UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

x                              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2005

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number 001-32425

FTD Group, Inc.

(Exact name of registrant as specified in its charter)

 

3113 Woodcreek Drive
Downers Grove, IL 60515

(Address of principal executive offices)

(630) 719-7800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

 

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 o

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 the 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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES o NO x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES o NO x

As of September 15, 2005, there were 29,456,626 outstanding shares of the Registrant’s Common Stock, par value $0.01 per share.

As of December 31, 2004, there was no public market for the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement (to be filed with the Securities and Exchange Commission pursuant to Regulation 14A) for the 2005 Annual Meeting of Stockholders, the “Proxy Statement”) are incorporated by reference in Items 10, 11, 12, 13 and 14 or Part III hereof.

FORM 10-K

TABLE OF CONTENTS

Form 10-K		Cover Page
		Part I
Item 1.		Business		1
Item 2.		Properties		5
Item 3.		Legal Proceedings		5
Item 4.		Submission of Matters to a Vote of Security Holders		5
		Part II
Item 5.		Market for the Company’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities		6
Item 6.		Selected Financial Data		7
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		38
Item 8.		Financial Statements and Supplementary Data		39
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		39
Item 9A.		Controls and Procedures		39
Item 9B.		Other Information		39
		Part III
Item 10.		Directors and Executive Officers of the Registrant		40
Item 11.		Executive Compensation		40
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		40
Item 13.		Certain Relationships and Related Transactions		40
Item 14.		Principal Accountant Fees and Services		40
		Part IV
Item 15.		Exhibits and Financial Statement Schedules		41
Signatures				42
Index to Consolidated Financial Statements and Schedules				F-1

 

PART I

Item 1.                        BUSINESS

Overview

FTD Group, Inc., formerly Mercury Man Holdings Corporation, is a Delaware corporation that was formed in 2003 by Green Equity Investors IV, L.P. (“Green Equity Investors”), a private investment fund affiliated with Leonard Green & Partners, L.P., solely for the purpose of acquiring majority ownership of FTD, Inc. As used in this Form 10-K, the term the “Company” refers to FTD Group, Inc., including its wholly-owned subsidiary, FTD, Inc.

FTD, Inc. is a Delaware corporation that commenced operations in 1994 and includes the operations of its principal operating subsidiary, Florists’ Transworld Delivery, Inc., a Michigan corporation (“FTD” or the “Operating Company”). The operations of FTD include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”) and FTD Canada, Inc. (formerly known as 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.

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

On February 24, 2004, the Company completed a going private transaction with an affiliate of Leonard Green & Partners, L.P. (the “2004 Going Private Transaction”). In the transaction, 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. As a result of the 2004 Going Private Transaction, the Company ceased to have its equity publicly traded and became a wholly-owned subsidiary of Mercury Man Holdings Corporation, 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 detail. The results of operations presented herein for all periods prior to the 2004 Going Private Transaction are referred to as the results of operations of the “Predecessor.” The financial data of the Predecessor and the Company have been combined for fiscal year 2004 and is presented for comparative purposes. The Predecessor ceased operations as of the date of the 2004 Going Private Transaction.

2005 Initial Public Offering

On February 14, 2005, the Company closed the sale of 13,100,000 shares of Common Stock at a price of $13.00 per share in a firm commitment underwritten initial public offering. In addition, on that date, 2,307,693 shares of Common Stock were sold at the public offering price to Green Equity Investors IV, L.P., the Company’s principal stockholder and an affiliate. On March 15, 2005, the Company closed the sale of 435,200 shares of Common Stock at the public offering price to satisfy the underwriter’s over-allotment option. The offering was effected pursuant to a Registration Statement on Form S-1 (File No. 333-120723), which the Securities and Exchange Commission declared effective on February 8, 2005. See Note 2 of the Consolidated Financial Statements included herein for further detail.

On February 7, 2005, the stockholders approved an increase in the number of authorized shares to 75,000,000, as well as a 1-for-3 reverse stock split. All common share and per share amounts reflect this reverse stock split.

Business

FTD Group, Inc. is a leading provider of floral-related products and services to consumers and retail florists, as well as other retail locations offering floral products, in the U.S. floral retail market. The

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business is supported by the highly recognized FTD brand, which was established in 1910 and enjoys 96% brand recognition among the Company’s target market of U.S. consumers between the ages of 25 and 64, as well as by the Mercury Man logo, which is displayed in approximately 50,000 floral shops globally. The Company conducts its business through two operating segments. The consumer segment, primarily through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number, offers same-day delivery of floral orders to nearly 100% of the U.S. and Canadian populations. As a result of the Company’s same-day delivery capability and broad product selection, the Company’s consumer segment is one of the largest direct marketers of floral arrangements and specialty gifts in the U.S., generating 4.1 million orders from consumers in the fiscal year ended June 30, 2005. The florist segment provides a comprehensive suite of products and services to enable the Company’s network of approximately 20,000 FTD members to send and deliver floral orders. This suite of products and services is designed to promote revenue growth and enhance the operating efficiencies of FTD members.

The Company’s business segments are highly complementary, as floral orders generated by the consumer segment are delivered by the network of FTD members. Management believes that the strong brand name recognition, the complementary florist and consumer segments, the customer database of approximately ten million floral and specialty gift consumers and the extensive network of FTD members provide the Company with significant competitive advantages.

Consumer Segment

The consumer segment is an Internet and telephone marketer of flowers and specialty gift items to consumers, operating primarily through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number. The Company typically offers over 400 floral arrangements and over 800 specialty gift items, which are delivered via common courier, including boxed flowers, plants, gourmet food gifts, holiday gifts, bath and beauty products, jewelry, wine and gift baskets, dried flowers and stuffed animals.

Consumers place orders at the www.ftd.com Web site or over the telephone, which are then transmitted to florists or third-party specialty gift providers for processing and delivery. The Internet is the primary channel for orders, representing approximately 87% of total order volume during the year ended June 30, 2005. Through the network of FTD members, the Company is able to offer same-day delivery to nearly 100% of U.S. and Canadian populations. Additionally, the consumer segment routes floral orders through an international network of floral retailers enabling next-day delivery in over 150 countries. Through third-party manufacturers and distributors, the Company offers next-day delivery of specialty gift orders throughout the U.S. The consumer segment has very low working capital requirements because FTD members and specialty gift providers maintain all physical inventory and bear the cost of warehousing and distribution facilities. As a result, the consumer segment does not own or operate any retail locations.

For the year ended June 30, 2005, the consumer segment generated revenues of $247.1 million, representing 56.4% of the Company’s total revenues.

Florist Segment

The florist segment provides a comprehensive suite of products and services to enable FTD members to send and deliver floral orders. The Company provides these services to its network of approximately 20,000 independent FTD members located primarily in the U.S. and Canada, which includes traditional retail florists as well as to other retailers offering floral products. The florist segment is comprised of three sub-segments: Member Services, Mercury Technology and Specialty Wholesaling. For the year ended June 30, 2005, the florist segment generated revenues of $190.7 million, representing 43.6% of the Company’s total revenues.

Member Services.   The Member Services sub-segment is the primary provider of the Company’s suite of business services to FTD members. These services are designed to promote revenue growth and

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enhance the operating efficiencies of FTD members. Through the Member Services sub-segment, the Company provides FTD members access to the FTD brand and the Mercury Man logo, supported by national advertising, order clearinghouse services (which eliminate counterparty credit risks between sending and receiving FTD members), a quarterly directory publication of FTD members, credit card processing services, e-commerce Web site development and maintenance and a 24-hour telephone answering and order-taking service. In addition, the Company provides the Floral Selections Guide, a counter display published by FTD featuring FTD products for all occasions. The Company’s members pay for these services through monthly dues and activity-based fees, such as per order charges. The Company supports the value of FTD membership through its national advertising campaign, which generates consumer demand for floral orders, thereby increasing the revenues of the FTD members’ retail locations. FTD membership also provides FTD members with a nationally recognized brand, which they can use on a variety of important marketing materials including their store front, direct mail pieces, Web sites and other consumer marketing materials. For the year ended June 30, 2005, Member Services generated revenues representing 60% of the florist segment’s total revenues.

Mercury Technology.   The Mercury Technology sub-segment provides access to the Company’s proprietary Mercury Network, which links the majority of FTD members. The Mercury Technology sub-segment sells and leases basic software and hardware for transmitting and receiving orders, as well as software and hardware that provide full back-end systems to manage a florist’s business. Through these systems, the Mercury Network enables FTD members to electronically transmit orders and send messages to other FTD members, for which the Company receives monthly fees in addition to per-order and per-message fees. For the year ended June 30, 2005, Mercury Technology generated revenues representing 16% of the florist segment’s total revenues.

Specialty Wholesaling.   Through the Specialty Wholesaling sub-segment, the Company acts as a national wholesaler to FTD members, as well as provides products and services to other retail locations offering floral selections. This sub-segment sells FTD-branded and non-branded hard goods and cut flowers as well as greeting cards, packaging, promotional products and a wide variety of other floral-related supplies. During holiday seasons such as Valentine’s Day, Mother’s Day and Christmas, the Company designs specialized floral bouquets with exclusive FTD containers and features these exclusive FTD products in advertising and on the heavily trafficked www.ftd.com Web site. FTD members are then able to display and offer customers these exclusive products. For the year ended June 30, 2005, Specialty Wholesaling generated revenues representing 24% of the florist segment’s total revenues.

Seasonality

In view of seasonal variations in the revenues and operating results of the Company’s florist and consumer 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.

The Company generated 18.8%, 24.7%, 28.5% and 28.0% of its total revenue in the quarters ended September 30, December 31, March 31 and June 30 of fiscal year 2005, respectively. The Company’s quarterly revenue and operating results typically exhibit seasonality similar to that experienced in fiscal year 2005. For example, revenue 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. For the fiscal year ended June 30, 2005, Easter was

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during the third quarter, while Easter fell within the fourth quarter for the fiscal years ended June 30, 2004 and 2003.

In addition, historical revenues and operating results for fiscal year 2003 reflected revenue and related expenses generated from the sale of the Floral Selections Guide, which had been published bi-annually, and had historically been charged to florists in the month shipped. Beginning in 2005 FTD members are now charged a monthly fee for the use of the Floral Selections Guide and as such the Company currently records the revenue in the month billed.

Trademarks

The Company’s intellectual property portfolio includes service marks, trademarks and collective trademarks that distinguish the services and products offered by the Company or its members from those offered by other companies.

The “FTD” word mark and the “Mercury Man” logo are registered in the United States, Canada and other jurisdictions throughout the world for various products and services. These marks are used directly by the Company or under license by FTD members and FTD.COM.

Other registered trademarks and service marks of the Company include “Florists’ Transworld Delivery,” “Mercury” and “Mercury Network.” The Company also has registered collective trademarks, which are used under license by its members and FTD.COM for floral products and related items. These collective trademarks include “Autumn Splendor,” “Big Hug,” “Birthday Party,” “Chicken Soup,” “Sweet Dreams,” “Thanks A Bunch” and the “FTD Anniversary Bouquet.” In addition, the Company has applied to register certain other trademarks, service marks and collective trademarks in the United States and other countries, and likely will seek to register additional marks, as appropriate. It is possible that some of these applications to register additional marks will not result in registrations.

The Company also uses various marks under license, including the “Interflora” mark. The Company is the exclusive licensee to use this mark in North America and South America, as well as other countries including, but not limited to, Japan, South Korea, Panama, the Philippine Islands and Taiwan.

Competition

The Company competes in the extremely fragmented floral services industry with a large number of wholesalers, service providers and direct marketers of flowers and specialty gifts. The principal competitor of the Company’s florist segment is Teleflora LLC (“Teleflora”). Teleflora and FTD are the largest floral service providers in the United States based on membership. Teleflora offers some products and services that are comparable to those offered by the Company, and florists may subscribe to both of these competing services. The principal competitors of the Company’s consumer segment are 1-800-FLOWERS.COM, Inc. and Provide Commerce, Inc. (“Pro Flowers”), which offer similar floral and specialty gift items to consumers through their Web sites and toll-free telephone numbers.

Employees

At June 30, 2005, the Company employed approximately 772 full-time employees. The Company considers its relations with its employees to be good. None of the Company’s employees is currently covered by a collective bargaining agreement.

Financial Information about Segments

Financial and other information by segment relating to the Company’s operations for the fiscal year ended June 30, 2005 and the period from February 24, 2004 through June 30, 2004 and relating to the

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Predecessor’s operations for the period from July 1, 2003 through February 23, 2004 and the fiscal year ended June 30, 2003, is set forth in Note 19 of the Consolidated Financial Statements included herein.

Available Information

The Company files annual reports, quarterly reports and current reports and other information with the Securities and Exchange Commission (the “SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330, or by accessing the SEC’s Web site at www.sec.gov. In addition, as soon as reasonably practicable after these materials are filed with or furnished to the SEC, the Company will make copies available to the public, free of charge, on or through its Web site, www.ftd.com. The Web site also includes the Company’s Code of Business Conduct and Ethics, corporate governance guidelines and charters for the audit, compensation and nominating and corporate governance committees of the Board of Directors. The information on the Company’s Web site is not incorporated into, and is not part of, this annual report.

Item 2.                        PROPERTIES

The Company’s principal executive offices, consisting of approximately 120,000 square feet of office space, are owned by the Company and are located in Downers Grove, Illinois. In addition, the Company leases office space in Sanford, Maine for its indirect wholly-owned subsidiary, Renaissance, an independent warehouse and distribution facility in Cincinnati, Ohio for product distribution and office space in Centerbrook, Connecticut and Medford, Oregon for two of its internal call centers. Additionally, in July 2005, the Company signed a lease agreement for a call center facility in Sherwood, Arkansas.

The Company’s management believes that its facilities are adequate for its current operations.

Item 3.                        LEGAL PROCEEDINGS

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.

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 year 2005.

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PART II

Item 5.                        MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

(a)           Since February 9, 2005, the Company’s Common Stock has been quoted on the New York Stock Exchange (“NYSE”) under the symbol “FTD.” Prior to such time, there was no public market for the Company’s Common Stock. The following table sets forth, for the periods indicated, the high and low sale prices of the Company’s Common Stock as reported by the NYSE, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

Fiscal Year Ended June 30, 2005				High			Low
Third Quarter (from February 9, 2005 through March 31, 2005)				$	13.95		$	11.86
Fourth Quarter				$	12.14		$	10.39

 

As of June 30, 2005, there were 15 holders of record of Common Stock. The holders of the Common Stock are entitled to one vote per share.

The Company has not paid any cash dividends on its common stock since its inception. Any future determination as to the payment of dividends will be at the discretion of the Board and will depend on the Company’s financial condition, results of operations, capital requirements, compliance with charter and contractual restrictions and such other factors as the Board deems relevant.

(b)          On February 14, 2005, the Company closed the sale of 13,100,000 shares of Common Stock at a price of $13.00 per share in a firm commitment underwritten initial public offering. In addition, on that date, 2,307,693 shares of Common Stock were sold at the public offering price to Green Equity Investors IV, L.P., the Company’s principal stockholder and an affiliate. On March 15, 2005, the Company closed the sale of 435,200 shares of Common Stock at the public offering price to satisfy the underwriter’s over-allotment option. The offering was effected pursuant to a Registration Statement on Form S-1 (File No. 333-120723), which the Securities and Exchange Commission declared effective on February 8, 2005. Goldman, Sachs & Co. and Citigroup were the managing underwriters for the offering.

Of the approximately $206.0 million in gross proceeds raised by the Company in the offering and the underwriter’s overallotment option, approximately $12.3 million was paid to the underwriters in connection with the underwriting discount.

Of the $193.6 million balance of proceeds to the Company:

1.                $186.8 million was used to repurchase all outstanding shares of the Company’s 14% Senior Redeemable Exchangeable Cumulative Preferred Stock and all outstanding shares of the Company’s 12% Junior Redeemable Exchangeable Cumulative Preferred Stock;

2.                $5.3 million was used to redeem a portion of FTD, Inc.’s 7.75% Senior Subordinated Notes due 2014 (the “Notes”);

3.                $1.4 million was used to pay for fees and expenses of the offering; and

4.                the balance was invested pending application.

(c)           On September 30, 2004, the Company sold 275,559 shares of its Common Stock to certain members of the Company’s senior management. There were no underwriters involved in connection with the sale of these securities. The securities issued in such transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering thereunder. All of the securities sold in such transactions are deemed restricted securities for purposes of the Securities Act.

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Item 6.                        SELECTED FINANCIAL DATA

The following table sets forth the Predecessor’s selected historical data for the 2001 through 2003 fiscal years and the period from July 1, 2003 through February 23, 2004 and the Company’s selected historical data for the period from February 24, 2004 through June 30, 2004 and the 2005 fiscal year. The selected historical statement of operations data for the 2001 through 2003 fiscal years, the period from July 1, 2003 through February 23, 2004 and the period from February 24, 2004 through June 30, 2004 and for the 2005 fiscal year and balance sheet data for the 2001 through 2005 fiscal years was derived from the Predecessor’s and the Company’s audited consolidated financial statements. The financial data is qualified by reference to, and should be read in conjunction with, the Company’s consolidated financial statements and the notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K. Certain amounts in the Predecessor’s fiscal years 2001 and 2002 financial statements have been reclassified to conform to the current year presentation.

												Predecessor Basis of Accounting(1)
		Fiscal year ended June 30,					Period from February 24, 2004 through June 30,					Period from July 1, 2003 through February 23,					Fiscal year ended June 30,
		2005					2004					2004					2003			2002			2001
		(in thousands, except per share data)
Statement of Operations:
Total revenues			$	437,795				$	151,381				$	245,679			$	363,343		$	325,266		$	305,995
Cost of goods sold and services provided			248,017					88,424					138,057				203,905			177,328			159,879
Gross profit			189,778					62,957					107,622				159,438			147,938