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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
Commission File Number
33-88628
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FLORISTS' TRANSWORLD DELIVERY, INC.
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(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-0546960
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
3113 WOODCREEK DRIVE
DOWNERS GROVE, ILLINOIS 60515-5420
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(Address of Principal Executive Offices) (Zip Code)
(630) 719-7800
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(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Action
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of February 13, 1998, there were outstanding 100 shares of the
Registrant's Common Stock, par value $.01 per share, which is the only class of
Common Stock of the Registrant.
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FLORISTS' TRANSWORLD DELIVERY, INC.
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at December 31, 1997
and June 30, 1997 3
Consolidated Condensed Statements of Operations
for the Three and Six Month periods Ended
December 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the
Six Month periods Ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31,
1997 JUNE 30,
ASSETS (UNAUDITED) 1997
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(In thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 21,023 $ 28,294
Accounts receivable, less allowance for doubtful accounts
of $2,495 at December 31, 1997 and $2,211 at June 30, 1997 35,414 24,979
Inventories, principally finished goods, net 14,770 14,992
Deferred income taxes 7,242 7,242
Other current assets 2,247 2,034
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TOTAL CURRENT ASSETS 80,696 77,541
Property and equipment, less accumulated depreciation
of $28,767 at December 31, 1997 and $23,925 at June 30, 1997 15,901 20,580
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $4,505 at December 31, 1997 and $2,724 at June 30, 1997 2,965 3,394
Other noncurrent assets 1,810 1,979
Goodwill and other intangibles, less accumulated amortization
of $9,059 at December 31, 1997 and $7,528 at June 30, 1997 76,699 78,230
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TOTAL OTHER ASSETS 81,474 83,603
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TOTAL ASSETS $ 178,071 $ 181,724
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current maturities of long-term debt $ - $ 9,297
Accounts payable 44,513 31,346
Accrued member incentive programs 14,217 13,816
Accrued severance costs 673 1,245
Other accrued liabilities 7,004 5,759
Members' deposits 10,312 9,991
Unearned income 2,018 2,724
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TOTAL CURRENT LIABILITIES 78,737 74,178
Long-term debt, less current maturities 67,932 73,103
Post-retirement benefits, less current portion 6,577 6,577
Accrued pension obligations, less current portion 426 876
Deferred income taxes 1,299 1,765
Minority interest in subsidiary - 156
STOCKHOLDERS' EQUITY:
Common stock:
Class A
Class B
Paid-in capital 33,000 33,000
Accumulated deficit (9,900) (7,931)
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TOTAL STOCKHOLDERS' EQUITY 23,100 25,069
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 178,071 $ 181,724
========= =========
See accompanying notes to consolidated financial statements.
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FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months
Ended Ended
December 31, December 31,
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1997 1996 1997 1996
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(In thousands)
REVENUES:
Marketplace $13,488 $11,055 $26,017 $24,694
Clearinghouse 10,052 10,639 16,903 17,841
Mercury Network 9,201 9,902 17,222 18,400
Other 9,932 10,044 18,018 17,772
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Total revenues 42,673 41,640 78,160 78,707
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COSTS:
Products and distribution 11,400 8,400 20,146 17,861
Floral order transmissions and processing services 6,908 7,112 13,624 14,192
Member programs 7,665 8,908 14,241 15,720
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Total cost of goods sold and services
provided 25,973 24,420 48,011 47,773
Selling, general and administrative expense 15,820 15,790 25,934 27,069
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Income from operations 880 1,430 4,215 3,865
OTHER INCOME AND EXPENSES:
Interest expense (net of interest income) 2,505 2,943 5,181 5,881
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Loss before income tax expense
and minority interest (1,625) (1,513) (966) (2,016)
Income tax expense, (benefit) (327) (340) 137 (309)
Minority interest in loss of subsidiary - (19) (1) (30)
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Net loss before extraordinary item (1,298) (1,154) (1,102) (1,677)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt net of $490 income tax benefit (835) - (835) -
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Net loss ($2,133) ($1,154) ($1,937) ($1,677)
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See accompanying notes to consolidated financial statements.
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FLORISTS' TRANSWORLD DELIVERY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
December 31, December 31,
1997 1996
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 9,038 $7,304
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (753) (2,086)
Sale of Property, Plant & Equipment 480 -
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Net cash used in investing activities (273) (2,086)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of long-term debt 23,648 -
Repayments of long-term debt (39,652) (3,005)
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Net cash used in financing activities (16,004) (3,005)
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Effect of exchange rate changes on cash (32) -
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (7,271) 2,213
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 28,294 26,536
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END OF PERIOD $21,023 $28,749
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $5,205 $ 6,020
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Income taxes paid $108 $ 148
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See accompanying notes to consolidated financial statements.
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FLORISTS' TRANSWORLD DELIVERY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited consolidated financial statements at December 31, 1997,
include the accounts of Florists' Transworld Delivery, Inc. (the "Company" or
"FTD"). These statements have been prepared in accordance with generally
accepted accounting principles for interim financial information pursuant to the
rules and regulations of the Securities and Exchange Commission and do not
contain all information included in the audited consolidated financial
statements and notes for the year ended June 30, 1997. In the opinion of FTD
management, all adjustments necessary for a fair presentation of the financial
position and results of operations have been included (and any such adjustments
are of a normal, recurring nature, except as disclosed herein). Due to seasonal
variations in FTD's business, operating results for the three and six month
periods ended December 31, 1997 are not necessarily indicative of the results
that might be expected for the year ended June 30, 1998.
Certain amounts in the December 31, 1996 consolidated condensed
financial statements have been reclassified to conform to the current year
presentation.
Note 2. Accrued Severance and Related Costs
The following table reflects the changes to accrued severance, asset
impairment loss, and other reserves for the six month period ended December 31,
1997 (in thousands):
Severance Relocation
Benefits Costs Other Total
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Liability as of June 30, 1997 $792 $119 $334 $1,245
Costs paid during the six month period ended
December 31, 1997 $390 $ 26 $156 $ 572
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Liability as of December 31, 1997 $402 $ 93 $178 $ 673
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Note 3. Employee Benefit Obligations
Effective January 1, 1997, amendments to FTD's defined benefit pension
plan were adopted, including the elimination of the accrual of future benefits
under the plan. As a result of these amendments, and the corresponding
remeasurement of the accumulated and projected benefit obligations under the
plan, a pre-tax pension curtailment gain of $0.3 million and $0.2 million was
recognized in income as a reduction in selling, general and administrative costs
during the three month periods ended September 30, 1997 and December 31, 1997
respectively.
Note 4. Extinguishment of long-term debt
In November, 1997 FTD entered into a new credit agreement with First
Chicago Capital Markets, Inc. arranging a $100 million financing package ("the
Bank Credit Facilities") with The First National Bank of Chicago acting as
Administrative Agent. The Bank Credit Facilities consist of a $50 million
Revolving Credit Facility and a $50 million Multiple Draw Term Loan Facility,
both maturing on December 31, 2003. The proceeds of the Revolving Credit were
used to provide funds for the refinancing of the existing debt totaling $24.6
million. As a result of entering into the Bank Credit Facilities, $1.3 million
of un-amortized deferred financing costs associated with the existing debt were
expensed in November 1997. The related income tax benefit attributable to the
extinguishment of the existing debt was $0.5 million, for a net loss on
extinguishment of debt totaling $0.8 million.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for the historical information contained in this report, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause actual
results to differ materially from these forward-looking statements, including,
without limitation, the effect of economic and market conditions and the impact
of competitive activities.
FTD generates its revenue from four principal areas of operation.
Marketplace represents FTD's wholesale distribution of hardgoods to retail
florists in North America. FTD's Clearinghouse operation provides order billing
and collection services to both the sending and receiving florists, and FTD
receives a percentage of the sales price for the service. Mercury Network is
FTD's proprietary telecommunications network used by florists to transmit orders
through FTD or through competing clearinghouses. Other revenue is derived from
the 1-800-SEND-FTD direct marketing business, FTD Florists' Online Internet site
(www.ftd.com), credit card authorization and processing, publications and FTD's
Flowers After Hours order taking service.
THREE MONTH PERIOD ENDED DECEMBER 31, 1997, COMPARED TO THREE MONTH PERIOD ENDED
DECEMBER 31, 1996.
The following is a discussion of changes in the Company's financial
condition and results of operations for the three month period ended December
31, 1997, compared with the three month period ended December 31, 1996.
Revenue increased by $1.0 million, or 2.4%, to $42.6 million for the
three month period ended December 31, 1997, compared to $41.6 million for the
three month period ended December 31, 1996. This increase in revenue was the
result of an increase in Marketplace revenue offset in part by a decrease in
Mercury Network revenue.
Marketplace revenue increased by $2.4 million, or 8.1%, to $13.5
million for the three month period ended December 31, 1997 compared to $11.1
million for the three month period ended December 31, 1996. This increase was
primarily due to the timing of shipments of holiday products. Marketplace
revenue was 31.7% and 26.7% of total revenue for the three months ended December
31, 1997 and 1996, respectively.
Mercury Network revenue decreased by $0.7 million, or 7.1%, to $9.2
million for the three months ended December 31, 1997 from $9.9 for the three
month period ended December 31, 1996. This decrease is primarily due to a
decrease in sales of Advantage Business Systems.
The cost of goods sold and services provided increased by $1.6 million,
or 6.6%, to $26.0 million for the three month period ended December 31, 1997
from $24.4 million for the three month period ended December 31, 1996. This
is primarily the result of proportionately higer cost of goods sold relating to
increases in Marketplace holiday-product sales and increases in the related
distribution costs due to the timing of shipments of holiday products. The
increased distribution costs during the second fiscal quarter of 1998 resulted
from both the earlier receipt of holiday product and the shipment of such
products to customers. As a percent of revenue, cost of goods
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sold and services provided increased to 61.0% for the three month period ended
December 31, 1997, from 58.7% for the three month period ended December 31,
1996.
Selling, general and administrative expenses remained unchanged at
$15.3 million for the three month periods ended December 31, 1997 and December
31, 1996.
Interest expense for the three month period ended December 31, 1997 was
$2.8 million as compared to $3.3 million for the three month period ended
December 31, 1996. The decrease of $0.5 million was attributable to lower
average debt outstanding due to scheduled principal payments as well as the
implementation of a new credit agreement which became effective in November
1997 (see Liquidity and Capital Resources).
Income taxes for the three month period ended December 31, 1997 were a
benefit of $0.8 million compared to a benefit of $0.3 million for the comparable
three month period ended December 31, 1996. The income tax benefit of $0.8
million for the three month period ended December 31, 1997 consists of an income
tax benefit of $0.5 million relating to the extinguishment of long-term debt
(see Liquidity and Capital Resources) as well as $0.3 million of income tax
benefit relating to the change in taxable income (loss).
Net loss was $2.1 million for the three month period ended December 31,
1997, an increase of $0.9 million, from a loss of $1.2 million for the three
month period ended December 31, 1996. The change is attributable to the factors
previously discussed.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
The following is a discussion of changes in the Company's financial
condition and results of operations for the six month period ended December 31,
1997, compared with the six month period ended December 31, 1996.
Revenue decreased $0.5 million, to $78.2 million for the six month
period ended December 31, 1997, compared to $78.7 million for the six month
period ended December 31, 1996. This decline in revenue is primarily due to the
net result of decreases in Mercury Network revenue and Clearinghouse revenue
partially offset by increases in Marketplace and Other revenue.
Mercury Network revenue decreased $1.2 million or 6.5%, to $17.2
million for the six month period ended December 31, 1997 from $18.4 million for
the six month period ended December 31, 1996. This decrease is primarily due to
the decrease in sales of Advantage Business Systems and transmission income.
Clearinghouse revenue decreased by $0.9 million or 5.1%, to $16.9
million for the six month period ended December 31, 1997 from $17.8 million for
the six month period ended December 31, 1996. This decrease in revenue is
primarily due to decreases in clearinghouse advances.
Marketplace revenue increased $1.3 million or 5.2%, to $26.0 million
for the six month period ended December 31, 1997 from $24.7 million for the six
month period ended December 31, 1996. This increase from the prior year is
primarily due to the timing of shipments of holiday products.
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Other revenue increased $0.2 million or 1.1%, to $18.0 million for the
six months ended December 31, 1997 from $17.8 million for the six months ended
December 31, 1996. This is primarily due to increased revenue from FTD
Florist's Online Internet site (www.ftd.com).
The cost of goods sold and services provided increased $0.2 million or
0.4%, to $48.0 million for the six months ended December 31, 1997 from $47.8
million for the six months ended December 31, 1996. This is primarily due to the
higher Marketplace sales as discussed above. As a percent of revenue, cost of
goods sold and services provided increased 0.7% to 61.4% for the sixth month
period ended December 31, 1997 from 60.7% for the six month period ended
December 31, 1996.
Selling, general and administrative expenses decreased by $1.1 million
or 4.1%, to $26.0 million for the six month period ended December 31, 1997 from
$27.1 million for the six month period ended December 31, 1996. This decrease is
attributable to lower administrative expenses due to the Company's facility
consolidation in fiscal 1997.
Interest expense for the six months ended December 31, 1997 was $5.8
million as compared to $6.5 million in the comparable period of the prior year.
The decrease is attributable to lower average debt outstanding due to scheduled
principal payments as well as the implementation of a new credit agreement which
became effective in November, 1997 (see Liquidity and Capital Resources).
Income taxes for the six month period ended December 31, 1997 were a
benefit of $0.4 million as compared to a benefit of $0.3 million in the
comparable period of the prior year. The income tax benefit of $0.4 million for
the six month period ended December 31, 1997 consists of a benefit of $0.5
million relating to the extinguishment of long-term debt (see Liquidity and
Capital Resources), partially offset by $0.1 million of income tax expense due
to the change in taxable income (loss).
Net loss increased $0.3 million or 17.6% to $2.0 million for the six
month period ended December 31, 1997 as compared to a net loss of $1.7 million
for the six month period ended December 31, 1996. The change is attributable to
the factors previously discussed.
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LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Company's $60.0 million aggregate principal
amount of 14% Senior Subordinated Notes (the "Notes") and interest on the
principal payments on obligations under the Bank Credit Facilities represent
significant liquidity requirements for FTD. Borrowings under the Bank Credit
Facilities bear interest at floating rates and require interest payments on
varying dates depending on the interest rate option selected by FTD. Borrowings
available under the Bank Credit Facilities consist of a $50.0 million Multiple
Draw Term Loan Facility (the "Term Loan Facilities") and a $50.0 million
Revolving Credit Facility (the "Revolving Credit Facilities") to finance
working capital, acquisitions, certain expenses and letter of credit needs. FTD
repaid $20.4 million of term loans outstanding under its prior credit facility
through June 30, 1997 and repaid $24.6 million of the term loans thereunder in
the six month period ended December 31, 1997 as a result of the Company
refinancing under the Revolving Credit Facilities in November 1997. Any loan
outstanding under the Revolving Credit Facilities will mature on December 31,
2003. The Company believes, based on current circumstances, that its cash flow,
together with borrowings under the Revolving Credit Facilities, will be
sufficient to fund its working capital needs, obligations to the Operating
Company and potential acquisitions, and to repay the term loans and make
interest payments as they become due through the term of the Notes and the Bank
Credit Facilities.
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations.
The Company expects its year 2000 date conversion project to be
completed on a timely basis. During the execution of this project the Company
will incur internal staff costs as well as consulting and other expenses related
to enhancements necessary to prepare the systems for the year 2000. The expense
of the year 2000 project as well as the related potential effect on the
Company's earnings is not expected to have a material effect on its financial
position or results of operations.
For the six month period ended December 31, 1997, FTD used cash in the
amount of $7.3 million, as compared to a $2.2 million increase in cash for the
six month period ended December 31, 1996.
Cash provided by operating activities was $9.0 million for the six
month period ended December 31, 1997, compared to cash provided by operating
activities of $7.3 million for the six month period ended December 31, 1996.
Depreciation and amortization was $6.7 million for the six month period ended
December 31, 1997, and $7.2 million for the six month period ended December 31,
1996. The increase in cash is primarily due to an increase in accounts payable
for the six month period ended December 31, 1997.
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Cash used in investing activities, consisting of capital expenditures
net of disposal of assets, was $273 thousand for the six month period ended
December 31, 1997 compared to $2.1 million for the six month period ended
December 31, 1996.
Net cash used in financing activities for the six month period ended
December 31, 1997 was $16.0 million compared to net cash used of $3.0 million
for the six month period ended December 31, 1996. This increase primarily
consists of $23.6 million of net proceeds of long-term debt as a result of the
new Bank credit Facilities and repayments of $40.0 million of principal on the
term loans.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 16, 1997, Teleflora LLC ("Teleflora") instituted an arbitration
proceeding against FTD in Southfield, Michigan. The arbitration alleged that FTD
breached a 1991 agreement by which FTD provides certain Mercury Network services
to Teleflora. On July 21, 1997 Teleflora filed a complaint against FTD in United
States District Court for the Central District of California containing six
counts alleging monopolization and attempted monopolization. On October 28,
1997, Teleflora dismissed the federal antitrust suit and the breach of contract
arbitration that it instituted against FTD.
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
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(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
FTD did not file any reports on Form 8-K during the six month period
ended December 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 17th day of February, 1998.
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ FRANCIS C. PICCIRILLO
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Francis C. Piccirillo
Vice President and Chief Financial Officer
(Principal financial officer and officer duly
authorized to sign on behalf of registrant)
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EXHIBIT INDEX
Paper (P)
or
Exhibit Description Electronic (E)
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27 Financial Data Schedule E
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