, 1994 (see note 2). The acquisition was effected through a merger of the Acquired Company with a
subsidiary of the Company, with the Acquired Company surviving the merger as a wholly owned subsidiary of the
Company, as follows:
Cash utilized to effect merger........................................................................ $109,028
NONCASH ITEMS:
Reduction of proceeds from long-term debt for financing costs......................................... 5,992
Value ascribed to common stock warrants issued........................................................ 1,500
Reduction in accrued severance costs subsequent to initial purchase price allocation.................. 3,138
Other purchase accounting adjustments for assets acquired and liabilities assumed..................... (809)
--------
Total purchase price.............................................................................. $118,849
========
See accompanying notes to consolidated financial statements.
F-6
33
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
- - -----------------------------
Florists' Transworld Delivery, Inc. ("FTD, Inc."), a wholly owned
subsidiary of FTD Corporation, and FTD, Inc.'s wholly owned subsidiaries --
Florists' Transworld Delivery Association of Canada Limited and FTD Holdings,
Inc. ("Holdings"), and its subsidiary, Renaissance Greeting Cards, Inc.
("Renaissance"), (collectively the "Company") is a supplier of non-perishable
hardgoods, order clearing services, marketing support and other services to the
retail floral industry in the United States and Canada.
PRINCIPLES OF CONSOLIDATION
- - -----------------------------
The consolidated financial statements of the Company at June 30, 1997 and
1996, include the accounts of FTD, Inc., and its subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
CASH AND CASH EQUIVALENTS
- - -----------------------------
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company considers all investments purchased
with maturities of three months or less at the date of purchase to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- - --------------------------------------
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable, accrued member incentive programs,
accrued severance costs, other accrued liabilities, unearned income, member
deposits and long-term debt. At June 30, 1997, 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 fair value.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and any
gain or loss incurred in the ordinary course of business is included as selling,
general and administrative expense in the accompanying consolidated statements
of operations. Maintenance and repairs are charged to expense as incurred.
Expenditures which improve or extend the life of existing property and equipment
are capitalized.
F-7
34
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
SYSTEMS SOFTWARE
- - ------------------
Systems software, included in other noncurrent assets, is recorded at
purchase cost and is being amortized over its expected economic life of five
years using the straight-line method. Assets acquired on December 19, 1994 (see
Note 2), have been recorded at fair value.
INTANGIBLES
- - -----------
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized using the
straight line method over 30 years. Other intangibles consist of trademarks,
trained workforce, and software, and are being amortized over 40, 7, and 5
years, respectively, using the straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred indicate that the remaining balance of goodwill and other
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors indicate that goodwill and other
intangibles should be evaluated for possible impairment, the Company uses an
estimate of undiscounted future cash flows to measure whether the goodwill and
other intangibles is recoverable, and over what period (see Notes 2 and 3).
INCOME TAXES
- - --------------
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date (see Note
7).
FOREIGN CURRENCY TRANSLATION
- - -------------------------------
In accordance with SFAS No. 52, balance sheet accounts of the Company's
foreign operations are translated from Canadian currency into U.S. dollars at
year-end or historical rates, while income and expenses are translated at the
weighted average exchange rates for the year. Translation gains or losses
related to net assets located outside the United States are included in retained
earnings. Gains and losses resulting from foreign currency transactions are
included in net income.
REVENUES
- - ---------
Revenues earned by the Company for processing floral orders are recorded in
the month the orders are reported to the Company as filled. Revenues for other
services related to the processing of floral orders (including equipment rentals
and transmission charges) are recorded in the period the service is provided.
Sales of products are recorded when the products are shipped. Revenues relating
to publications are recognized in the periods in which the publications are
issued.
F-8
35
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
USE OF ESTIMATES
- - ------------------
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and related disclosures to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
- - ------------------------------------
The Financial Accounting Standards Board (FASB) also has recently issued
two new accounting standards, SFAS No. 130, Reporting Comprehensive Income and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. These statements will affect the disclosure requirements for the
Fiscal 1998 annual financial statements. The Company does not know at this time
the effect of these new statements.
(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" or the "Predecessor Company"), pursuant to
the terms of an Agreement and Plan of Merger (the "Merger Agreement") dated
August 2, 1994. The acquisition was effected through the merger (the "Merger")
of FTD Acquisition Corp., a wholly owned subsidiary of FTD Corporation, with and
into the 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.
The statements of financial position of the Company after the Merger are
not comparable to the historical statements of financial position of the
Predecessor Company prior to the Merger, as a result of the Merger and
corresponding allocation of the total purchase price which resulted in a
different cost basis for the statements of financial position. In addition, in
connection with the Merger, certain trade association activities of the
Predecessor Company were separated and are currently being performed by a
separate, nonprofit corporation, FTD Association.
Upon consummation of the acquisition of the Operating Company by FTD
Corporation, management began to assess, formulate, and implement a plan to
involuntarily terminate and/or relocate employees of the Operating Company as
part of its relocation and/or consolidation efforts. The allocation of the total
purchase price referred to above included a reserve for the estimated cost of
planned termination, severance and relocation.
On January 3, 1997, the 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 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
F-9
36
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(2) ACQUISITION -- CONTINUED
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 balance of
$2.1 million, net of $0.6 million of amortization, for the intangible asset of
trained workforce was written off during the year ended June 30, 1997. The
activity in such reserves during the period December 19, 1994 through June 30,
1995 and the years ended June 30, 1997 and 1996, can be summarized as follows
(in thousands):
SEVERANCE RELOCATION
BENEFITS COSTS OTHER TOTAL
--------- ---------- ----- -----
Initial estimate as of December 19, 1994................. $5,573 $600 $ 863 $7,036
Costs paid during the period December 19, 1994 through
June 30, 1995.......................................... 843 232 1,075
------ ---- ------ ------
Remaining 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
====== ==== ====== ======
(3) INTANGIBLES
At June 30, 1997 and 1996 goodwill and other intangible assets consisted of
the following (in thousands):
1997 1996
---- ----
Goodwill.................................................... $68,758 $69,188
Trademarks.................................................. 15,000 15,000
Trained Workforce........................................... -- 2,100
Software.................................................... 2,000 2,000
------- -------
Total....................................................... 85,758 88,288
Less accumulated amortization............................... 7,528 4,874
------- -------
Total....................................................... $78,230 $83,414
======= =======
The Company had no intangibles prior to the Merger Date. The changes in
goodwill resulted from adjustments to the reserve for estimated costs of planned
termination, severance and relocation (see Note 2), as well as pension and
postretirement obligations (see Notes 8 and 9). The reduction in trained
workforce related from the consolidation of the Company's offices in Fiscal 1997
and the related impairment of this asset at that time (see Note 2).
F-10
37
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(4) FINANCING ARRANGEMENTS
LONG-TERM DEBT ( IN THOUSANDS)
At June 30, 1997 and 1996 long-term debt consisted of the following:
1997 1996
---- ----
Series B senior subordinated notes, interest payable
semiannually at 14% due December 15, 2001, net of
unamortized discount of $2,252 and $2,580 at June 30, 1997
and 1996 respectively..................................... $57,748 $57,420
Term loan, payable quarterly at various amounts, plus
interest at a weighted average floating Eurodollar rate of
8.8%, and 8.5% at June 30, 1997 and 1996 respectively, due
December 15, 1999......................................... 24,619 38,781
Other....................................................... 33 76
------- -------
Total long-term debt................................... 82,400 96,277
Less current maturities..................................... 9,297 8,496
------- -------
Long-term debt, less current maturities................ $73,103 $87,781
======= =======
The principal payments required for each of the following five Fiscal years are
as follows (in thousands):
1998........................................................ $ 9,297
1999........................................................ 10,094
2000........................................................ 5,252
2001........................................................ 6
2002........................................................ 60,003
-------
Total.................................................. $84,652
=======
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, 1997. The Company's debt agreements also include restrictions on the
declaration and payment of dividends. The term loan agreement requires the
Company to repay principal of the loans to the extent cash flow generated in the
Fiscal year exceeds certain calculated amounts. As of June 30, 1997 the
estimated fair value of long-term debt, discounted at current rates, was
$87,652,000.
LINE OF CREDIT
The Company has a $25 million revolving line of credit, obtained at the
acquisition date, with a group of banks at an interest rate varying with prime
or other indices. There were no borrowings on this line during 1997 or 1996
however the Company has trade letters of credit of approximately $3.0 million
outstanding under this revolving line of credit agreement at June 30, 1997. The
Agreement provides a maximum commitment for letters of credit of $5.0 million
and requires an annual commitment fee of 0.5% on the unused portion of the
commitment.
F-11
38
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(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, 1997 and 1996 (in thousands):
1997 1996
---- ----
Mercury consoles............................................ $22,472 $23,187
Less: Accumulated Depreciation.............................. 17,710 10,946
------- -------
Net Investment $ 4,762 $12,241
======= =======
AS LESSEE
Rental expense with respect to operating leases related to facilities and
equipment was $1,005,000, $802,000, $459,000, and $486,000 for the years ended
June 30, 1997, and 1996 and the periods December 19, 1994 through June 30, 1995
and July 1 1994 through December 18, 1994, respectively. The minimum aggregate
annual operating lease obligations are as follows (in thousands):
1998........................................................ $1,160
1999........................................................ 637
2000........................................................ 333
2001........................................................ 333
Thereafter.................................................. 106
------
Total.................................................. $2,569
======
(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.
Advertising credits earned by FTD members under the Company's sales incentive
program are charged to expense when earned.
In the years ended June 30, 1997 and 1996 and the periods December 19, 1994
through June 30, 1995 and July 1, 1994 through December 18, 1994, advertising
and sales promotion expense was $28 million, $31 million, $16 million and $12
million, respectively.
F-12
39
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(7) INCOME TAXES
At June 30, 1997 and 1996, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
1997 1996
---- ----
Current deferred tax assets:
Accrued Value Plus incentive obligations.................. $ 2,824 $ 3,058
Accrued severance costs................................... 399 499
Allowance for doubtful accounts........................... 814 518
Unearned income........................................... 970 617
Inventory................................................. 1,075 497
Accrued vacation.......................................... 132 246
Other..................................................... 1,028 134
------- -------
Current deferred tax assets................................. 7,242 5,569
------- -------
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 3,131 4,844
Postretirement benefit obligations........................ 2,433 2,650
Accrued pension........................................... 324 1,503
Other..................................................... 254 197
------- -------
Noncurrent deferred tax assets.............................. 6,142 9,194
Noncurrent deferred tax liabilities-tax over book
depreciation and
difference in basis....................................... 6,407 7,500
------- -------
Net noncurrent deferred tax assets (liabilities)............ (265) 1,694
------- -------
Deferred tax assets -- valuation allowance.................. (1,500) (1,500)
------- -------
Net deferred tax assets..................................... $ 5,477 $ 5,763
======= =======
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, 1997 and 1996.
The Company's net operating loss carryforwards at June 30, 1997 and 1996,
of approximately $8.5 million, and $10.8 million, respectively, the tax benefits
of which are included above as noncurrent deferred tax assets, will expire if
unused, as follows: $0.2 million in 2007; $2.3 million in 2008; $0.8 million in
2009; and $5.2 million in 2010. In addition, as a result of the Merger (see Note
2), the Company's pre-Merger net operating loss carryforwards of $3.3 million
available to be utilized in the future are limited to approximately $1.8 million
per year.
The provision for income taxes consists of the following components (in
thousands):
PERIOD
DECEMBER 19, 1994
THROUGH JUNE 30,
1997 1996 1995
---- ---- -----------------
Current............................................ $124 $ 189 $ 143
Deferred........................................... 286 (1,996) 877
---- ------- -------
Total Income Tax expense (benefit)................. $410 $(1,807) $1,020
==== ======= =======
F-13
40
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(7) INCOME TAXES -- CONTINUED
The provision for income taxes for the years ended June 30, 1997 and 1996
and for the period December 19, 1994 through June 30, 1995, 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):
DECEMBER 19,
1994
THROUGH
JUNE 30,
1997 1996 1995
---- ---- ------------
Tax expense (benefit) at U.S. federal income tax rate... $(443) $(2,992) $ 506
State income taxes (benefit), net of federal income tax
benefit............................................... (27) (172) 29
Amortization of purchased goodwill...................... 893 842 464
Valuation allowance..................................... -- 500 --
Other items, net........................................ (13) 15 21
----- ------- ------
Reported income tax expense (benefit)................... $ 410 $(1,807) $1,020
===== ======= ======
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Operating Company provides certain postretirement health care benefits
to substantially all employees who retired with a minimum of 10 years of service
and have attained 60 years of age. The plan retirees are required to share in
the cost of the benefit. 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 Operating Company's
corresponding liability for certain postretirement benefits. These terminations
caused a decrease in the Operating Company's postretirement obligation and
generated a pretax gain of $0.8 million which was recorded as a reduction in
selling, general and administrative expenses. In addition, the Operating Company
amended its postretirement benefit plan effective January 1, 1997, and will no
longer provide such benefits to employees hired after January 1, 1997.
At June 30, 1997 and 1996 the status of the plan consisted of the following
(in thousands):
1997 1996
---- ----
Retirees.................................................... $4,448 $4,198
Fully eligible active participants.......................... -- 62
Other active participants................................... 860 1,921
------ ------
Accumulated postretirement benefit obligation............... 5,308 6,181
Unrecognized net gain....................................... 1,526 1,238
------ ------
Accrued postretirement benefit liability.................... $6,834 $7,419
====== ======
At June 30, 1995, the accrued postretirement benefit liability included
employees who were subsequently voluntarily or involuntarily terminated as part
of the Company's relocation and/or consolidation plan to relocate and/or
consolidate employees. Upon the completion of the Company's relocation and/or
consolidation plan, a reduction to the accrued postretirement benefit liability
of $590,000 was recorded in the year ended June 30, 1996 to reflect the impact
of this plan.
F-14
41
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- CONTINUED
Net periodic postretirement benefit costs for the years ended June 30, 1997
and 1996 and for the periods December 19, 1994 through June 30, 1994 and July 1,
1994 through December 18, 1994 included the following components (in thousands):
PREDECESSOR
COMPANY
-----------------
DECEMBER 19, 1994 JULY 1
THROUGH THROUGH
1997 1996 JUNE 30, 1995 DECEMBER 18, 1994
---- ---- ----------------- -----------------
Service cost............................ $190 $194 $168 $208
Interest cost........................... 434 438 294 307
Unrecognized prior period gain.......... (45) (54) -- --
---- ---- ------ ------
Total................................... $579 $578 $462 $515
==== ==== ====== ======
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 8.0% through December 18, 1994 8.5% through
June 30, 1995, 7.75% at June 30, 1995, 7.5% at and for the year ended June 30,
1996, and 7.75% at and for the year ended June 30, 1997. The assumed health care
cost trend rate used in measuring the APBO was 9.8% and graded down to 5.75%
over 11 years at June 30, 1997, 10.0% and graded down to 5.5% over 12 years at
June 30, 1996 and 13.2% and graded down to 6.4% over 13 years at June 30, 1995.
If the current health care cost trend rate assumption was increased by one
percent, the APBO as of June 30, 1997, would increase approximately $558,000, or
10.5%, while the periodic cost for the Fiscal year ended June 30, 1997, would
have increased approximately $64,800, or 11.2%.
(9) PENSION PLANS
During the quarter ended December 31, 1996, the level of lump sum
distributions made to participants in the Company's defined benefit pension plan
caused a partial pension plan settlement, resulting in the recognition of a
pre-tax pension settlement gain of $429,000. As virtually all of these
distributions were accrued as part of a purchase price allocation in connection
with the Merger, the settlement gain was accounted for as a reduction of
goodwill which arose as part of the Merger.
Prior to January 1, 1997, the Operating Company had both a defined benefit
and a defined contribution plan which covered substantially all domestic
employees. The Operating 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 1997, 1996, or 1995. The Operating 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 the year ended
June 30, 1997, or 1996 or for the period December 19, 1994 through June 30, 1995
to the defined contribution plan.
Effective January 1, 1997, amendments to the Operating Company's defined
benefit pension plan were adopted, including the elimination of the accrual of
future benefits under the plan. As a result of these amendments, and the
corresponding remeasurement of the accumulated and projected benefit obligations
under the plan, a pre-tax pension curtailment gain of $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. The Operating Company has
established a new 401(k) savings plan for all of its eligible employees to
replace the defined benefit pension plan.
Benefits under the defined benefit plan are based on the employee's age,
years of service, and the highest consecutive five-year average compensation.
F-15
42
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(9) PENSION PLANS -- CONTINUED
Pension expense, including administrative costs, charged to the operations
for the above-mentioned plans amounted to $371,000, $903,000 $507,000, and
$646,000 in the years ended June 30, 1997, and 1996 and for the periods December
19, 1994 through June 30, 1995 and July 1, 1994 through June 30, 1995,
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 was computed as
follows (in thousands):
PREDECESSOR
COMPANY
DECEMBER 19, ------------
1994 JULY 1
THROUGH THROUGH
JUNE 30, DECEMBER 18,
1997 1996 1995 1994
---- ---- ------------ ------------
Service cost.............................. $ 299 $ 616 $ 360 $ 458
Interest cost............................. 546 820 387 447
Actual gain on plan assets................ (495) (1,434) (566) (299)
Net amortization and deferral............. 20 901 310 30
------- ------- ----- -----
Net Periodic Pension expense.............. 370 903 491 636
Settlement gain........................... (936) -- -- --
Curtailment gain.......................... (2,665) -- -- --
------- ------- ----- -----
Total Pension Cost/(Gain)................. $(3,231) $ 903 $ 491 $ 636
======= ======= ===== =====
At June 30, 1997 and 1996 the funded status of the defined benefit plan was
as follows (in thousands):
1997 1996
---- ----
Actuarial present value of:
Vested benefit obligations................................ $ 2,457 $ 6,136
Nonvested benefit obligations............................. 573 840
------- -------
Accumulated benefit obligations........................... 3,030 6,976
======= =======
Projected benefit obligations............................... 3,144 10,653
Plan assets at fair value................................... (2,562) (5,780)
------- -------
Projected benefit obligations in excess of plan assets...... 582 4,873
Unrecognized net gain....................................... 1,272 212
------- -------
Total accrued pension obligations........................... $ 1,854 $ 5,085
======= =======
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. For the year ended June 30, 1995, the weighted average discount
rate was 8.5% preretirement and 6% postretirement for those participating in the
defined benefit plan on November 1, 1976, and 8.5% for all others. 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. For Fiscal 1997, 1996 and 1995, the rate of increase in
future compensation levels was 5.0% and the expected long-term rate of return on
assets was 9.0%.
F-16
43
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(9) PENSION PLANS -- CONTINUED
At June 30, 1995 the calculated projected benefit obligation assumed that
certain employees of FTD Association, who were formerly employees of the
Operating Company, were active plan participants continuing to earn benefits.
Subsequent to June 30, 1995, the status of FTD Association employees was changed
to vested terminated participants who were due a lump sum under the plan
agreement and, accordingly, the calculated projected benefit obligation was
increased by $734,000.
(10) NOTE RECEIVABLE AND OTHER RELATED PARTY TRANSACTIONS
Operating expenses for the years ended June 30, 1997 and 1996 and for the
period December 19, 1994 through June 30, 1995 include $1,000,000 payable each
period to certain investors of the Company for management consulting services.
The Company has an inter company payable with FTD Corporation, its parent,
of $2,109,000 and $2,405,000 at June 30, 1997 and 1996, respectively.
The Company loaned an Officer of the Company $150,000 pursuant to a five
year interest bearing note dated June 30, 1997, with accrued interest at 7% per
annum with principal due at maturity.
(11) COMMITMENTS AND CONTINGENCIES
On July 16, 1997, Teleflora LLC ("Teleflora") instituted an arbitration
against FTD in Southfield, Michigan. The arbitration was filed under the
Commercial Arbitration Rules of the American Arbitration Association alleging
that FTD breached a 1991 Agreement by which FTD provides certain Mercury Network
services to Teleflora (the "1991 Agreement"). The specific claim is that FTD has
failed to negotiate in good faith a new contract on expiration of the 1991
Agreement as required by its terms. Unspecified damages are alleged. FTD has
filed an answering statement that denies the allegations. FTD management
believes that it has meritorious defenses to this action and intends to contest
Teleflora's allegations vigorously. An adverse decision could have a material
adverse effect on the Company's financial position and results of operations.
On July 21, 1997, Teleflora filed a complaint against FTD in United States
District Court for the Central District of California. On August 7, 1997,
Teleflora filed a first amended and supplemental complaint in that action. The
first amended and supplemental complaint contains six counts alleging
monopolization and attempted monopolization in violation of Section 2 of the
Sherman Act, discriminatory pricing violation of Section 2 of the Clayton Act,
unfair competition in violation of California Business and Professions Code
Sections 17200 et seq., and a claim for breach of contract. The allegations
pertain to the 1991 Agreement. Teleflora seeks compensatory and treble damages,
and declaratory relief and have moved for a preliminary injunction. FTD
management believes that it also has meritorious defenses to this action and
intends to contest Teleflora's allegations vigorously. An adverse decision could
have a material adverse effect on the Company's financial position and results
of operations.
The Company is involved in various lawsuits and other matters arising in
the normal course of business. In the opinion of the management of the Company,
although the outcomes of these claims and suits are uncertain, they should not
have a material adverse effect on the Company's financial condition, liquidity,
or results of operations.
F-17
44
FLORISTS' TRANSWORLD DELIVERY, INC.
(A WHOLLY OWNED SUBSIDIARY OF FTD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997 AND 1996
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER
SHARE DATA):
FISCAL 1997 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- - ----------- ------------- -------------- ------------- --------------
Net Revenue....................... $37,068 $41,640 $47,841 $36,034
Income (Loss) from Operations..... 2,437 1,430 6,792 (82)
Net Income (Loss)................. (523) (1,154) 2,308 (2,292)
FISCAL 1996
- - -----------
Net Revenue....................... $36,536 $45,865 $44,794 $39,060
Income (Loss) from Operations..... 3,657 (1,468) 2,378 (1,035)
Net Income (Loss)................. 100 (3,072) (604) (3,132)
F-18
45
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
The Board of Directors
Florist Transworld Delivery, Inc.:
We have audited and reported separately herein on the financial statements
of Florists' Transworld Delivery, Inc. as of and for the years ended June 30,
1997 and 1996.
Our audits were made for the purpose of forming an opinion on the basic
financial statements of Florists' Transworld Delivery, Inc. taken as a whole.
The supplementary information included in Schedule II is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
(signed) KPMG PEAT MARWICK LLP
Detroit, Michigan
August 14, 1997
F-19
46
FLORISTS' TRANSWORLD DELIVERY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-------------------------
BALANCE CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COST AND OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
YEAR 1996
Allowance for doubtful accounts (shown as
deduction from Accounts Receivable in
balance sheet)......................... $1,589 $ 895 $80(a) $1,152(b) $1,412
Inventory valuation reserve (included in
Inventories, net in balance sheet)..... $ 345 $1,325 -- $1,276(c) $ 394
YEAR 1997
Allowance for doubtful accounts (shown as
deduction from Accounts Receivable in
balance sheet)......................... $1,412 $1,105 $75(a) $ 381(b) $2,211
Inventory valuation reserve (included in
Inventories, net in balance sheet)..... $ 394 $1,363 -- $ 52(c) $1,705
- - -------------------------
(a) Collection of accounts previously written off
(b) Uncollectible accounts written off
(c) Valuation writedown
F-20
47
INDEX TO EXHIBITS
EXHIBIT PAGE
NUMBER DESCRIPTION OF DEBT NUMBER
- - ------- ------------------- ------
3.1 Restated Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1 (File No.
33-88628) (the "FTD S-1").)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's Annual Report on Form 10-K
for fiscal year ended June 30, 1995 (the "FTD 1995 Form
10-K").)
4.1 Indenture, dated as of December 1, 1994 (the "Indenture"),
by and between the Registrant and First Trust of New York,
National Association, as Trustee. (Incorporated by reference
to Exhibit 4.1 of the FTD S-1.)
4.2 Supplemental Indenture, dated as of December 19, 1994 to the
Indenture. (Incorporated by reference to Exhibit 4.3 of the
FTD S-1.)
10.1(a) Credit Agreement, dated as of December 19, 1994, among the
Registrant, FTD Corporation, the various lending
institutions party thereto and Bankers Trust Company, as
Agent. (Incorporated by reference to Exhibit 10.1 of the FTD
S-1.)
10.1(b) First Amendment to Credit Agreement, dated as of August 30,
1995, among the Registrant, FTD Corporation, the lending
institutions party to the Credit Agreement and the Bankers
Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.1(b) of the FTD 1995 Form 10-K.)
10.1(c) Second Amendment to Credit Agreement, dated as of June 11,
1996, among the Registrant, FTD Corporation, the lending
institutions party to the Credit Agreement and Bankers Trust
Company, as Agent. (Incorporated by reference to Exhibit
I(d) of the FTD Corporation Registration Statement on Form
8-A, filed August 28, 1996.)
10.1(d) Third Amendment to Credit Agreement, dated as of November
21, 1996, among the Registrant, FTD Corporation, the lending
institutions party to the Credit Agreement and Bankers
Trust, as Agent. (Incorporated by reference to Exhibit 10(b)
of FTD Corporation's Form 10-Q, filed December 31, 1996.)
10.2 Pledge Agreement, dated December 19, 1994, by and among the
Registrant, FTD Corporation., FTD Holdings Incorporated, FTD
Direct Access, Inc., Directory Advertising, Inc. and Bankers
Trust Company, as Agent. (Incorporated by reference to
Exhibit 10.2 of the FTD S-1.)
10.3 Security Agreement, dated December 19, 1994, by and among
the Registrant, FTD Corporation, certain subsidiaries of the
Registrant and Bankers Trust Company, as Agent.
(Incorporated by reference to Exhibit 10.3 of the FTD S-1.)
10.4* Consultation Agreement and Covenant Not to Compete, dated as
of August 2, 1994, by and between the Registrant and John A.
Borden. (Incorporated by reference to Exhibit 10.8 of the
FTD S-1.)
10.5 Mutual Support Agreement, dated as of December 18, 1994, by
and between the Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.9 of the FTD S-1.)
10.6 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between the Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.9 of FTD
Corporation's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.)
10.7 Trademark License Agreement, dated as of December 18, 1994,
by and between the Registrant and FTD Association.
(Incorporated by reference to Exhibit 10.10 of the FTD Form
S-1.)
i
48
EXHIBIT PAGE
NUMBER DESCRIPTION OF DEBT NUMBER
- - ------- ------------------- ------
10.8 Securityholders' and Registration Rights Agreement, dated as
of December 19, 1994, among the Registrant, FTD Corporation,
BT Securities Corporation and Montgomery Securities.
(Incorporated by reference to Exhibit 10.11 of the FTD S-1.)
10.9 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and FTD Corporation. (Incorporated by
reference to Exhibit 10.12 of the FTD S-1.)
10.10* FTD Corporation 1994 Stock Award and Incentive Plan.
(Incorporated by reference to Exhibit 10.14 of the FTD
Corporation Registration Statement on Form S-1 (File No.
33-91582).)
10.11* Agreement dated as of April 30, 1997, between the Registrant
and Louis E. Nagy.
10.12* Letter dated October 17, 1996, regarding Norton employment
arrangements.
10.13* Letter dated June 6, 1997, regarding Norton employment
arrangements.
10.14* Description of Key Management Incentive Plan. (Incorporated
by reference to Exhibit 10.6 of the Registrant's Form 10-Q,
filed March 31, 1997.)
10.15* Promissory Note, dated June 30, 1997, made by Scott D.
Levin.
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTD 1995 Form 10-K.)
27 Financial Data Schedule.
- - -------------------------
* Management contract or compensatory plan arrangement required to be filed as
an Exhibit to the Form 10-K pursuant to Item 14(a)3.
ii