UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

FTD, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

DELAWARE		13-3711271
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420

(Address of Principal Executive Offices)

 

(630) 719-7800

(Registrant’s Telephone Number, Including Area Code)

 

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  ý  No ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  ý

 

As of November 8, 2004, there were 100 outstanding shares of the Registrant’s common stock, par value $.01 per share.

 

 

FTD, Inc.

 

INDEX TO FORM 10-Q

 

Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets	2
		Consolidated Statements of Operations and Comprehensive Income	3
		Consolidated Statements of Cash Flows	4
		Notes to Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
	Item 4.	Controls and Procedures	26
Part II.	Other Information		27
	Item 1.	Legal Proceedings	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 6.	Exhibits	28
Signatures			29
Index of Exhibits			30

 

1

 

PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

 

FTD, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

		September 30, 2004			June 30, 2004
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	392		$	2,491
Restricted cash		7,261			7,261
Accounts receivable, less allowance for doubtful accounts of $5,287 at September 30, 2004 and $5,067 at June 30, 2004		33,061			27,572
Inventories, net		9,443			9,392
Deferred income taxes		4,296			4,296
Prepaid expenses and other		9,142			10,312
Total current assets		63,595			61,324
Property and equipment:
Land and improvements		1,380			1,380
Building and improvements		14,196			14,196
Mercury consoles		10			10
Furniture and equipment		4,751			4,761
Total		20,337			20,347
Less accumulated depreciation		1,962			1,136
Property and equipment, net		18,375			19,211
Other assets:
Other noncurrent assets, net		28,719			28,907
Customer lists, less accumulated amortization of $1,459 at September 30, 2004 and $834 at June 30, 2004		11,048			11,673
Trademark		121,577			121,577
Goodwill		337,196			337,196
Total other assets		498,540			499,353
Total assets		$	580,510		$	579,888
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	33,678		$	41,311
Customer deposits		5,352			5,441
Unearned income		2,296			2,059
Other accrued liabilities		17,725			23,217
Current maturities of long-term debt		850			850
Total current liabilities		59,901			72,878
Long-term debt		270,725			258,938
Post-retirement benefits and accrued pension obligations		2,598			2,717
Deferred income taxes		57,814			57,814
Stockholders’ equity:
Common stock: $0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding		—			—
Paid-in capital		185,390			185,390
Retained earnings		4,036			2,192
Accumulated other comprehensive income (loss)		46			(41		)
Total stockholders’ equity		189,472			187,541
Total liabilities and stockholders’ equity		$	580,510		$	579,888

 

See accompanying Notes to Consolidated Financial Statements.

 

2

 

FTD, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share amounts)

 

		Three Months Ended September 30,
		2004			2003
					Predecessor
Revenues:
Products		$	49,124		$	46,410
Services		32,947			27,166
Total revenues		82,071			73,576
Costs of goods sold and services provided:
Products		40,388			34,827
Services		4,682			4,374
Total costs of goods sold and services provided		45,070			39,201
Gross profit:
Products		8,736			11,583
Services		28,265			22,792
Total gross profit		37,001			34,375
Operating expenses:
Advertising and selling		16,704			14,307
General and administrative		12,329			11,737
Total operating expenses		29,033			26,044
Income from operations		7,968			8,331
Other income and expenses:
Interest income		(76		)	(6		)
Interest expense		5,017			241
Other (income) expense, net		(47		)	65
Total other expenses, net		4,894			300
Income before income tax		3,074			8,031
Income tax expense		1,230			3,223
Net income		$	1,844		$	4,808
Other comprehensive income (loss):
Foreign currency translation adjustments		87			(18		)
Comprehensive income		$	1,931		$	4,790

 

See accompanying Notes to Consolidated Financial Statements.

 

3

 

FTD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

		Three Months Ended September 30,
		2004			2003
					Predecessor
Cash flows from operating activities:
Net income		$	1,844		$	4,808
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		2,955			2,008
Deferred compensation expense		—			57
Amortization and write off of deferred financing costs and original issue discount		332			60
Provision for doubtful accounts		972			787
Deferred income taxes		—			19
Increase (decrease) in cash due to change in assets and liabilities, net of acquisitions:
Accounts receivable		(7,627		)	(7,503		)
Inventories		(51		)	(236		)
Prepaid expenses and other		1,480			(613		)
Other noncurrent assets		(47		)	(72		)
Accounts payable		(7,633		)	(6,687		)
Other accrued liabilities, unearned income, customer deposits and other		(5,463		)	275
Net cash used in operating activities		(13,238		)	(7,097		)
Cash flows from investing activities:
Capital expenditures		(735		)	(1,179		)
Net cash used in investing activities		(735		)	(1,179		)
Cash flows from financing activities:
Net proceeds from revolving credit facility		12,000			9,000
Repayments of long-term debt		(213		)	—
Proceeds from exercise of stock options		—			17
Net cash provided by financing activities		11,787			9,017
Effect of foreign exchange rate changes on cash		87			(18		)
Net increase (decrease) in cash and cash equivalents		(2,099		)	723
Cash and cash equivalents at beginning of period		2,491			1,921
Cash and cash equivalents at end of period		$	392		$	2,644
Supplemental disclosures of cash flow information
Cash paid for:
Interest		$	8,108		$	162
Income taxes		$	10		$	971

 

See accompanying Notes to Consolidated Financial Statements.

 

4

 

FTD, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

Note 1.  Description of Business

 

FTD, Inc. (the “Company”) is a Delaware corporation that commenced operations in 1994.  As used in the Notes to the Consolidated Financial Statements, the term the “Company” refers to FTD, Inc., including its wholly-owned subsidiary, Florists’ Transworld Delivery, Inc., a Michigan corporation (“FTD” or the “Operating Company”).  The operations of FTD, the Company’s principal operating subsidiary, include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”) and Florists’ Transworld Delivery Association of Canada, Ltd., and its indirect wholly-owned subsidiary, Renaissance Greeting Cards, Inc. (“Renaissance”).  Substantially all of the Company’s operations are conducted through FTD and its subsidiaries.

 

On February 24, 2004 the Company completed a merger transaction with an affiliate of Leonard Green & Partners, L.P.  In the merger, Nectar Merger Corporation, which was a wholly-owned subsidiary of Mercury Man Holdings Corporation, merged with and into FTD, Inc. with FTD, Inc. continuing as the surviving corporation (the “2004 Merger”).  As a result of the 2004 Merger, the Company ceased to have its equity publicly traded and became a wholly-owned subsidiary of Mercury Man Holdings Corporation (the “Parent”), an affiliate of Green Equity Investors IV, L.P., a private investment fund affiliated with Leonard Green & Partners, L.P.  See Note 3 for further details.  The results of operations presented herein for all periods prior to the 2004 Merger are referred to as the results of operations of the “Predecessor.”

 

Note 2.  Basis of Presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and 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 thereto for the fiscal year ended June 30, 2004.  The interim unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004.  The accompanying consolidated financial statements include the Predecessor’s operations prior to the 2004 Merger. In the opinion of management, the information furnished herein reflects all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

 

Note 3.  2004 Merger with Nectar Merger Corporation

 

On February 24, 2004, the Company completed the 2004 Merger with an affiliate of Leonard Green & Partners, L.P. for $422.0 million, which excludes $23.4 million of fees that were expensed by the Predecessor as a component of corporate general and administrative expenses.  Upon consummation of the 2004 Merger, each issued and outstanding share of FTD, Inc. common stock, other than treasury shares and shares owned by the Parent, was cancelled and converted automatically into the right to receive $24.85 per share in cash.

 

The transaction was financed by a $185.4 million equity investment in the preferred and common stock of the Parent by Green Equity Investors IV, L.P., an affiliate of Leonard Green & Partners, L.P., and certain members of the Company’s senior management, including $0.9 million in the form of an exchange of a portion of management’s ownership in the Predecessor’s common stock, the proceeds from the issuance of $175.0 million in senior subordinated notes due 2014 (the “Notes”) and borrowings under a new $135.0 million senior secured credit facility, comprised of an $85.0 million senior secured term loan facility and a $50.0 million revolving credit facility.  The revolving credit facility was undrawn at the closing of the 2004 Merger.

 

The Company accounted for the 2004 Merger using the purchase method of accounting.  The purchase price was allocated to the assets acquired and the liabilities assumed as follows (in thousands):

 

5

 

 

Assets:
Cash		$	353
Accounts receivable		30,995
Inventories		9,957
Deferred income taxes		3.827
Prepaid expenses and other		10,916
Property and equipment		20,303
Other noncurrent assets		17,840
Customer list		12,507
Trademarks		121,577
Goodwill		337,196
Total assets acquired		$	565,471
Liabilities:
Accounts payable		$	58,942
Customer deposits		5,677
Unearned income		1,828
Other accrued liabilities		16,685
Post-retirement benefits and accrued pension obligations		2,721
Deferred tax liability		57,632
Total liabilities assumed		143,485
Net assets acquired		$	421,986

 

In addition, pursuant to the terms of the Settlement Agreement relating to the FTD.COM securities litigation, the Company is obligated to pay $7.3 million in cash, which payment is anticipated to be made later in fiscal year 2005.  Pursuant to the terms of the new senior credit facility, $7.3 million was placed into an escrow account at the consummation of the 2004 Merger to fund this obligation and is not reflected in the allocation shown above.  Green Equity Investors IV, L.P. is entitled to payment of amounts equal to any insurance proceeds received with respect to the settlement of the FTD.COM securities litigation.

 

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, the $337.2 million in goodwill recorded as part of the 2004 Merger will not be amortized and will be tested for impairment at least annually.  The goodwill is not deductible for tax purposes.

 

The unaudited pro forma results of operations data for the three-month period ended September 30, 2003 as if the 2004 Merger had occurred on July 1, 2003, is as follows (in thousands):

 

		Three Months Ended September 30, 2003
Total revenues		$	73,576
Income from operations		$	7,559
Net income		$	1,687

 

The above results may not be representative of future periods.

 

6

 

Note 4.  Revenues from Sale of Floral Selections Guide

 

As a condition of FTD affiliation, all FTD florists must purchase a Floral Selections Guide and related workbook every two years or upon initial membership.  Historically, the Company recognized revenue related to the Floral Selections Guide in the month that it was shipped to the florist.  The purchase of the Floral Selections Guide entitles the FTD florist to a non-exclusive, non-transferable right for on-premise use of the Floral Selections Guide for as long as the purchaser remains an FTD florist in good standing.  There are no refund provisions associated with the purchase of the Floral Selections Guide.  Historically, the Company has provided de minimis refunds in isolated cases.  Beginning in fiscal year 2004, new FTD members were charged a monthly fee, and beginning with the distribution of the Floral Selections Guide in fiscal year 2005, all FTD members are charged a monthly fee for the use of the Floral Selections Guide while an active FTD member.  Revenue from the sales of the Floral Selections Guide during the three-month periods ended September 30, 2004 and 2003 was $0.5 million and $20,000, respectively.

 

Note 5.  Financing Arrangements

 

Long-term debt consists of the following (in thousands):

 

		As of September 30, 2004			As of June 30, 2004
7.75% senior subordinated notes		$	175,000		$	175,000
Senior secured credit facility:
Term loan		84,575			84,788
Revolving credit facility		12,000			—
Total debt		271,575			259,788
Less: current portion		(850		)	(850		)
Long-term debt		$	270,725		$	258,938

 

$135.0 million Senior Secured Credit Facilities

 

In connection with the consummation of the 2004 Merger, the Company terminated its then existing senior secured credit facility and entered into a new senior secured credit facility (the “2004 Credit Agreement”) with a syndicate of financial institutions, including Credit Suisse First Boston, acting through its Cayman Islands Branch, as administrative agent, UBS Securities LLC, as syndication agent, and Wells Fargo Bank, N.A., as documentation agent.  Borrowings under the 2004 Credit Agreement are secured by first priority security interest in, and mortgages on, substantially all of the Company’s tangible and intangible assets.

 

The 2004 Credit Agreement provides for aggregate borrowings of up to $135.0 million and consists of a five-year $50.0 million revolving credit facility and a seven-year $85.0 million term loan.  A portion of the revolving credit facility is available as a letter of credit sub-facility and as a swing-line facility.  Borrowings under the revolving credit facility are used to finance working capital, capital expenditures, acquisitions, certain expenses associated with the bank credit facilities and letter of credit needs.  At September 30, 2004 the revolving credit facility included $1.5 million in letters of credit outstanding and had availability of $36.5 million.

 

Borrowings under the 2004 Credit Agreement generally bear interest based on a margin over, at the Company’s option, either the base rate (generally the applicable prime lending rate of Credit Suisse First Boston, as announced from time to time) or the London Interbank Offered Rate (“LIBOR”).  For the first six months following the 2004 Merger on February 24, 2004, the applicable margin for base rate loans was 175 basis points and for LIBOR loans was 275 basis points.  Beginning six months after the consummation of the 2004 Merger, the applicable margin for borrowings under the 2004 Credit Agreement will vary based upon the consolidated leverage ratio, as defined in the 2004 Credit Agreement.  The 2004 Credit Agreement requires the Company to pay commitment fees on the unused portion of the revolving credit facility, which vary based on the utilization of the revolving credit facility.

 

7

 

The 2004 Credit Agreement includes covenants that, among other things, require that as of September 30, 2004 the Company maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (subject to certain adjustments) to consolidated interest expense of no less than 2.10 to 1.00, a fixed charge coverage ratio of no less than 1.45 to 1.00 and a leverage ratio not to exceed 5.90 to 1.00.  The Company was in compliance with all debt covenants as of September 30, 2004.  Debt covenant targets are adjusted quarterly in accordance with the terms of the 2004 Credit Agreement.

 

The 2004 Credit Agreement imposes various restrictions on the Company, including restrictions that limit the Company’s ability to incur liens or encumbrances, make investments or acquisitions, incur additional debt, enter into sale leaseback transactions, incur certain contingent liabilities, make certain restricted junior payments and other similar distributions, enter into mergers, consolidations and similar combinations, sell assets or engage in similar transfers, amend certain material agreements, including the indenture governing the notes, make capital expenditures and engage in transactions with affiliates.

 

There was $96.6 million of outstanding debt at September 30, 2004 under the 2004 Credit Agreement.  The Company is permitted to voluntarily repay principal amounts outstanding or reduce commitments under the 2004 Credit Agreement at any time, in whole or in part, without premium or penalty, upon the giving of proper notice and subject to minimum amount requirements.  In addition, subject to certain exceptions, the Company is required to prepay outstanding amounts under the 2004 Credit Agreement with a portion of its excess cash flow, the net proceeds of certain asset dispositions, casualty insurance and condemnation recovery events and upon the issuance of certain securities or debt.  The term loan is due in annual installments of $850,000 per year with the remaining balance due at maturity.

 

As a result of entering into the 2004 Credit Agreement, the Company recorded $4.0 million of deferred financing costs, which were allocated, pro rata, to the five-year revolving credit facility and the seven-year term loan and are being amortized straight-line over the respective terms.

 

$175.0 million 7.75% Senior Subordinated Notes due 2014

 

On February 6, 2004, Nectar Merger Corporation completed the issuance and sale of $175.0 million in aggregate principal amount of 7.75% senior subordinated notes.  The Notes will mature on February 15, 2014 and interest is payable on February 15 and August 15 of each year.  The proceeds from the issuance of the Notes were used in the financing of the 2004 Merger.  Upon consummation of the 2004 Merger, the Company assumed Nectar Merger Corporation’s obligations under the Notes.

 

The Notes are unsecured, senior subordinated obligations, ranking junior in right of payment to all of the Company’s existing and future senior indebtedness and equal in right of payment to all of the Company’s existing and future senior subordinated indebtedness.  The Notes rank senior in right of payment to all of the Company’s existing and future subordinated indebtedness and are unconditionally guaranteed by the Company’s subsidiary guarantors on a senior subordinated basis.

 

The terms of the Notes provide for certain limitations on the Company’s ability to incur additional indebtedness, issue disqualified capital stock, make restricted payments, permit restrictions on dividends or other payment restrictions affecting subsidiaries, layer indebtedness, enter into liens securing indebtedness, enter into transactions with affiliates, enter into certain merger, sale or consolidation transactions and the release of guarantors.

 

As a result of issuing the Notes, the Company recorded $6.7 million of deferred financing costs, which are being amortized straight-line over the ten-year term of the Notes.

 

8

 

Note 6. Pension and Other Post Retirement Benefit Plans

 

Components of Net Periodic Benefit Cost

 

		Salaried Employees’ Pension Plan						Retiree Medical Plan
		Three Months Ended September 30,						Three Months Ended September 30,
		2004			2003			2004			2003
					Predecessor						Predecessor
		(in thousands)
Service cost		$	—		$	—		$	—		$	—
Interest cost		32			32			24			—
Expected return on assets		(20		)	(23		)	—			—
Amortization of gain		—			—			—			(48		)
Net periodic benefit cost (income)		$	12		$	9		$	24		$	(48	)

 

Note 7. Related Party Transactions

 

For the three-month period ended September 30, 2003, the Predecessor incurred expenses of $0.5 million related to the payment for management, financial and other corporate advisory services and expenses to parties related to each of Perry Acquisition Partners, L.P., Bain Capital Investors LLC and Fleet Growth Resources III, Inc., which were stockholders or affiliates of the Predecessor.  The Predecessor’s management consulting services agreement with these parties required payments aggregating $2.0 million each fiscal year plus reimbursement of reasonable out-of-pocket expenses.  The management consu lting services agreement with the above listed parties terminated upon the consummation of the 2004 Merger.

 

In connection with the 2004 Merger, the Company entered into a management services agreement with Leonard Green & Partners, L.P.  Under the management services agreement, Leonard Green & Partners, L.P. provides management, consulting and financial planning services in exchange for an annual management fee of $2.0 million, payable in equal monthly installments commencing in March 2004.  Payment of the management fees on any monthly payment date is contingent upon the Company achieving Consolidated EBITDA, as defined in the indenture governing the Notes, equal to or greater than $46.8 million for the last consecutive twelve-month period ended immediately prior to that payment date.  In the event any portion of the management fee is not so paid, such amount will accrue and become due and payable in the next month when the targeted Consolidated EBITDA is obtained.  The management services agreement has a ten-year term, which extends automatically on each anniversary of the agreement for one additional year unless either party gives prior notice that the term will not be extended.  For the three-month period ended September 30, 2004, the Company incurred expenses of $0.5 million related to the management services agreement with Leonard Green & Partners, L.P.

 

In addition, the management services agreement provides for the payment to Leonard Green & Partners, L.P. of customary fees for services provided in connection with major transactions, reimbursement for reasonable out-of-pocket expenses and a closing fee of $7.0 million, which was paid upon consummation of the 2004 Merger.

 

On September 30, 2004, the Parent sold 826,667 shares of class A common stock to certain members of the Company’s management for cash consideration of $826,667, which represents fair market value on the date of purchase.

 

Note 8. Stock Awards and Incentive Plans

 

The Parent’s Stock Option Plan was adopted and approved by the Board of Directors on September 30, 2004 and provides for the issuance of up to 6,578,333 shares of class A common stock of the Parent in connection with the granting of incentive or non-qualified stock options.

 

On September 30, 2004, the Parent granted 6,298,333 options to various employees of the Company.

 

9

 

Outstanding non-qualified stock options are exercisable during a ten-year period beginning one to seven years after the date of grant.  All stock options were granted with an exercise price equal to the fair market value on the date of grant.

 

The Predecessor’s 2002 Long-Term Equity Incentive Plan (the “2002 Equity Incentive Plan”) provided for the issuance of up to 1,250,000 shares of Class A common stock, par value $0.01 per share in connection with the granting of incentive or non-qualified stock options, stock appreciation rights (“SARs”), either alone or in tandem with options, restricted stock, performance awards, or any combination of the foregoing.  The Predecessor did not grant any SARs, limited stock appreciation rights, deferred shares, or performance awards under the 2002 Equity Incentive Plan.  The Predecessor recognized $57,000 of compensation expense related to restricted stock and stock options in the three-month period ended September 30, 2003.  The 2002 Equity Incentive Plan was terminated in connection with the 2004 Merger.

 

Outstanding nonqualified stock options issued by the Predecessor were exercisable during a ten-year period beginning one to five years after the date of grant.  All options were granted with an exercise price equal to either the fair market value on the date of grant on the optionee’s first date of employment.

 

The Company and the Predecessor would have recognized additional compensation expense, net of taxes, of $1,000 and $189,000, respectively, related to the options granted in the three-month periods ended September 30, 2004 and September 30, 2003, respectively, if the estimated value of the outstanding stock options of the Company and the Predecessor had been recorded in the Company’s consolidated financial statements.  As such, the Company’s and the Predecessor’s net income would have been reduced to the pro forma amounts shown in the table below (the pro forma disclosures shown are not representative of the future effects on net income):

 

		Three Months Ended September 30,
		2004			2003
					Predecessor
		(in thousands)
Net income, as reported		$	1,844		$	4,808
Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(1		)	(198		)
Stock-based employee compensation expense included in net income, as reported, net of related tax effects		—			9
Pro forma net income		$	1,843		$	4,619

 

The Parent’s options granted during the current fiscal year vest over a five- or seven-year period and the Predecessor’s options granted during fiscal year 2003 vested equally each year over a three-year period from the date of grant.  As a result, the estimated cost indicated above reflected only a partial vesting of such options.  If full vesting were assumed, the estimated pro forma costs would have been higher than indicated above.

 

Note 9.  Commitment and Contingencies

 

In March 2002, the Predecessor, FTD, FTD.COM and the directors of the Predecessor and FTD.COM were named as defendants in five class action lawsuits filed in Wilmington, Delaware, which were consolidated under the name “In RE FTD.COM Inc. Shareholders Litigation.”  The class action lawsuits made several allegations, including that insufficient stock of the Predecessor was exchanged for FTD.COM stock and breach of fiduciary duties by the directors.

 

On behalf of all defendants, the Predecessor settled the consolidated class action lawsuits.  Such settlement was approved by the court and included no finding of wrongdoing on the part of any of the defendants, or any other finding that the claims alleged had merit.

 

10

 

Pursuant to the Settlement Agreement, the Predecessor agreed to issue shares of Class A Common Stock valued at $10.7 million in full and final settlement of the case.  In connection with the settlement, the Predecessor recorded an $11.0 million charge in the fourth quarter of fiscal year 2003 with respect to the settlement which included costs related to issuing and distributing the settlement shares.  In November 2003, pursuant to the court approved Settlement Agreement, the Predecessor, on behalf of all defendants, distributed 139,493 shares of Class A Common Stock valued at $3.4 million as payment for a portion of the $10.7 million settlement liability.  Pursuant to the terms of the Settlement Agreement, the Company is obligated to pay the remaining $7.3 million in cash, which payment is anticipated to be made later in fiscal year 2005.  Pursuant to the terms of the 2004 Credit Agreement, the Company placed $7.3 million into an escrow account at the consummation of the 2004 Merger to fund this obligation.

 

The Predecessor pursued claims against two of its insurance carriers, one that provided coverage to FTD and its directors and officers and another that provided coverage to FTD.COM and its directors and officers.  In the second quarter of fiscal year 2004, the Predecessor recorded a gain of $1.5 million as a result of a settlement with the insurance carrier that maintained a policy covering FTD and its directors and officers.  The insurance carrier that maintained the policy covering FTD.COM and its directors and officers initiated litigation seeking to deny coverage for the shareholder lawsuits, which are the subjects of the settlement, while the Company believes that FTD.COM and the individual defendants are entitled to coverage and has filed responsive pleadings to that effect.  Any further recoveries relating to the settlement will be recorded as Other Income in the period realized.  Green Equity Investors IV, L.P. is entitled to payments of any insurance proceeds received with respect to the settlement of the FTD.COM securities litigation.

 

On December 30, 2003, Teleflora LLC (“Teleflora”) filed a complaint against FTD in the U.S. District Court for the Northern District of California in San Jose.  The complaint includes principal allegations of misappropriation of trade secrets, copyright infringement, unfair competition, intentional interference with contracts and various counts of fraud through unauthorized access to Teleflora software by FTD.  Among its allegations, Teleflora claims that FTD “hacked” into certain of Teleflora’s flower shop management software and systems licensed by individual florists and improperly modified Teleflora software to permit florists to use the FTD network to process orders or credit card transactions.  Teleflora also claims that some florists who have licensed a Teleflora shop management system were improperly induced by FTD sales representatives to cancel their agreements with Teleflora and install an FTD system.  Teleflora is seeking compensatory damages in excess of  $5.0 million as well as punitive damages and injunctive relief.  Teleflora sought a preliminary injunction against the Company based on its allegations.  On August 18, 2004, the court granted only in part and otherwise denied Teleflora’s motion for preliminary injunction.  As a result, the Company can continue to sell and distribute its wire service interface, which imports data from Teleflora’s Dove software.  In addition, under certain conditions, the Company can assist florists in reinstalling prior versions of Teleflora’s software, which the florist is licensed to use.  However, the court preliminarily enjoined the Company from copying and distributing Teleflora’s software modules or from inducing florists or other third parties to do so.

 

The Company continues to vigorously defend against Teleflora’s claims.  In addition, in conjunction with its affirmative defenses to Teleflora’s complaint, the Company is pursuing counterclaims against Teleflora.  Such counterclaims include an antitrust claim alleging that Teleflora is attempting to monopolize the wire service market.

 

In addition, the Company is involved in various claims and lawsuits and other matters arising in the normal course of business.  In the opinion of management of the Company, although the outcome 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.

 

The Company also has a one-year commitment with a distribution center facility in Cincinnati, Ohio where it stores and distributes product.

 

 

Note 10.  Segment Information

 

Operating segments are components of the business for which separate financial information is available that is regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to each segment and to assess its performance.

 

11

 

For purposes of managing the Company, management reviews segment financial performance to the operating income level for each of its reportable business segments.  Accordingly, interest income, interest expense and tax expense are recorded on a consolidated corporate basis.

 

The florist business segment includes all products and services sold to FTD member florists and other retail locations offering floral products, encompassing clearinghouse services, publishing products and services, technology sales and leases and specialty wholesaling product sales.  The consumer business segment encompasses floral and specialty gift items primarily sold to consumers through the www.ftd.com Web site or its toll-free telephone number, 1-800-SEND-FTD.

 

Of the Company’s assets totaling $580.5 million at September 30, 2004, the assets of the Company’s consumer business totaled approximately $260.8 million.  The Company’s florist business segment and corporate headquarters constitute the remaining assets of approximately $319.7 million.

 

The Company’s accounting policies for segments are the same as those on a consolidated basis described in Note 1, Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

 

Certain amounts in the Predecessor’s operating results by reportable business segment for the three month period ended September 30, 2003 have been reclassified to conform to the current year presentation.

 

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The following table details the Company’s and the Predecessor’s operating results by reportable business segment for the three-month periods ended September 30, 2004 and 2003:

 

		Three Months Ended September 30,
		2004									2003
		Gross Segment			Eliminations			Consolidated			Gross Segment			Eliminations			Consolidated
											Predecessor
		(in thousands)
Revenues:
Florist business		$	45,713		$	(12	)	$	45,701		$	41,617		$	75		$	41,692
Consumer business		39,720			(3,350		)	36,370			34,806			(2,922		)	31,884
Total		85,433			(3,362		)	82,071			76,423			(2,847		)	73,576
Costs of Goods Sold and  Services Provided:
Florist business		17,842			(714		)	17,128			15,129			(608		)	14,521
Consumer business		27,721			(391		)	27,330			24,325			(275		)	24,050
Corporate		612			—			612			630			—			630
Total		46,175			(1,105		)	45,070			40,084			(883		)	39,201
Gross Profit:
Florist business		27,871			702			28,573			26,488			683			27,171
Consumer business		11,999			(2,959		)	9,040			10,481			(2,647		)	7,834
Corporate		(612		)	—			(612		)	(630		)	—			(630		)
Total		39,258			(2,257		)	37,001			36,339			(1,964		)	34,375
Advertising and Selling:
Florist business		15,510			(2,256		)	13,254			13,736			(1,955		)	11,781
Consumer business		3,450			—			3,450			2,526			—			2,526
Total		18,960			(2,256		)	16,704			16,262			(1,955		)	14,307
General and Administrative:
Florist business		2,574			—			2,574			2,717			—			2,717
Consumer business		3,726			(369		)	3,357			3,331			(336		)	2,995
Corporate		6,030			368			6,398			5,698			327			6,025
Total		12,330			(1		)	12,329			11,746			(9		)	11,737
Operating Income  before Corporate Allocations:
Florist business		9,787			2,958			12,745			10,035			2,638			12,673
Consumer business		4,823			(2,590		)	2,233			4,624			(2,311		)	2,313
Corporate		(6,642		)	(368		)	(7,010		)	(6,328		)	(327		)	(6,655		)
Total		7,968			—			7,968			8,331			—			8,331
Corporate Allocations:
Florist business		3,025			—			3,025			3,097			—			3,097
Consumer business		777			—			777			739			—			739
Corporate		(3,802		)	—			(3,802		)	(3,836		)	—			(3,836		)
Total		—			—			—			—			—			—
Operating Income:
Florist business		6,762			2,958			9,720			6,938			2,638			9,576
Consumer business		4,046			(2,590		)	1,456			3,885			(2,311		)	1,574
Corporate		(2,840		)	(368		)	(3,208		)	(2,492		)	(327		)	(2,819		)
Total		$	7,968		$	—		$	7,968		$	8,331		$	—		$	8,331
Depreciation and  Amortization:
Florist business		$	1,333		$	—		$	1,333		$	1,253		$	—		$	1,253
Consumer business		651			—			651			549			—			549
Corporate		971			—			971			206			—			206
Total		$	2,955		$	—		$	2,955		$	2,008		$	—		$	2,008

 

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Note 11. Financial Statements of Guarantors

 

The accompanying consolidated balance sheets, statements of operations and statements of cash flows presented herein represent the accounts of the Company and its Guarantor and non-Guarantor subsidiaries, as defined in the indenture to the Notes issued in February 2004.  The Notes are unconditionally guaranteed, on a joint and several basis, by the Guarantor subsidiaries including all domestic subsidiaries of FTD, Inc.  Non-Guarantor subsidiaries include Florists’ Transworld Delivery Association of Canada, Ltd. and Florists’ Transworld Delivery de Mexico, both of which are insignificant and are therefore not separately presented.  As FTD, Inc., either directly or indirectly, owns 100% of each of the Guarantor subsidiaries and, as FTD, Inc. does not have any significant independent assets or operations apart from the Guarantor subsidiaries, separate subsidiary financial information has not been presented.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

FTD, Inc. (the “Company”) is a Delaware corporation that commenced operations in 1994.  As used in this Form 10-Q, the term the “Company” refers to FTD, Inc., including its wholly-owned subsidiary, Florists’ Transworld Delivery, Inc., a Michigan corporation (“FTD” or the “Operating Company”).  The operations of FTD, the Company’s principal operating subsidiary, include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”) and Florists’ Transworld Delivery Association of Canada, Ltd., and its indirect wholly-owned subsidiary, Renaissance Greeting Cards, Inc. (“Renaissance”).  Substantially all of the Company’s operations are conducted through FTD and its subsidiaries.

 

The Company, supported by its worldwide FTD brand, which utilizes the FTD Mercury Man logo, is a leading provider of floral services and products.  Through its florist business, the Company provides products and services, such as clearinghouse services, technology products and services and floral shop supplies, to approximately 20,000 member florists and other retail locations offering floral products in the U.S. and Canada, and connects approximately 30,000 additional florists through affiliated or related organizations in 150 countries outside of North America.  The consumer business segment is comprised of FTD.COM, a leading Internet and telephone marketer of flowers and specialty gifts.  FTD.COM sells directly to consumers, primarily through its www.ftd.com Web site and its 1-800-SEND-FTD toll-free telephone number.

 

2004 Merger with Nectar Merger Corporation, an Affiliate of Leonard Green & Partners, L.P.

 

On February 24, 2004, the Company completed a merger transaction with an affiliate of Leonard Green & Partners, L.P.  In the merger, Nectar Merger Corporation, which was a wholly-owned subsidiary of Mercury Man Holdings Corporation, merged with and into FTD, Inc., with FTD, Inc. continuing as the surviving corporation (“the 2004 Merger”).  As a result of the 2004 Merger, the Company ceased to have its equity publicly traded and became a wholly-owned subsidiary of Mercury Man Holdings Corporation (the “Parent”), an affiliate of Green Equity Investors IV, L.P., a private investment fund affiliated with Leonard Green & Partners, L.P.  See Note 3 of the Consolidated Financial Statements included herein for further details.  The results of operations presented herein for all periods prior to the 2004 Merger are referred to as the results of operations of the “Predecessor.”

 

The following discussion should be read in conjunction with the consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-Q.  The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs.  The Company’s actual results could differ from those discussed in the forward-looking statements.  Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Forward-Looking Information” and elsewhere in this Form 10-Q.

 

Operations

 

The Company’s operations include its florist business and consumer business segments.

 

Florist business.  The florist business segment includes revenue associated with the services and products provided to FTD member florists and other retail locations offering floral products and is primarily comprised of the services and products as described below.  Membership as of September 30, 2004 and 2003 was approximately 19,800 and 19,400 members, respectively.  Average membership for the three-months ended September 30, 2004 and 2003 was 20,100 and 19,200 members, respectively.  Within the florist business segment, clearinghouse services, publications and other member services products and services revenue comprised 56% of the florist business revenue for both of the three-month periods ended September 30, 2004 and 2003.  Mercury Network services and Mercury computer equipment products and services revenue comprised 15% and 14% of the florist business revenue for the three-month periods ended September 30, 2004 and 2003.  Specialty wholesaling products revenue comprised 29% and 30% of the florist business revenue for the three-month periods ended September 30, 2004 and 2003, respectively.

 

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Clearinghouse services.  Clearinghouse services primarily consist of billing and collection services provided to both the sending and receiving florists in flowers-by-wire transactions.  Revenues from the clearinghouse are generated by charging a percentage of the sales price of orders sent through the clearinghouse and are recorded in the month the orders are filled.  Revenue is also generated from the monthly membership fee charged to member florists and from the credit card processing services provided to member florists.  Cash rebates, which are earned by florists under a customer incentive program, in conjunction with the credit card processing service offered by the Company, are classified as contra-revenue, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).

 

Publications and other member services products and services.  Publications products and other member services primarily consist of a telephone directory of FTD member florists that is published on a quarterly basis in both CD-ROM and paper book form.  Revenues relating to publications are recognized ratably over the period in which the publications are issued.  The Company provides services related to the set-up and maintenance of FTD Florists’ Online Web sites, which are accessible directly and are also accessible through FTD.COM’s www.ftd.com Web site.  In addition, the Company provides a 24-hour telephone answering and floral order-taking service (“Flowers All Hours”).  Revenues associated with FTD Florists’ Online Web sites and Flowers All Hours are recorded in the period the service is provided.  Revenue is also generated from the monthly Floral Selections Guide fee charged to member florists for use of the Floral Selections Guide, a counter display published by FTD featuring FTD products for all occasions.

 

Mercury Network services.  The Company’s Mercury Network is a proprietary telecommunications network linking the Company to FTD member florists.  Florists who are linked by the Mercury Network are able to transmit orders and send each other messages for a per order or per message fee.  Revenues related to transmitting orders and messages are recorded in the period the transmission occurs.

 

Mercury computer equipment products and services.  Mercury Technology computer equipment and software sales include both the sales and leasing of hardware and software designed for the floral industry.  The software provides access to the Company’s Mercury Network to allow for sending and receiving orders, billing capabilities, order-entry capabilities, an interface to various accounting software packages and a comprehensive range of payroll and accounting functions.  The Company follows the provisions of Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Software Revenue Recognition with Respect to Certain Arrangements, requiring revenue earned on software arrangements involving multiple elements (e.g., software products, upgrades/enhancements, post-contract customer support, installation and training) to be allocated to each element based on the relative fair values of the elements.  The Company recognizes revenue related to hardware products which are sold, including specified upgrades/enhancements, at the time of shipment.  The Company recognizes revenue related to software products which are sold ratably over the estimated useful life of the software.  For systems that are being leased, the Company recognizes hardware and software revenue ratably over the period of the lease agreement.  Support revenue is recognized over the period of the support agreement.  Installation and training revenues are recognized at the time the service is provided.

 

Specialty wholesaling products.  The Company sells both FTD-branded and non-branded holiday and everyday floral arrangement containers and products.  The Company also sells packaging, promotional products and a wide variety of other floral-related supplies, including greeting cards.  Sales of specialty wholesaling products are recorded when the products are shipped.  Amounts charged to the customer for the product and for shipping and handling are recorded as revenue and the costs of the product and the shipping and handling are recorded as costs of goods sold and services provided.

 

Consumer business.  The consumer business segment is comprised of FTD.COM, an Internet and telephone marketer of flowers and specialty gifts, which sells products directly to consumers primarily through the 1-800-SEND-FTD toll-free telephone number and electronically to consumers through the www.ftd.com Web site.  FTD.COM offers same-day delivery of floral orders to nearly 100% of the U.S. population.  The majority of orders are filled by a group of independent FTD florists who adhere to FTD.COM’s quality and service standards.  FTD.COM typically offers over 400 floral arrangements and over 800 specialty gift items, including plants, gourmet gifts, holiday gifts, bath and beauty products, dried flowers, gifts for the home and stuffed animals.

 

Orders placed through the FTD.COM’s Web site or 1-800-SEND-FTD typically are paid for using a credit card.

 

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When a customer makes a purchase that will be fulfilled by an FTD florist, FTD.COM processes the order, charges the customer’s credit card and transmits the order to the Mercury Network.  The Mercury Network then transmits the order to the fulfilling florist.  FTD.COM typically charges the customer a service fee for floral orders and certain specialty gift orders placed through its Web site or through 1-800-SEND-FTD.

 

Generally, orders from FTD.COM’s specialty gift selection are fulfilled by a manufacturer or a third party distributor and are based on a pre-negotiated price.  FTD.COM typically charges the customer shipping and handling fees for these specialty gift product orders.  Amounts charged to the customer for the product and shipping and handling are recorded as revenue and the pre-negotiated price of the product and the costs incurred for shipping and handling are recorded as costs of goods sold and services provided.

 

Order revenue and service fees are reported net of discounts.  FTD.COM recognizes 100% of the order value as revenue and the associated costs of goods sold and services provided when the order is fulfilled.

 

Operating expenses.  Selling expenses primarily include expenses related to the Company’s florist business sales force and rebates offered to florists as incentive to increase order volumes processed through the FTD clearinghouse.  Advertising expenses are primarily related to the Company’s marketing and advertising programs on both national and local levels.  FTD’s advertising promotes FTD member florists, FTD-branded products, the www.ftd.com Web site and the toll-free telephone number, 1-800-SEND-FTD.

 

The florist business segment promotes the FTD brand and its products and services primarily through network and cable television advertisements, magazine advertisements and newspaper supplements.  Sponsorships are also a part of the florist business segment’s marketing efforts.  Additionally, the florist business segment supplies advertising and marketing tools on a local basis for FTD florists to support the Company’s co-branding strategy.  FTD florists are provided with advertising tools such as advertisements for newspaper print, point-of-sale items, radio scripts and television tapes to be customized with individual shop information.  FTD florists can also purchase customizable direct mail pieces through FTD.

 

The consumer business segment’s marketing program utilizes a mix of online advertising, direct marketing, customer loyalty marketing strategies and offline advertising, representing a balanced marketing program focused on both customer acquisition and retention.  Online advertising consists primarily of online advertisements and links on shopping and search-oriented Web sites.  The direct marketing campaign focuses on the development of relationships with companies that have large consumer databases.  Statement inserts, e-mails, online placements, discount offers and mileage and point award programs are utilized to market to these consumers.  The cost associated with mileage and point award programs are classified as cost of goods sold, in accordance with EITF Issue No. 01-9.  Customer loyalty marketing strategies focus on the utilization of the Company’s extensive database of customer information to enhance customer retention efforts.  Offline advertising consists primarily of yellow pages advertising.

 

General and administrative expenses primarily consist of direct corporate expenses and customer service and technology expenses in both business segments.

 

Seasonality.  In view of seasonal variations in the revenues and operating results of the Company’s florist and consumer business segments, the Company believes that comparisons of its revenues and operating results for any period with those of the immediately preceding period or the same period of the preceding fiscal year may be of limited relevance in evaluating the Company’s historical performance and predicting the Company’s future financial performance.  The Company’s working capital, cash and short-term borrowings also fluctuate during the year as a result of the factors set forth below.

 

Revenues and operating results tend to be lower for the quarter ending September 30 because none of the most popular floral and gift holidays, which include Valentine’s Day, Easter, Mother’s Day, Thanksgiving and Christmas, fall within that quarter.  In addition, depending on the year, the popular floral holiday of Easter sometimes falls within the quarter ending March 31 and sometimes falls within the quarter ending June 30.  In addition, historical revenues and operating results fluctuated in the first quarter of each fiscal year as a result of revenue generated from the Floral Selections Guide, which has been published bi-annually, and had historically been charged to florists in the month shipped.

 

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Three months ended September 30, 2004 compared to the three months ended September 30, 2003

 

		Three Months Ended September 30,
Revenues		2004			2003			% Change
					Predecessor
		(in thousands)
Florist business		$	45,701		$	41,692		9.6	%
Consumer business		36,370			31,884			14.1	%
Total revenues		$	82,071		$	73,576		11.5	%

 

Total revenues increased by $8.5 million, or 11.5%, to $82.1 million for the three-month period ended September 30, 2004 compared to $73.6 million for the three-month period ended September 30, 2003.

 

Management believes a key metric in driving revenues for the florist business segment is membership and the resulting number of members that use or purchase services and products provided by the florist business segment.  Membership as of September 30, 2004 and 2003 was approximately 19,800 and 19,400 members, respectively.  Average membership for the three-month period ended September 30, 2004 and 2003 was approximately 20,100 and 19,200 members, respectively.  Revenue for the florist business segment increased by $4.0 million, or 9.6%, to $45.7 million for the three-month period ended September 30, 2004 compared to $41.7 million for the three-month period ended September 30, 2003.  This increase was primarily related to increased revenues from directory publications,  the Floral Selections guide, which shipped during the current year period and for which all members are now being charged a monthly fee, and the sale of mid-tier technology platforms.

 

Management believes a key metric in driving revenues in the consumer business segment is order volume.  Revenue for the consumer business segment increased by $4.5 million, or 14.1%, to $36.4 million for the three-month period ended September 30, 2004 compared to $31.9 million for the three-month period ended September 30, 2003.  This increase was primarily due to an increase in order volume, led by an increase in specialty gift products sold.

 

		Three Months Ended September 30,
Costs of goods sold and services provided		2004			2003			% Change
					Predecessor
		(in thousands)
Florist business		$	17,128		$	14,521		18.0	%
Consumer business		27,330			24,050			13.6	%
Corporate		612			630			(2.9	)%
Total costs of goods sold and services provided		$	45,070		$	39,201		15.0	%

 

Costs of goods sold and services provided increased by $5.9 million, or 15.0%, to $45.1 million for the three-month period ended September 30, 2004 compared to $39.2 million for the three-month period ended September 30, 2003.  Total gross margin decreased to 45.1% for the three-month period ended September 30, 2004 from 46.7% for the three-month period ended September 30, 2003, which is primarily due to an increase in sales of the Company’s lower margin product lines.

 

Costs of goods sold and services provided associated with the florist business segment increased by $2.6 million, or 18.0%, to $17.1 million for the three-month period ended September 30, 2004 compared to $14.5 million for the three-month period ended September 30, 2003, primarily due to the increased level of sales.  Gross margin for the florist business decreased to 62.5% for the three-month period ended September 30, 2004 from 65.2% for the three-month period ended September 30, 2003, which is primarily due to an increase in sales of the florist business’s lower margin product lines.

 

Costs of goods sold and services provided associated with the consumer business segment increased by $3.2

 

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million, or 13.6%, to $27.3 million for the three-month period ended September 30, 2004 compared to $24.1 million for the three-month period ended September 30, 2003, primarily due to an increase in revenues.  Gross margin for the consumer business increased to 24.9% for the three-month period ended September 30, 2004 from 24.6% for the three-month period ended September 30, 2003, partially due to growth in non-discounted orders.

 

Costs of goods sold and services provided related to corporate activities for the three-month periods ended September 30, 2004 and 2003 remained consistent at $0.6 million.

 

		Three Months Ended September 30,
Advertising and selling costs		2004			2003			% Change
					Predecessor
		(in thousands)
Florist business		$	13,254		$	11,781		12.5	%
Consumer business		3,450			2,526			36.6	%
Total advertising and selling costs		$	16,704		$	14,307		16.8	%

 

Advertising and selling costs increased by $2.4 million, or 16.8%, to $16.7 million for the three-month period ended September 30, 2004 compared to $14.3 million for the three-month period ended September 30, 2003.

 

Advertising and selling costs associated with the florist business increased by $1.5 million, or 12.5%, to $13.3 million for the three-month period ended September 30, 2004 compared to $11.8 million for the three-month period ended September 30, 2003, primarily due to an increase in volume based rebates associated with orders sent through the FTD clearinghouse and an increase in the florist business’s sales force salary expense.

 

Advertising and selling costs associated with the consumer business increased by $1.0 million, or 36.6%, to $3.5 million for the three-month period ended September 30, 2004 compared to $2.5 million for the three-month period ended September 30, 2003, primarily due to an increase in online advertising expenses.  The increase in online advertising expense is primarily the result of an increase in order volume associated with online marketing partnerships related to online advertising placements.  Certain of these online agreements contain terms that include both fixed and variable payment elements, the variable portion of which is based upon the number of orders generated from these third party Web sites in excess of a threshold as defined in the related agreements.  The Company records expenses related to these agreements based on an estimated per order cost, taking into consideration the most likely number of orders to be generated under each such agreement.

 

		Three Months Ended September 30,
General and administrative costs		2004			2003			% Change
					Predecessor
		(in thousands)
Florist business		$	2,574		$	2,717		(5.3	)%
Consumer business		3,357			2,995			12.1	%
Corporate		6,398			6,025			6.2	%
Total general and administrative costs		$	12,329		$	11,737		5.0	%

 

Total general and administrative costs increased $0.6 million or 5.0% to $12.3 million for the three-month period ended September 30, 2004 compared $11.7 million for the three-month period ended September 30, 2003.

 

General and administrative costs for the florist business decreased by $0.1 million, or 5.3%, to $2.6 million for the three-month period ended September 30, 2004 compared to $2.7 million for the three-month period ended September 30, 2003.  This decrease is due to cost control efforts in the florist business operations.

 

General and administrative costs for the consumer business increased by $0.4 million, or 12.1%, to $3.4 million

 

19