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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

(Mark One)

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2015
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 001-35901



FTD Companies, Inc.
(Exact name of registrant as specified in its charter)

Delaware   32-0255852
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)

3113 Woodcreek Drive,
Downers Grove, Illinois
(Address of principal executive offices)

 


60515

(Zip Code)

(630) 719-7800
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)



        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 o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a smaller
reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        There were 28,618,947 shares of the Registrant's common stock outstanding at May 1, 2015.


Table of Contents


FTD COMPANIES, INC.

INDEX TO FORM 10-Q

 
   
   
  Page

PART I.

     

FINANCIAL INFORMATION

  4

           

  Item 1.  

Financial Statements (Unaudited)

  4

           

     

Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014

  4

           

     

Condensed Consolidated Statements of Operations for the Quarters Ended March 31, 2015 and 2014

  5

           

     

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters Ended March 31, 2015 and 2014

  6

           

     

Condensed Consolidated Statement of Stockholders' Equity for the Quarter Ended March 31, 2015

  7

           

     

Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2015 and 2014

  8

           

     

Notes to Condensed Consolidated Financial Statements

  9

           

  Item 2.  

Management's Discussion and Analysis of Financial Condition and Results of Operations

  30

           

  Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

  42

           

  Item 4.  

Controls and Procedures

  42

           

PART II.

     

OTHER INFORMATION

  44

           

  Item 1.  

Legal Proceedings

  44

           

  Item 1A.  

Risk Factors

  44

           

  Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

  44

           

  Item 6.  

Exhibits

  44

           

SIGNATURES

  45

        In this document, references to "FTD Companies," "FTD," the "Company," "we," "us," and "our" refer to FTD Companies, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

2


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Forward-Looking Statements

        This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about our strategies; statements regarding expected synergies and benefits of our acquisition of Provide Commerce, Inc.; expectations about future business plans, prospective performance and opportunities, including potential acquisitions; future financial performance; revenues; segment metrics; operating expenses; market trends, including those in the markets in which we compete; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness and invest in initiatives; our products and services; pricing; marketing plans; competition; settlement of legal matters; and the impact of accounting changes and other pronouncements. Potential factors that could affect such forward-looking statements include, among others, the factors disclosed in the section entitled "Risk Factors" in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC"), as updated from time to time in our subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

3


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PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


FTD COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(Unaudited)

 
  March 31,
2015
  December 31,
2014
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 76,390   $ 95,595  

Accounts receivable, net of allowances of $6,598 and $8,991 at March 31, 2015 and December 31, 2014, respectively

    37,753     32,753  

Inventories

    29,732     28,342  

Deferred tax assets, net

    17,435     17,233  

Prepaid expenses and other current assets

    15,724     17,816  

Total current assets

    177,034     191,739  

Property and equipment, net

    70,991     63,607  

Intangible assets, net

    386,789     435,653  

Goodwill

    640,897     632,212  

Other assets

    28,913     29,402  

Total assets

  $ 1,304,624   $ 1,352,613  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 76,572   $ 70,301  

Accrued liabilities

    67,940     62,555  

Accrued compensation

    23,827     28,728  

Deferred revenue

    14,626     10,185  

Income taxes payable

    2,992     6,042  

Current portion of long-term debt

    20,000     20,000  

Total current liabilities

    205,957     197,811  

Long-term debt

    295,000     320,000  

Deferred tax liabilities, net

    138,537     149,834  

Other liabilities

    14,210     19,755  

Total liabilities

    653,704     687,400  

Commitments and contingencies (Note 15)

             

Stockholders' equity:

             

Preferred stock, 5,000,000 shares, par value $0.0001, authorized; no shares issued and outstanding

         

Common stock, 60,000,000 shares, par value $0.0001, authorized; 28,960,905 and 29,193,037 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

    3     3  

Treasury stock, 331,084 and no shares at March 31, 2015 and December 31, 2014, respectively

    (10,000 )    

Additional paid-in capital

    666,665     666,338  

Retained earnings

    28,741     26,707  

Accumulated other comprehensive loss

    (34,489 )   (27,835 )

Total stockholders' equity

    650,920     665,213  

Total liabilities and stockholders' equity

  $ 1,304,624   $ 1,352,613  

   

The accompanying notes are an integral part of these
condensed consolidated financial statements.

4


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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Revenues:

             

Products

  $ 331,739   $ 153,172  

Services

    36,042     36,681  

Total revenues

    367,781     189,853  

Operating expenses:

             

Cost of revenues—products

    231,509     118,353  

Cost of revenues—services

    4,916     5,136  

Sales and marketing

    76,412     30,528  

General and administrative

    33,135     15,898  

Amortization of intangible assets

    15,401     4,412  

Restructuring and other exit costs

    2,168      

Total operating expenses

    363,541     174,327  

Operating income

    4,240     15,526  

Interest income

    144     148  

Interest expense

    (2,452 )   (1,386 )

Other (expense) income, net

    (11 )   386  

Income before income taxes

    1,921     14,674  

(Benefit) provision for income taxes

    (113 )   5,054  

Net income

  $ 2,034   $ 9,620  

Earnings per common share:

             

Basic earnings per share

  $ 0.07   $ 0.50  

Diluted earnings per share

  $ 0.07   $ 0.50  

   

The accompanying notes are an integral part of these
condensed consolidated financial statements.

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Net Income

  $ 2,034   $ 9,620  

Other comprehensive (loss) income:

             

Foreign currency translation

    (6,638 )   793  

Cash flow hedges:

             

Changes in net losses on derivatives, net of tax of $(10) and $(146) for the quarters ended March 31, 2015 and 2014, respectively

    (16 )   (228 )

Other comprehensive (loss) income

    (6,654 )   565  

Comprehensive (loss) income

  $ (4,620 ) $ 10,185  

   

The accompanying notes are an integral part of these
condensed consolidated financial statements.

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands except share amounts)

 
  Common Stock   Treasury Stock    
  Accumulated
Other
Comprehensive
Loss
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
  Total
Stockholders'
Equity
 
 
  Shares   Amount   Shares   Amounts  

Balance at December 31, 2014

    29,193,037   $ 3       $   $ 666,338   $ (27,835 ) $ 26,707   $ 665,213  

Net income

                            2,034     2,034  

Other comprehensive loss

                        (6,654 )       (6,654 )

Stock-based compensation

                    1,942             1,942  

Tax benefits from equity awards

                    390             390  

Vesting of restricted stock units and related repurchases of common stock

    98,752                 (2,012 )           (2,012 )

Repurchases of common stock

            (331,084 )   (10,000 )               (10,000 )

Exercise of stock options

    200                 7             7  

Balance at March 31, 2015

    29,291,989   $ 3     (331,084 ) $ (10,000 ) $ 666,665   $ (34,489 ) $ 28,741   $ 650,920  

   

The accompanying notes are an integral part of these
condensed consolidated financial statements.

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Cash flows from operating activities:

             

Net income

  $ 2,034   $ 9,620  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

    20,755     6,927  

Stock-based compensation

    1,942     1,662  

Provision for doubtful accounts receivable

    285     358  

Accretion of discounts and amortization of deferred financing and debt issue costs

    340     193  

Deferred taxes, net

    (4,833 )   (1,908 )

Excess tax benefits from equity awards

    (390 )   (327 )

Other, net

    52     (6 )

Changes in operating assets and liabilities, net of Acquisition-related purchase accounting adjustments:

             

Accounts receivable, net

    (4,439 )   (7,428 )

Inventories

    (2,330 )   2,235  

Prepaid expenses and other assets

    4,325     1,130  

Accounts payable and accrued liabilities

    125     (4,732 )

Deferred revenue

    4,487     1,965  

Income taxes payable

    2,579     5,910  

Other liabilities

    (2,991 )   (84 )

Net cash provided by operating activities

    21,941     15,515  

Cash flows from investing activities:

             

Purchases of property and equipment

    (3,602 )   (1,498 )

Net cash used for investing activities

    (3,602 )   (1,498 )

Cash flows from financing activities:

             

Payments on long-term debt

    (25,000 )    

Repurchases of common stock

    (12,012 )   (1,167 )

Excess tax benefits from equity awards

    390     327  

Proceeds from exercises of stock options

    7      

Net cash used for financing activities

    (36,615 )   (840 )

Effect of foreign currency exchange rate changes on cash and cash equivalents

    (929 )   (13 )

Change in cash and cash equivalents

    (19,205 )   13,164  

Cash and cash equivalents, beginning of period

    95,595     48,162  

Cash and cash equivalents, end of period

  $ 76,390   $ 61,326  

   

The accompanying notes are an integral part of these
condensed consolidated financial statements.

8


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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

        We are a premier floral and gifting company with a vision to be the leading and most trusted floral and gifting company in the world. Our mission is to inspire, support, and delight our customers when expressing life's most important sentiments. We provide floral, specialty foods, gift and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. Our business uses the highly-recognized FTD®, Interflora® (both supported by the iconic Mercury Man logo), ProFlowers®, Shari's Berries®, and Personal Creations® brands. While we operate primarily in the United States ("U.S."), Canada, the United Kingdom ("U.K."), and the Republic of Ireland, we have worldwide presence as our Mercury Man logo is displayed in nearly 40,000 floral shops in approximately 150 countries. Our portfolio of brands also includes Flying Flowers, Flowers Direct, and Drake Algar in the U.K., and Cherry Moon Farms®, Gifts.com™, and Sincerely™ in the U.S. While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet-dipped berries, chocolate dip delights™ and other sweets, personalized gifts, premium fresh fruits, gift baskets, wine and champagne, jewelry and spa products.

        FTD Group, Inc. ("FTD Group") is a wholly-owned subsidiary of FTD Companies, Inc. and has as its principal operating subsidiaries, Florists' Transworld Delivery, Inc., FTD.COM Inc. ("FTD.COM"), Interflora British Unit ("Interflora"), and Provide Commerce, Inc. The operations of the Company include those of its subsidiary, Interflora, Inc., of which one-third is owned by an outside third party. The minority interest related to Interflora, Inc. is not material for separate presentation. The Company's corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego, California; Woodridge, Illinois; Centerbrook, Connecticut; Medford, Oregon; Sleaford, England; Quebec, Canada; and Hyderabad, India; and distribution centers in various locations throughout the U.S.

Acquisition of Provide Commerce, Inc.

        On December 31, 2014, the Company acquired from a wholly-owned subsidiary of Liberty Interactive Corporation ("Liberty") all of the issued and outstanding shares of common stock of Provide Commerce, Inc., an indirect wholly-owned subsidiary of Liberty ("Provide Commerce"), for a purchase price consisting of (i) cash consideration of $106.6 million, excluding acquired cash on hand of $38.1 million and a post-closing working capital adjustment of $9.9 million, and (ii) 10,203,010 shares of FTD common stock, representing approximately 35% of the issued and outstanding shares of FTD common stock (the "Acquisition"). In April 2015, FTD made a payment to Liberty in full satisfaction of the post-closing working capital adjustment. Upon the closing of the Acquisition, Provide Commerce became an indirect wholly-owned subsidiary of FTD (see Note 2).

Basis of Presentation

        These interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), including those for interim financial information, and with the instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the "SEC"). Accordingly,

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial position and operating results for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The condensed consolidated balance sheet information at December 31, 2014, was derived from the Company's audited consolidated financial statements, included in the Company's Annual Report on Form 10-K ("Form 10-K") for the year ended December 31, 2014, but does not include all of the disclosures required by GAAP.

        The condensed consolidated financial statements reflect the historical financial position, results of operations, and cash flows of the Company. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make accounting policy elections, estimates, and assumptions that affect a number of reported amounts and related disclosures in the condensed consolidated financial statements. Management bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates and assumptions. The most significant areas of the condensed consolidated financial statements that require management's judgment include the Company's revenue recognition, goodwill, indefinite-lived intangible assets and other long-lived assets, allowance for doubtful accounts, income taxes, software capitalization, legal contingencies, and preliminary estimates of fair values of assets acquired and liabilities assumed with the Acquisition.

        These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Form 10-K for the year ended December 31, 2014.

"Emerging Growth Company" Reporting Requirements

        The Company qualifies as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act. As an "emerging growth company," the Company has elected to take advantage of the extended transition period for complying with new or revised accounting standards until such standards are also applicable to private companies. As a result of this election, the Company's consolidated financial statements may not be comparable to companies that comply with non-emerging growth companies' effective dates for such new or revised standards. Further, as a result of the Acquisition, the Company anticipates that it will no longer qualify as an "emerging growth company" as of December 31, 2015.

Accounting Policies

        Refer to the Company's audited consolidated financial statements included in the Company's Form 10-K for the year ended December 31, 2014, for a discussion of the Company's accounting policies.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

Recent Accounting Pronouncements

        In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, as codified in FASB Accounting Standards Codification ("ASC") 740. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU were effective for the Company beginning January 1, 2015. The amendments were applied prospectively to all unrecognized tax benefits that existed at the effective date. This update did not have a material impact on the Company's consolidated financial statements.

        In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The amendments in this ASU affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The amendments in this ASU require an entity to recognize revenue related to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Tentatively, the amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2017. Adoption is permitted for fiscal years and interim periods beginning after December 15, 2016. The Company is currently assessing the impact of this update on its consolidated financial statements.

        In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items, which eliminates the concept of extraordinary items from GAAP. The amendments in this ASU eliminate the requirement that an entity separately classify, present, and disclose extraordinary events and transactions. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2015. The amendments should be applied prospectively and retrospective application is permitted. The Company does not expect this update to have a material impact on its consolidated financial statements.

        In April 2015, FASB issued ASU No. 2015-03, Interest—Imputation of Interest, which simplifies the presentation of debt issuance costs by requiring debt issuance costs related to a debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2015. The amendments should be applied on a

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

retrospective basis. The Company expects that this update will reduce both other assets and the outstanding debt balance by approximately $6 million as of March 31, 2015.

2. ACQUISITION

Acquisition of Provide Commerce

        On December 31, 2014, the Company acquired all of the issued and outstanding shares of common stock of Provide Commerce from Liberty. Provide Commerce's portfolio of brands primarily includes ProFlowers and ProPlants for fresh-cut flowers, floral arrangements, and plants; Shari's Berries for gourmet-dipped berries and other products; Personal Creations for personalized gifts; Cherry Moon Farms for premium fresh fruits; and Sincerely for mobile gifting applications. The Acquisition expands the breadth of the Company's brand by combining two complementary businesses to offer customers a greater variety of floral and gifting products and an enhanced shopping experience and is expected to generate significant cost synergies. The Company believes that these factors support the estimated amount of goodwill related to the Acquisition.

        The purchase price consisted of (i) cash consideration of $106.6 million excluding acquired cash on hand of $38.1 million and a post-closing working capital adjustment of $9.9 million, and (ii) 10,203,010 shares of FTD common stock, representing approximately 35% of the issued and outstanding shares of FTD common stock. The FTD common stock was valued at $34.82 per share, the closing price on December 31, 2014, the date of the Acquisition, for purposes of determining the purchase price. In April 2015, FTD made a payment to Liberty in full satisfaction of the post-closing working capital adjustment. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on management's preliminary estimates of their respective fair values as of the closing date of the Acquisition. During the quarter ended March 31, 2015, the Company revised certain of its preliminary estimates of fair value, which changes were not considered material. The Company believes that the preliminary fair values assigned to the assets acquired and the liabilities assumed were based on reasonable assumptions, however, additional information is needed in order to determine the final fair values. The following table summarizes the preliminary estimates of fair value of the assets

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. ACQUISITION (Continued)

acquired and liabilities assumed, including the effects of immaterial adjustments to the preliminary purchase price allocation (in thousands):

 
  Preliminary
Estimate of
Fair Value
 

Net liabilities assumed:

       

Cash

  $ 38,081  

Accounts receivable

    8,215  

Inventories

    18,909  

Prepaid expenses

    11,550  

Other assets

    14,931  

Property and equipment

    43,500  

Accounts payable and accrued liabilities

    (82,186 )

Deferred tax liabilities, net

    (86,402 )

Other liabilities

    (13,754 )

Total net liabilities assumed

    (47,156 )

Intangible assets acquired:

       

Trademarks and trade names

    119,400  

Customer contracts and relationships

    91,100  

Complete technology

    36,300  

Total intangible assets acquired

    246,800  

Goodwill

    310,257  

Total purchase price

  $ 509,901  

        The acquired intangibles are being amortized on a straight-line basis over their estimated useful lives, which range from two to fifteen years. The goodwill acquired in the Acquisition is not deductible for federal tax purposes.

        The following unaudited pro forma information presents the consolidated results of operations of the Company as if the Acquisition had occurred as of January 1, 2013. The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to present what the actual results of operations would have been had the transaction actually occurred on the date indicated, nor does it purport to represent results of operations for any future period. The information does not reflect any cost savings or other benefits that may be obtained through anticipated synergies as a result of the Acquisition.

(in thousands, except per share amounts)
  For the Quarter
Ended March 31, 2014
 

Revenues

  $ 381,908  

Net income

  $ 1,513  

Basic and diluted earnings per share

  $ 0.05  

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. SEGMENT INFORMATION

        Prior to the Acquisition, the Company reported its business operations in three operating and reportable segments: Consumer, Florist and International. As a result of the Acquisition, the Company began reporting its business in four operating and reportable segments: Consumer, Florist, International, and Provide Commerce. As the Acquisition was completed on December 31, 2014, no results of operations of Provide Commerce were included in the Company's consolidated statement of operations for the quarter ended March 31, 2014.

        Below is a reconciliation of segment revenues to consolidated revenues (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Products revenues:

             

Consumer

  $ 88,070   $ 87,616  

Florist

    16,383     16,275  

International

    48,754     54,067  

Provide Commerce

    183,236      

Segment products revenues

  $ 336,443   $ 157,958  

Services revenues:

             

Florist

  $ 29,621   $ 29,835  

International

    6,502     6,930  

Segment services revenues

  $ 36,123   $ 36,765  

Intersegment eliminations

    (4,785 )   (4,870 )

Consolidated revenues

  $ 367,781   $ 189,853  

        Intersegment revenues represent amounts charged from one segment to the other for services provided based on order volume at a set rate per order. Intersegment revenues by segment were as follows (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Intersegment revenues:

             

Consumer

  $ (4,704 ) $ (4,786 )

Florist

    (81 )   (84 )

Total intersegment revenues

  $ (4,785 ) $ (4,870 )

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. SEGMENT INFORMATION (Continued)

        Below is a reconciliation of segment operating income to consolidated operating income and income before income taxes (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Segment operating income(a):

             

Consumer

  $ 7,470   $ 8,090  

Florist

    14,147     13,168  

International

    7,977     8,034  

Provide Commerce

    8,912      

Total segment operating income

    38,506     29,292  

Unallocated expenses(b)

    (13,511 )   (6,839 )

Depreciation expense and amortization of intangible assets

    (20,755 )   (6,927 )

Operating income

    4,240     15,526  

Interest expense, net

    (2,308 )   (1,238 )

Other (expense) income, net

    (11 )   386  

Income before income taxes

  $ 1,921   $ 14,674  

(a)
Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction and integration-related costs, and restructuring and other exit costs. Stock-based compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income (expense).

(b)
Unallocated expenses include various corporate costs, such as corporate finance, legal, and human resources costs. In addition, unallocated expenses include stock-based compensation for all eligible Company employees, restructuring and other exit costs, transaction and integration-related costs, and litigation and dispute settlement charges or gains.

        Geographic revenues to external customers were as follows for the periods presented (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

U.S. 

  $ 312,525   $ 128,856  

U.K. 

    55,256     60,997  

Consolidated revenues

  $ 367,781   $ 189,853  

        Assets and liabilities are reviewed at the consolidated level by management. Segment assets are not reported to, or used by, the Company's chief operating decision maker to allocate resources to or assess performance of the segments, and therefore, total segment assets have not been disclosed.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. SEGMENT INFORMATION (Continued)

Geographic information for long-lived assets, consisting of amortizable intangible assets, property and equipment and other non-current assets, was as follows (in thousands):

 
  March 31,
2015
  December 31,
2014
 

U.S. 

  $ 324,280   $ 272,659  

U.K. 

    7,953     8,335  

Total long-lived assets

  $ 332,233   $ 280,994  

4. BALANCE SHEET COMPONENTS

Financing Receivables

        The Company has financing receivables related to equipment sales to its floral network members. The current and noncurrent portions of financing receivables are included in accounts receivable and other assets, respectively, in the condensed consolidated balance sheets. The Company assesses financing receivables individually for balances due from current floral network members and collectively for balances due from terminated floral network members.

        Credit quality of financing receivables was as follows (in thousands):

 
  March 31,
2015
  December 31,
2014
 

Current

  $ 10,719   $ 10,913  

Past due

    1,467     3,268  

Total

  $ 12,186   $ 14,181  

        The aging of past due financing receivables was as follows (in thousands):

 
  March 31,
2015
  December 31,
2014
 

Current

  $ 10,719   $ 10,913  

Past due:

             

1 - 150 days past due

    145     147  

151 - 364 days past due

    212     163  

365 - 730 days past due

    197     244  

731 or more days past due

    913     2,714  

Total

  $ 12,186   $ 14,181  

        Financing receivables on nonaccrual status at March 31, 2015 and December 31, 2014 totaled $1.5 million and $3.3 million, respectively.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. BALANCE SHEET COMPONENTS (Continued)

        The allowance for credit losses and the recorded investment in financing receivables were as follows (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Allowance for credit losses:

             

Balance at January 1

  $ 3,200   $ 3,213  

Provision

    87     27  

Write-offs charged against allowance

    (1,905 )   (21 )

Balance at March 31

  $ 1,382   $ 3,219  

Ending balance collectively evaluated for impairment

  $ 1,365   $ 3,218  

Ending balance individually evaluated for impairment

  $ 17   $ 1  

Recorded investments in financing receivables:

             

Balance collectively evaluated for impairment

  $ 1,493   $ 3,335  

Balance individually evaluated for impairment

  $ 10,693   $ 11,377  

        Individually evaluated impaired loans, including the recorded investment in such loans, the unpaid principal balance and the allowance related to such loans, each totaled less than $0.1 million at both March 31, 2015 and December 31, 2014. The average recorded investment in such loans was less than $0.1 million in each of the quarters ended March 31, 2015 and 2014. Interest income recognized on impaired loans was less than $0.1 million in each of the quarters ended March 31, 2015 and 2014.

Property and Equipment

        Property and equipment consisted of the following (in thousands):

 
  March 31,
2015
  December 31,
2014
 

Land and improvements

  $ 1,602   $ 1,614  

Buildings and improvements

    16,112     16,203  

Leasehold improvements

    19,070     16,092  

Computer equipment

    29,567     27,144  

Computer software

    40,716     38,409  

Furniture and fixtures

    17,235     12,705  

    124,302     112,167  

Accumulated depreciation

    (53,311 )   (48,560 )

Total

  $ 70,991   $ 63,607  

        Depreciation expense, including the amortization of leasehold improvements, was $5.4 million and $2.5 million for the quarters ended March 31, 2015 and 2014, respectively.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. TRANSACTIONS WITH RELATED PARTIES

Transactions with Liberty

        As a result of the Acquisition, Liberty owns approximately 35% of the issued and outstanding shares of FTD common stock. FTD and Liberty entered into an Investor Rights Agreement, which governs certain rights of and restrictions on Liberty in connection with the shares of FTD common stock that Liberty owns as a result of the Acquisition. In addition, Provide Commerce and Liberty entered into a services agreement (the "Services Agreement"), under which Provide Commerce, on a short-term transitional basis, has provided Liberty with certain support service and other assistance after the Acquisition in respect of the RedEnvelope business, which was not acquired by FTD as part of the Acquisition. Fees of $0.3 million were earned during the quarter ended March 31, 2015 and were billed to Liberty in April 2015. On April 1, 2015, Provide Commerce and Liberty entered into an amendment to the Services Agreement to extend the term of the Services Agreement to June 30, 2015.

        The Acquisition purchase price was subject to adjustment based upon the final closing working capital, which adjustment was determined to be $9.9 million. The Company's consolidated balance sheet at March 31, 2015 reflects an accrual for such purchase price adjustment. In April 2015, FTD made a payment to Liberty in full satisfaction of this adjustment.

        On April 30, 2015, the Company, through a wholly-owned subsidiary, entered into a Purchase and Sale Agreement with an indirect wholly-owned subsidiary of Liberty, pursuant to which the Company acquired certain residual assets previously used by Liberty in the online e-commerce business operated under the trade name of RedEnvelope for a cash purchase price of $250,000.

The I.S. Group Limited

        Interflora holds a 20.4% investment in The I.S. Group Limited ("I.S. Group"), which totaled $1.7 million at both March 31, 2015 and December 31, 2014 and is included in other assets in the condensed consolidated balance sheets. The share of equity earnings was not material for separate presentation in these condensed consolidated financial statements. I.S. Group supplies floral-related products to Interflora's floral network members in both the U.K. and the Republic of Ireland as well as to other customers. Interflora derives revenues from I.S. Group from (i) the sale of products (sourced from third-party suppliers) to I.S. Group for which revenue is recognized on a gross basis, (ii) commissions on products sold by I.S. Group (sourced from third-party suppliers) to floral network members, and (iii) commissions for acting as a collection agent on behalf of I.S. Group. Revenues related to products sold to and commissions earned from I.S. Group were $0.9 million and $1.0 million in the quarters ended March 31, 2015 and 2014, respectively. In addition, Interflora purchases products from I.S. Group for sale to consumers. The cost of revenues related to products purchased from I.S. Group was $0.2 million and less than $0.1 million in the quarters ended March 31, 2015 and 2014, respectively. Amounts due from I.S. Group were $0.6 million and $0.5 million at March 31, 2015 and December 31, 2014, respectively, and amounts payable to I.S. Group were $2.1 million and $1.5 million at March 31, 2015 and December 31, 2014, respectively.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6. GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS

Goodwill

        The changes in the net carrying amount of goodwill for the quarter ended March 31, 2015 were as follows (in thousands):

 
  Consumer   Florist   International   Provide
Commerce
  Total  

Goodwill at December 31, 2014

  $ 133,226   $ 109,651   $ 92,259   $ 297,076   $ 632,212  

Foreign currency translation

            (4,496 )       (4,496 )

Provide Commerce acquisition(a)

                13,181     13,181  

Goodwill at March 31, 2015

  $ 133,226   $ 109,651   $ 87,763   $ 310,257   $ 640,897  

(a)
Adjustments to goodwill include immaterial revisions to preliminary fair value amounts and the final working capital adjustment, which were recorded during the quarter ended March 31, 2015.

        In 2008, the Company recorded an impairment charge of $116.3 million. The table above reflects the Company's goodwill balances net of this accumulated impairment charge. The gross goodwill balance was $757.2 million at March 31, 2015.

Intangible Assets

        Intangible assets are primarily related to the acquisition of Provide Commerce in December 2014 and the acquisition of the Company by United Online in August 2008 and consist of the following (in thousands):

 
  March 31, 2015   December 31, 2014  
 
  Gross
Value
  Accumulated
Amortization
  Net   Gross
Value
  Accumulated
Amortization
  Net  

Complete technology

  $ 77,528   $ (43,008 ) $ 34,520   $ 77,847   $ (41,480 ) $ 36,367  

Customer contracts and relationships

    195,313     (115,500 )   79,813     199,271     (104,972 )   94,299  

Trademarks and trade names

    274,779     (2,323 )   272,456     305,245     (258 )   304,987  

Total

  $ 547,620   $ (160,831 ) $ 386,789   $ 582,363   $ (146,710 ) $ 435,653  

        Some of the Company's trademarks and trade names are indefinite-lived for which there is no associated amortization expense or accumulated amortization. At March 31, 2015 and December 31, 2014, such indefinite-lived assets, after impairment and foreign currency translation adjustments, totaled $154.5 million and $247.5 million, respectively. Included in the above intangible assets are $36.3 million of complete technology, $91.1 million of customer contracts and relationships, and $119.4 million of trademarks and trade names acquired in connection with the Acquisition, which are based on preliminary fair value estimates. During the quarter ended March 31, 2015, the Company revised certain of its preliminary estimates of fair value and useful lives. These changes were not material and have been fully reflected in the statement of operations for the quarter ended March 31, 2015.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6. GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS (Continued)

        Estimated future intangible assets amortization expense for each of the next five years and thereafter, was as follows (in thousands):

2015 (remainder of year)

  $ 45,937  

2016

    61,160  

2017

    15,273  

2018

    15,272  

2019

    15,272  

Thereafter

    79,414  

Total

  $ 232,328  

7. FINANCING ARRANGEMENTS

Amended and Restated Credit Agreement

        On July 17, 2013, FTD Companies, Inc. entered into a credit agreement (the "2013 Credit Agreement") with Interflora, certain wholly-owned domestic subsidiaries of FTD Companies, Inc. party thereto as guarantors, the financial institutions party thereto from time to time, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of America, N.A., as administrative agent (in such capacity, the "Administrative Agent"), which provided for a $350 million five-year revolving credit facility. On July 17, 2013, FTD Companies, Inc. drew $220 million of the new $350 million revolving credit facility and used this, together with approximately $19 million of its existing cash balance, to repay amounts outstanding under its previous credit facility in full and to pay fees and expenses related to the 2013 Credit Agreement.

        On September 19, 2014, the Company entered into an amendment to the 2013 Credit Agreement (the "Credit Agreement Amendment"), with Interflora, the guarantors party thereto, the lenders party thereto, and the administrative agent. The Credit Agreement Amendment amended and restated the 2013 Credit Agreement in its entirety (as amended and restated, the "Amended and Restated Credit Agreement"). Among other things, the Amended and Restated Credit Agreement provided for a term loan in an aggregate principal amount of $200 million and provided for a revolving loan advance (the "Acquisition Advance") to finance the cash portion of the Acquisition purchase price.

        The proceeds of the term loan were used to repay a portion of outstanding revolving loans and, on December 31, 2014, the Company borrowed $120 million under the Acquisition Advance to fund the cash portion of the Acquisition purchase price. The obligations under the Amended and Restated Credit Agreement are guaranteed by certain of FTD Companies, Inc.'s wholly-owned domestic subsidiaries (together with FTD Companies, Inc., the "U.S. Loan Parties"). In addition, the obligations under the Amended and Restated Credit Agreement are secured by a lien on substantially all of the assets of the U.S. Loan Parties, including a pledge of all of the outstanding capital stock of certain direct subsidiaries of the U.S. Loan Parties (except with respect to foreign subsidiaries and certain domestic subsidiaries whose assets consist primarily of foreign subsidiary equity interests, in which case such pledge is limited to 66% of the outstanding capital stock).

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. FINANCING ARRANGEMENTS (Continued)

        The interest rates applicable to borrowings under the Amended and Restated Credit Agreement are based on either LIBOR plus a margin ranging from 1.50% per annum to 2.50% per annum, or a base rate plus a margin ranging from 0.50% per annum to 1.50% per annum, calculated according to the Company's net leverage ratio. At March 31, 2015, the base rate margin was 1.0% per annum and the LIBOR margin was 2.0% per annum. In addition, the Company pays a commitment fee ranging from 0.20% per annum to 0.40% per annum on the unused portion of the revolving credit facility. The interest rates (based on LIBOR) at March 31, 2015 under the term loan and the revolving credit facility were 2.28% and 2.18%, respectively. The commitment fee rate at March 31, 2015 was 0.30%. The Amended and Restated Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, and asset sales, and the Company's ability to incur additional debt and additional liens.

        The term loan is subject to amortization payments of $5 million per quarter and customary mandatory prepayments under certain conditions. In addition, during the quarter ended March 31, 2015, the Company paid down $20 million of the amounts outstanding under the revolving credit facility. The outstanding balance of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019. The future minimum principal payments through the maturity date of the Amended and Restated Credit Agreement were as follows for each of the next five years (in thousands):

2015 (remainder of year)

  $ 15,000  

2016

    20,000  

2017

    20,000  

2018

    20,000  

2019

    240,000  

Total

  $ 315,000  

        At March 31, 2015, the remaining borrowing capacity under the Amended and Restated Credit Agreement, which was reduced by $2.3 million in outstanding letters of credit, was $227.7 million. The changes in the Company's debt balances for the quarter ended March 31, 2015 were as follows (in thousands):

 
  Balance at
December 31,
2014
  Repayments
of Debt
  Balance at
March 31,
2015
 

Amended and Restated Credit Agreement:

                   

Revolving Credit Facility

  $ 140,000   $ (20,000 ) $ 120,000  

Term Loan

    200,000     (5,000 )   195,000  

Total

  $ 340,000   $ (25,000 ) $ 315,000  

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. DERIVATIVE INSTRUMENTS

        In March 2012, the Company entered into forward starting interest rate cap instruments based on 3-month LIBOR, effective January 2015 through June 2018. The forward starting interest rate cap instruments have aggregated notional values totaling $130 million. The interest rate cap instruments are designated as cash flow hedges against expected future cash flows attributable to future 3-month LIBOR interest payments on a portion of the outstanding borrowings under the Company's Amended and Restated Credit Agreement. The gains or losses on the instruments are reported in other comprehensive income to the extent that they are effective and are reclassified into earnings when the cash flows attributable to 3-month LIBOR interest payments are recognized in earnings.

        The estimated fair values and notional values of outstanding derivative instruments at March 31, 2015 and December 31, 2014 were as follows (in thousands):

 
   
  Estimated Fair Value of
Derivative Instruments
  Notional Value of
Derivative Instruments
 
 
  Balance Sheet
Location
  March 31,
2015
  December 31,
2014
  March 31,
2015
  December 31,
2014
 

Derivative Assets:

                             

Interest rate caps

  Other assets   $ 225   $ 370   $ 130,000   $ 130,000  

        The Company recognized the following losses from derivatives, before tax, in other comprehensive income (loss) (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Derivatives Designated as Cash Flow Hedging Instruments:

             

Interest rate caps

  $ (144 ) $ (374 )

        The effective portion, before tax effect, of the Company's interest rate caps designated as cash flow hedging instruments was $1.6 million and $1.5 million at March 31, 2015 and December 31, 2014, respectively, $0.5 million of which was expected to be reclassified from accumulated other comprehensive loss into interest expense in the consolidated statements of operations within the next twelve months. During the quarter ended March 31, 2015, $0.1 million was reclassified from accumulated other comprehensive loss into interest expense in the condensed consolidated statements of operations. No amounts were reclassified out of accumulated other comprehensive loss during the quarter ended March 31, 2014.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. FAIR VALUE MEASUREMENTS

        The following table presents estimated fair values of financial assets and liabilities and derivative instruments that were required to be measured at fair value on a recurring basis (in thousands):

 
  March 31, 2015   December 31, 2014  
 
  Total   Level 1   Level 2   Total   Level 1   Level 2  

Assets:

                                     

Money market funds

  $ 37,310   $ 36,965   $ 345   $ 56,595   $ 55,350   $ 1,245  

Derivative assets

    225         225     370         370  

Total

  $ 37,535   $ 36,965   $ 570   $ 56,965   $ 55,350   $ 1,615  

Liabilities:

                                     

Non-qualified deferred compensation plan

  $ 9,649   $   $ 9,649   $ 11,617   $   $ 11,617  

Total

  $ 9,649   $   $ 9,649   $ 11,617   $   $ 11,617  

        Provide Commerce has an executive deferred compensation plan for key management level employees in which the employees may elect to defer receipt of current compensation. This plan is intended to be an unfunded, non-qualified deferred compensation plan that complies with the provisions of section 409A of the Internal Revenue Code. At the time of the Acquisition, contributions to the plan were suspended except those relating to any compensation earned but not yet paid as of the date of the Acquisition. The plan assets, which consist primarily of life insurance contracts recorded at their cash surrender value, were $12.6 million and $12.5 million at March 31, 2015 and December 31, 2014, respectively, and are included in other assets in the accompanying condensed consolidated balance sheets.

        The Company estimated the fair value of its long-term debt using a discounted cash flow approach that incorporates a market interest yield curve with adjustments for duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimated credit spread. At March 31, 2015, the Company estimated its credit spread as 1.8% and 2.5% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 3.1% and 3.7%, respectively. At December 31, 2014, the Company estimated its credit spread as 2.0% and 2.6% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 3.6% and 4.2%, respectively. The table below summarizes the carrying amounts and estimated fair values for long-term debt (in thousands):

 
  March 31, 2015   December 31, 2014  
 
   
  Estimated
Fair Value
   
  Estimated
Fair Value
 
 
  Carrying
Amount
  Carrying
Amount
 
 
  Level 2   Level 2  

Long-term debt, including current portion

  $ 315,000   $ 314,849   $ 340,000   $ 338,223  

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. FAIR VALUE MEASUREMENTS (Continued)

        Fair value approximates the carrying amount of financing receivables because such receivables are discounted at a rate comparable to market. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts because of their short-term nature.

10. STOCKHOLDERS' EQUITY

Common Stock Repurchases

        On February 27, 2014, the Company's board of directors authorized a common stock repurchase program (the "Repurchase Program") that allows FTD Companies, Inc. to repurchase up to $50 million of its common stock from time to time over a two-year period in both open market and privately negotiated transactions. Repurchased shares generally will be held in treasury pending use for general corporate purposes, including issuances under various employee and director stock plans. No purchases were made under the Repurchase Program prior to 2015. As of March 31, 2015, the Company has repurchased 331,084 shares under the Repurchase Program at an average cost per share of $30.20. In addition, during April 2015, the Company repurchased an additional 341,958 shares under the Repurchase Program at an average cost per share of $29.24.

        Upon vesting of RSUs or exercise of stock options, the Company does not collect the minimum statutory withholding taxes in cash from employees. Instead, the Company automatically withholds, from the RSUs that vest or stock options exercised, the portion of those shares with a fair market value equal to the amount of the minimum statutory withholding taxes due. The withheld shares are accounted for as repurchases of common stock but are not considered repurchases under the Repurchase Program. The Company then pays the minimum statutory withholding taxes in cash. During the quarter ended March 31, 2015, 157,537 RSUs vested for which 58,785 shares were withheld to cover the minimum statutory withholding taxes of $2.0 million.

11. INCENTIVE COMPENSATION PLANS

        The FTD Companies, Inc. Amended and Restated 2013 Incentive Compensation Plan (the "2013 Plan") authorizes the granting of awards to employees and non-employee directors, including stock options, stock appreciation rights, restricted stock units ("RSUs") and other stock-based awards. Under the 2013 Plan, 1.6 million shares of FTD common stock have been reserved for issuance of awards. At March 31, 2015, the Company had less than 0.1 million shares available for issuance under the 2013 Plan.

        On March 9, 2015, the Company granted RSUs to certain employees totaling 0.3 million shares. The RSUs granted will generally vest in four equal annual installments beginning on February 15, 2016. The RSUs were granted with an exercise price of $34.44, the market value of the underlying stock on the grant date.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. INCENTIVE COMPENSATION PLANS (Continued)

        The following table summarizes the non-cash stock-based compensation incurred under the 2013 Plan for the quarters ended March 31, 2015 and 2014, respectively, that has been included in the condensed consolidated statements of operations (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Cost of revenues

  $ 15   $ 33  

Sales and marketing

    457     516  

General and administrative

    1,470     1,113  

Total stock-based compensation

  $ 1,942   $ 1,662  

12. INCOME TAXES

        During the quarter ended March 31, 2015, the Company recorded a tax benefit of $0.1 million on pre-tax income of $1.9 million, compared to a tax provision of $5.1 million on pre-tax income of $14.7 million for the quarter ended March 31, 2014. The effective tax rate decreased primarily due to a decrease in income earned in a higher rate jurisdiction as well as a reduction in the statutory tax rate in a foreign jurisdiction.

13. EARNINGS PER SHARE

        Certain of the Company's RSUs are considered participating securities because they contain a non-forfeitable right to dividends irrespective of whether dividends are actually declared or paid or the awards ultimately vest. Accordingly, the Company computes earnings per share pursuant to the two-class method in accordance with ASC 260, Earnings Per Share.

        The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except share and per share amounts):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Numerator:

             

Net income

  $ 2,034   $ 9,620  

Income allocated to participating securities

    (32 )   (203 )

Net income attributable to common stockholders

  $ 2,002   $ 9,417  

Denominator:

             

Basic average common shares outstanding

    29,217,246     18,876,959  

Add: Dilutive effect of non-participating securities

    66,574     53,064  

Diluted average common shares outstanding

    29,283,820     18,930,023  

Basic earnings per common share

  $ 0.07   $ 0.50  

Diluted earnings per common share

  $ 0.07   $ 0.50  

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

13. EARNINGS PER SHARE (Continued)

        In connection with the Acquisition, the Company issued 10,203,010 shares of FTD common stock to Liberty. The diluted earnings per common share computations exclude stock options and RSUs which are antidilutive. Weighted-average antidilutive shares for the quarter ended March 31, 2015 were 0.3 million.

14. RESTRUCTURING AND OTHER EXIT COSTS

        Restructuring and other exit costs were as follows (in thousands):

Accrued restructuring and other exit costs as of December 31, 2014

  $ 2,144  

Restructuring and other exit costs

    2,168  

Cash paid for restructuring and other exit costs

    (18 )

Accrued restructuring and other exit costs as of March 31, 2015

  $ 4,294  

        During the quarter ended March 31, 2015, the Company incurred restructuring and other exit costs of $2.2 million primarily related to severance, lease termination costs related to the shutdown of certain of the Provide Commerce developing businesses, as well as other headcount reductions related to the integration of the Provide Commerce and legacy FTD businesses. The Company paid $0.1 million of restructuring and other exit costs during the quarter ended March 31, 2014.

15. CONTINGENCIES—LEGAL MATTERS

        In 2010, FTD.COM and Classmates, Inc. (a wholly-owned subsidiary of United Online) received subpoenas from the Attorney General for the State of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following states: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington, and Wisconsin. The primary focus of the inquiry concerns certain post transaction sales practices in which these companies previously engaged with certain third party vendors. In the second quarter of 2012, FTD.COM and Classmates, Inc. received an offer of settlement from the Multistate Work Group consisting of certain injunctive relief and the consideration of two areas of monetary relief: (1) restitution to consumers and (2) a $20 million payment by these companies for the violations alleged by the Multistate Work Group and to reimburse the Multistate Work Group for its investigation costs. FTD.COM and Classmates, Inc. rejected the Multistate Work Group's offer. FTD.COM and Classmates, Inc. have since had ongoing discussions with the Multistate Work Group regarding a negotiated resolution, with the most recent proposal made by the companies on December 23, 2014 to resolve the matter without admitting liability by making a settlement payment in an aggregate amount of $8 million relating to both companies and $2.5 million restitution by Classmates, Inc. to a group of purchasers of its subscription services. On January 15, 2015, the Multistate Work Group responded to the companies' December 23, 2014 offer with a counter offer seeking a payment from FTD.COM and Classmates, Inc. of $8 million and restitution from Classmates, Inc. of $3 million. In March 2015, FTD.COM and Classmates, Inc. accepted the Multistate Work Group's latest counter offer. The settlement remains subject to final documentation and court approval in each of the States listed above.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

15. CONTINGENCIES—LEGAL MATTERS (Continued)

        The Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for its business. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with the Company's former post-transaction sales practices or other current or former business practices.

        The Separation and Distribution Agreement which was executed between FTD and United Online in connection with the Company's November 2013 separation from United Online ("the Separation") provides United Online with the right to control the litigation and settlement of certain litigation matters that relate to United Online, its predecessors and its consolidated subsidiaries and the Company, its predecessors and its consolidated subsidiaries, and which were asserted before the Separation, as well as specified litigation matters which are asserted after the Separation. These matters include the ongoing matters relating to the Company's former post-transaction sales practices or other current or former business practices described above. The Separation and Distribution Agreement also provides for the allocation of liabilities and expenses between United Online and the Company with respect to these matters. It also establishes procedures with respect to claims subject to indemnification, insurance claims, and related matters. The Company and United Online may not prevail in existing or future claims and any judgments against the Company, or settlement or resolution of such claims may involve the payment of significant sums, including damages, fines, penalties, or assessments, or changes to the Company's business practices.

        In December 2008, Interflora, Inc. (in which the Company has a two-thirds ownership interest) and Interflora issued proceedings against Marks and Spencer plc ("Marks and Spencer") seeking injunctive relief, damages, interest, and costs in an action claiming infringement of U.K. trademark registration number 1329840 and European Community trademark registration number 909838, both for the word "Interflora". Marks and Spencer did not make a counterclaim. In July 2009, the High Court of Justice of England and Wales (the "High Court"), referred certain questions to the Court of Justice of European Union ("CJEU") for a preliminary ruling. In September 2011, the CJEU handed down its judgment on the questions referred by the High Court. In February 2012, the High Court scheduled the trial for April 2013. In September 2012, Interflora executed an indemnity agreement by which Interflora agreed to indemnify Interflora, Inc. against all losses and expenses arising out of this action which Interflora, Inc. may incur after July 10, 2012. The trial in this matter concluded in April 2013. In May 2013, the High Court ruled that Marks and Spencer infringed the Interflora trademarks. In June 2013, the High Court issued an injunction prohibiting Marks and Spencer from infringing the Interflora trademarks in specified jurisdictions and ordered Marks and Spencer to provide certain disclosures in order for damages to be quantified. The High Court granted Marks and Spencer permission to appeal the ruling. The appeal was heard by the Court of Appeal at a hearing held July 8-10, 2014. On November 5, 2014, the Court of Appeal issued its judgment upholding the appeal but did not determine the case in favor of either party, and instead remitted the case for a retrial by the High Court. On November 12, 2014, the Court of Appeal determined the order from its judgment, which became effective as of November 18, 2014, setting aside the order of the High Court from June of 2013. Pursuant to the order, Interflora made an interim payment of $0.3 million to Marks and Spencer towards the cost of the appeal and repaid the $1.8 million payment on account of its costs of the first High Court trial that Marks and Spencer was ordered to pay to Interflora in 2013. The part of the order lifting the injunction prohibiting Marks and Spencer from infringing the Interflora trademarks was lifted on December 2, 2014. No date or other directions have been set for the retrial.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

15. CONTINGENCIES—LEGAL MATTERS (Continued)

        Commencing on August 19, 2009, the first of a series of consumer class action lawsuits was brought against Provide Commerce, Inc. and co-defendant Regent Group, Inc. d/b/a Encore Marketing International ("EMI"). These cases were ultimately consolidated during the next three years into Case No. 09 CV 2094 in the United States District Court for the Southern District of California under the title In re EasySaver Rewards Litigation. Plaintiffs' claims arise from their online enrollment in subscription based membership programs known as EasySaver Rewards, RedEnvelope Rewards, and Preferred Buyers Pass (collectively the "Membership Programs"). Plaintiffs claim that after they ordered items from certain of Provide Commerce's websites, they were presented with an offer to enroll in one of the Membership Programs, each of which is offered and administered by EMI. Plaintiffs purport to represent a putative nationwide class of consumers allegedly damaged by Provide Commerce's purported unauthorized or otherwise allegedly improper transferring of the putative class members' billing information to EMI, who then posted allegedly unauthorized charges to their credit or debit card accounts for membership fees for the Membership Programs. On February 22, 2010, Provide Commerce and EMI respectively filed motions to dismiss. On August 13, 2010, the court entered an order granting in part and denying in part the motions. Between August 13, 2010 and December 2011, plaintiffs filed various amended complaints and added or dismissed certain named plaintiffs. Plaintiffs filed the fourth amended complaint on December 14, 2011. The fourth amended complaint is the operative complaint. Plaintiffs assert ten claims against Provide Commerce and EMI in the fourth amended complaint: (1) breach of contract (against Provide Commerce only); (2) breach of contract (against EMI only); (3) breach of implied covenant of good faith and fair dealing; (4) fraud; (5) violations of the California Consumers Legal Remedies Act; (6) unjust enrichment; (7) violation of the Electronic Funds Transfer Act (against EMI only); (8) invasion of privacy; (9) negligence; and (10) violations of the Unfair Competition Law. Plaintiffs assert their claims individually and on behalf of a putative nationwide class. Plaintiffs sought damages, attorneys' fees, and costs. Provide Commerce and EMI filed motions to dismiss the claims of plaintiffs Lawler, Walters, Cox, and Dickey on January 24, 2012. The motions to dismiss were fully briefed as of February 23, 2012, but the court had not yet conducted a hearing or ruled on the motions. The parties participated in numerous settlement conferences and mediations throughout the case in an effort to resolve this matter. On April 9, 2012, the parties reached an agreement on the high level terms of a settlement, conditioned on the parties negotiating and executing a complete written agreement. In the weeks following April 9, 2012, the parties negotiated a formal written settlement agreement ("Settlement"). Upon reaching the Settlement, the hearing on the motions to dismiss was vacated, and Provide Commerce and EMI have not answered the fourth amended complaint in light of the Settlement. The court granted the plaintiffs' unopposed motion for preliminary approval of the Settlement on June 13, 2012. After notice to the class and briefing by the parties, the court conducted a final approval hearing (also known as a fairness hearing) on January 28, 2013, and took the matter under submission at the conclusion of the hearing. On February 4, 2013, the court entered its final order approving class action settlement, granting plaintiffs' motion for attorneys' fees, costs, and incentive awards, and overruling objections filed by a single objector to the Settlement. The court entered judgment on the settlement on February 21, 2013. The objector filed a notice of appeal with the Ninth Circuit Court of Appeals on March 4, 2013. After the completion of briefing, the Ninth Circuit set oral argument on the appeal for February 2, 2015. But on January 29, 2015, the Ninth Circuit entered an order deferring argument and resolution of the appeal pending the Ninth Circuit's decision in a matter captioned Frank v. Netflix, No. 12 15705+. The Ninth Circuit issued its opinion in Frank v. Netflix, No. 12 15705+ on February 27, 2015, affirming the

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

15. CONTINGENCIES—LEGAL MATTERS (Continued)

district court's approval of a settlement between Walmart and a class of Netflix DVD subscribers. On March 19, 2015, the Ninth Circuit entered an order vacating the judgment in this matter and remanding it to the district court for further proceedings consistent with Frank v. Netflix. The Ninth Circuit's mandate issued on April 14, 2015, and the matter is now pending before the district court to consider final approval of the Settlement in light of Frank v. Netflix. On April 23, 2015, the district court entered an order reopening the case and ordering the parties to jointly submit a memorandum summarizing the import of the Frank v. Netflix decision and stating their intentions going forward. On May 4, 2015, such memorandum was filed by the parties and the objector also filed his own memorandum regarding these same topics on such date. The issue of whether the Settlement should receive final approval presently remains pending before the district court.

        The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At both March 31, 2015 and December 31, 2014, the Company had reserves totaling $5.4 million for estimated losses related to certain legal matters. With respect to other legal matters, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company's control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company's business, financial condition, results of operations, or cash flows.

16. SUPPLEMENTAL CASH FLOW INFORMATION

        The following table sets forth supplemental cash flow disclosures (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Cash paid for interest

  $ 2,156   $ 1,204  

Cash paid for income taxes, net

  $ 1,849   $ 1,533  

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

        We are a premier floral and gifting company with a vision to be the leading and most trusted floral and gifting company in the world. Our mission is to inspire, support, and delight our customers when expressing life's most important sentiments. We provide floral, specialty foods, gift and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. Our business uses the highly-recognized FTD®, Interflora® (both supported by the iconic Mercury Man logo). ProFlowers®, Shari's Berries®, and Personal Creations® brands. While we operate primarily in the United States ("U.S."), Canada, the United Kingdom ("U.K."), and the Republic of Ireland, we have worldwide presence as our Mercury Man logo is displayed in nearly 40,000 floral shops in approximately 150 countries. Our portfolio of brands also includes Flying Flowers, Flowers Direct, and Drake Algar in the U.K., and Cherry Moon Farms®, Gifts.com™, and Sincerely™ in the U.S. While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet-dipped berries, chocolate dip delights™ and other sweets, personalized gifts, premium fresh fruits, gift baskets, wine and champagne, jewelry and spa products.

Acquisition of Provide Commerce

        On December 31, 2014, we acquired from a wholly-owned subsidiary of Liberty Interactive Corporation ("Liberty") all of the issued and outstanding shares of common stock of Provide Commerce, Inc., an indirect wholly-owned subsidiary of Liberty ("Provide Commerce"), for a purchase price consisting of (i) cash consideration of $106.6 million, excluding acquired cash on hand of $38.1 million and a post-closing working capital adjustment of $9.9 million, and (ii) 10,203,010 shares of FTD common stock, representing approximately 35% of the issued and outstanding shares of FTD common stock (the "Acquisition"). In April 2015, FTD made a payment to Liberty in full satisfaction of the post-closing working capital adjustment. Upon the closing of the Acquisition, Provide Commerce became an indirect wholly-owned subsidiary of FTD.

        Concurrent with the closing of the Acquisition, FTD and Liberty entered into the Investor Rights Agreement, which governs certain rights of and restrictions on Liberty in connection with the shares of FTD common stock that were issued to Liberty as a result of the Acquisition.

Reportable Segments

        Prior to the Acquisition, we reported our business operations in three operating and reportable segments: Consumer, Florist and International. As a result of the Acquisition, which was completed on December 31, 2014, we began reporting our business in four operating and reportable segments: Consumer, Florist, International, and Provide Commerce.

        Through our Consumer segment, we are a leading direct marketer of floral and gift products for consumers, primarily in the U.S. and Canada. Our Consumer segment operates primarily through the www.ftd.com website, associated mobile sites, and the 1-800-SEND-FTD telephone number. Through our Florist segment, we are a leading provider of products and services to our floral network members, which include traditional retail florists and other non-florist retail locations, primarily in the U.S. and Canada. We also provide products and services to other companies in need of floral and gifting solutions. Our International segment consists of Interflora, which operates primarily in the U.K. and the Republic of Ireland. Interflora is a leading direct marketer of floral and gift products for consumers and operates primarily through its www.interflora.co.uk and www.interflora.ie websites, associated mobile sites, and various telephone numbers. Interflora also provides products and services to floral network members, funeral directors, independent gift shops, other retailers, and to other companies in need of floral and gifting solutions. Through our Provide Commerce segment, we are a leading direct marketer

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of floral and gift products for consumers, including specialty foods, personalized gifts, and other gifting products, primarily in the U.S. We operate primarily through our www.proflowers.com, www.berries.com, www.personalcreations.com, www.cherrymoonfarms.com, www.proplants.com, and www.gifts.com websites, associated mobile sites, mobile applications and various telephone numbers.

Items Affecting Comparability of Financial Results

        As the Acquisition was completed on December 31, 2014, the Company's condensed consolidated statement of operations for the quarter ended March 31, 2014 did not include the operations of the Provide Commerce segment. The financial information provided related to Provide Commerce for the quarter ended March 31, 2014 is provided for informational purposes only and is unaudited. These unaudited pre-acquisition results of operations of Provide Commerce do not purport to be indicative of the results of future operations of the Provide Commerce segment or the results that would have actually been attained had the Acquisition been completed on or prior to January 1, 2014.

KEY BUSINESS METRICS

        We review a number of key business metrics to help us monitor our performance and trends affecting our segments, and to develop forecasts and budgets. These key metrics include the following:

        Segment operating income.    Our chief operating decision maker uses segment operating income to evaluate the performance of our business segments and to make decisions about allocating resources among segments. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction and integration-related costs, and restructuring and other exit costs. Stock-based compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income (expense). See Note 3—"Segment Information" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment operating income to consolidated operating income and consolidated income before income taxes.

        Consumer orders.    We monitor the number of consumer orders for floral, gift and related products during a given period. Consumer orders are orders delivered during the period that originated in the U.S. and Canada, primarily from the www.ftd.com, www.proflowers.com, www.berries.com, www.personalcreations.com, and www.gifts.com websites, associated mobile sites, and mobile applications, the 1-800-SEND-FTD telephone number and various other telephone numbers; and in the U.K. and the Republic of Ireland, primarily through the www.interflora.co.uk and www.interflora.ie websites, associated mobile sites, and various telephone numbers. The number of consumer orders is not adjusted for non-delivered orders that are refunded on or after the scheduled delivery date. Orders originating with a florist or other retail location for delivery to consumers are not included as part of this number.

        Average order value.    We monitor the average value for consumer orders delivered in a given period, which we refer to as the average order value. Average order value represents the average amount received for consumer orders delivered during a period. The average order value of consumer orders within our Consumer, International, and Provide Commerce segments is tracked in their local currency, the U.S. Dollar for both the Consumer and Provide Commerce segments and the British Pound ("GBP") for the International segment. The local currency amounts received for the International segment are then translated into U.S. dollars at the average currency exchange rate for the period. Average order value includes merchandise revenues and shipping or service fees paid by the consumer, less discounts and refunds (net of refund-related fees charged to floral network members).

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        Average revenues per member.    We monitor average revenues per member for our floral network members in the Florist segment. Average revenues per member represents the average revenues earned from a member of our floral network during a period. Revenues include services revenues and products revenues, but exclude revenues from sales to non-members. Floral network members include our retail florists and other non-florist retail locations who offer floral and gifting solutions. Average revenues per member is calculated by dividing Florist segment revenues for the period, excluding sales to non-members, by the average number of floral network members for the period.

        The table below sets forth, for the periods presented, our consolidated revenues, segment revenues, segment operating income, consumer orders, average order values, average revenues per member, and average currency exchange rates. The results of operations for Provide Commerce for the quarter ended March 31, 2014 are set forth below and were derived from the unaudited pre-Acquisition results of operations of Provide Commerce. These unaudited pre-Acquisition results of operations of Provide Commerce have been included herein for informational purposes only and do not purport to be indicative of the results of future operations of the Provide Commerce segment or the results that would have actually been attained had the Acquisition been completed on or prior to January 1, 2014.

 
  Quarter Ended March 31,   Change  
 
  2015   2014   $   %  
 
  (in thousands, except for average order values,
average revenues per member, and average
currency exchange rates)

 

Consolidated:

                         

Consolidated revenues

  $ 367,781   $ 189,853   $ 177,928     94 %

Consumer:

                         

Segment revenues(a)

  $ 88,070   $ 87,616   $ 454     1 %

Segment operating income

  $ 7,470   $ 8,090   $ (620 )   (8 )%

Consumer orders

    1,168     1,199     (31 )   (3 )%

Average order value

  $ 71.39   $ 69.08   $ 2.31     3 %

Florist:

                         

Segment revenues(a)

  $ 46,004   $ 46,110   $ (106 )   %

Segment operating income

  $ 14,147   $ 13,168   $ 979     7 %

Average revenues per member

  $ 3,619   $ 3,377   $ 242     7 %

International:

                         

Segment revenues

  $ 55,256   $ 60,997   $ (5,741 )   (9 )%

Segment operating income

  $ 7,977   $ 8,034   $ (57 )   (1 )%

Consumer orders

    887     921     (34 )   (4 )%

Average order value (in GBP)

  £ 33.77   £ 33.47   £ 0.30     1 %

Average order value (in USD)

  $ 51.08   $ 55.47   $ (4.39 )   (8 )%

Average currency exchange rate: GBP to USD

    1.51     1.66              

Provide Commerce:

                         

Segment revenues

  $ 183,236   $ 192,055   $ (8,819 )   (5 )%

Segment operating income

  $ 8,912   $ 10,445   $ (1,533 )   (15 )%

Consumer orders

    3,579     3,804     (225 )   (6 )%

Average order value

  $ 50.77   $ 50.07   $ 0.70     1 %

(a)
Segment revenues are prior to intersegment eliminations. See Note 3—"Segment Information" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment revenues to consolidated revenues.

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CONSOLIDATED OPERATING RESULTS

        The following table sets forth selected historical consolidated financial data. The information contained in the table below should be read in conjunction with "Liquidity and Capital Resources," included in this Item 2, and the condensed consolidated financial statements and accompanying notes thereto included in Part I, Item 1 of this Form 10-Q.

 
  Quarter Ended March 31,   Change  
 
  2015   2014   $   %  
 
  (in thousands, except percentages and per share
amounts)

 

Revenues

  $ 367,781   $ 189,853   $ 177,928     94 %

Operating expenses:

                         

Cost of revenues

    236,425     123,489     112,936     91 %

Sales and marketing

    76,412     30,528     45,884     150 %

General and administrative

    33,135     15,898     17,237     108 %

Amortization of intangible assets

    15,401     4,412     10,989     249 %

Restructuring and other exit costs

    2,168         2,168      

Total operating expenses

    363,541     174,327     189,214     109 %

Operating income

    4,240     15,526     (11,286 )   (73 )%

Interest expense, net

    (2,308 )   (1,238 )   (1,070 )   (86 )%

Other (expense) income, net

    (11 )   386     (397 )   (103 )%

Income before income taxes

    1,921     14,674     (12,753 )   (87 )%

(Benefit) provision for income taxes

    (113 )   5,054     (5,167 )   (102 )%

Net income

  $ 2,034   $ 9,620   $ (7,586 )   (79 )%

Earnings per common share:

                         

Basic

  $ 0.07   $ 0.50   $ (0.43 )   (86 )%

Diluted

  $ 0.07   $ 0.50   $ (0.43 )   (86 )%

Consolidated Revenues

        Consolidated revenues increased $177.9 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Foreign currency exchange rates unfavorably impacted revenues by $5.3 million during the quarter ended March 31, 2015. The increase in consolidated revenues was primarily due to $183.2 million of revenues associated with our Provide Commerce segment, a $0.5 million increase in revenues from our Consumer segment, partially offset by a $5.7 million decrease ($0.4 million in constant currency) in revenues from our International segment, and a $0.1 million decrease in revenues from our Florist segment. The quarters ended March 31, 2015 and 2014 included the Valentine's Day and the U.K. Mother's Day holidays. Consolidated revenues were negatively impacted during the quarter ended March 31, 2015 as a result of the Saturday timing of the Valentine's Day holiday.

Consolidated Cost of Revenues

        Consolidated cost of revenues increased $112.9 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Foreign currency exchange rates had a $3.7 million favorable impact on cost of revenues for the quarter ended March 31, 2015. The increase in consolidated cost of revenues was primarily due to $118.0 million of cost of revenues associated with our Provide Commerce segment, partially offset by a $4.2 million decrease ($0.5 million in constant currency) in cost of revenues associated with our International segment, a $1.0 million decrease in cost

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of revenues associated with our Florist segment, and a $0.8 million decrease in cost of revenues associated with our Consumer segment. In addition depreciation expense increased $0.9 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Consolidated cost of revenues, as a percentage of consolidated revenues, was 64% for the quarter ended March 31, 2015, compared to 65% for the quarter ended March 31, 2014.

Consolidated Sales and Marketing

        Consolidated sales and marketing expenses increased $45.9 million during the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Foreign currency exchange rates had a $0.5 million favorable impact on sales and marketing expenses for the quarter ended March 31, 2015. The increase in consolidated sales and marketing expenses was primarily due to $45.3 million of sales and marketing expenses associated with our Provide Commerce segment, a $1.9 million increase in sales and marketing expenses associated with our Consumer segment, partially offset by a $1.3 million decrease ($0.8 million in constant currency) in sales and marketing expenses associated with our International segment. Consolidated sales and marketing expenses, as a percentage of consolidated revenues, was 21% for the quarter ended March 31, 2015, compared to 16% for the quarter ended March 31, 2014.

Consolidated General and Administrative

        Consolidated general and administrative expenses increased $17.2 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. The increase in consolidated general and administrative expenses was primarily due to $11.0 million of general and administrative expenses associated with our Provide Commerce segment. In addition, during the quarter ended March 31, 2015, consolidated general and administrative expenses included $4.1 million of transaction and integration-related costs associated with the acquisition of Provide Commerce. Further, depreciation expense increased $1.9 million primarily due to assets acquired in the Acquisition. Consolidated general and administrative expenses, as a percentage of consolidated revenues, was 9% for the quarter ended March 31, 2015, compared to 8% for the quarter ended March 31, 2014.

Amortization of Intangible Assets

        The increase of $11.0 million in consolidated amortization of intangible assets for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, was due to the addition of intangible assets acquired in the Acquisition.

Restructuring and Other Exit Costs

        During the quarter ended March 31, 2015, the Company incurred restructuring and other exit costs of $2.2 million primarily related to severance, lease termination costs related to the shutdown of certain of the Provide Commerce developing businesses, as well as other headcount reductions related to the integration of the Provide Commerce and legacy FTD businesses.

Interest Expense, Net

        Net interest expense increased $1.1 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, due to higher debt principal balances outstanding and higher interest rates on our variable rate borrowings that are associated with our increased net leverage ratio, all of which are associated with the incremental borrowing for the Acquisition.

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Provision for Income Taxes

        During the quarter ended March 31, 2015, we recorded a tax benefit of $0.1 million on pre-tax income of $1.9 million, compared to a tax provision of $5.1 million on pre-tax income of $14.7 million for the quarter ended March 31, 2014. The effective tax rate decreased primarily due to a decrease in income earned in a higher rate jurisdiction as well as a reduction in the statutory tax rate in a foreign jurisdiction.

BUSINESS SEGMENT OPERATING RESULTS

        Prior to the Acquisition, the Company reported its business operations in three operating and reportable segments: Consumer, Florist and International. As a result of the Acquisition, the Company began reporting its business in four operating and reportable segments: Consumer, Florist, International, and Provide Commerce. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction and integration-related costs, and restructuring and other exit costs. Stock-based compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income (expense).

CONSUMER SEGMENT

 
  Quarter Ended
March 31,
  Change  
 
  2015   2014   $   %  
 
  (in thousands, except percentages and
average order values)

 

Segment revenues

  $ 88,070   $ 87,616   $ 454     1 %

Segment operating income

  $ 7,470   $ 8,090   $ (620 )   (8 )%

Key metrics and other financial data:

                         

Consumer orders

    1,168     1,199     (31 )   (3 )%

Average order value

  $ 71.39   $ 69.08   $ 2.31     3 %

Segment operating margin

    8 %   9 %            

Consumer Segment Revenues

        Consumer segment revenues increased $0.5 million, or 1%, for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, primarily driven by a 3% increase in average order value associated with our sympathy business and consumers upgrading to higher price point offerings, partially offset by a 3% decrease in consumer order volume. Consumer order volume was negatively impacted by the Saturday timing of the Valentine's Day holiday, offset in part by growth in order volume outside of the holiday period.

Consumer Segment Operating Income

        Consumer segment operating income decreased $0.6 million, or 8%, for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, as revenue increased $0.5 million while operating expenses increased by $1.1 million. Cost of revenues decreased $0.8 million primarily driven by a decrease in product and shipping costs associated with the lower order volume and other cost favorability. Sales and marketing expenses increased $1.9 million primarily due to increased spending on online search and certain partner programs. As a result, consumer segment operating margin declined to 8% for the quarter ended March 31, 2015, compared to 9% for the quarter ended March 31, 2014.

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FLORIST SEGMENT

 
  Quarter Ended
March 31,
  Change  
 
  2015   2014   $   %  
 
  (in thousands, except percentages and
average revenues per member)

 

Segment revenues

  $ 46,004   $ 46,110   $ (106 )   %

Segment operating income

  $ 14,147   $ 13,168   $ 979     7 %

Key metrics and other financial data:

                         

Average revenues per member

  $ 3,619   $ 3,377   $ 242     7 %

Segment operating margin

    31 %   29 %            

Florist Segment Revenues

        Florist segment revenues decreased $0.1 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Services revenues decreased $0.2 million due to a $0.7 million decrease in subscription and other services revenues, partially offset by a $0.5 million increase in order-related revenues. In addition, product revenues increased $0.1 million primarily due to an increase in sales of fresh flowers. Average revenues per member increased 7% to $3,619 for the quarter ended March 31, 2015, compared to $3,377 for the quarter ended March 31, 2014.

Florist Segment Operating Income

        Florist segment operating income increased $1.0 million, or 7%, for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, primarily due to a $1.1 million decrease in operating expenses. Cost of revenues decreased $1.0 million, primarily due to an improvement in product margins associated with our wholesale products. Sales and marketing expenses were relatively flat for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, as an increase of $0.5 million in marketing expenditures related to floral network orders was offset by reductions in other sales and marketing expenses and personnel-related costs. The Florist segment operating margin increased to 31% for the quarter ended March 31, 2015, compared to 29% in the quarter ended March 31, 2014.

INTERNATIONAL SEGMENT

 
  Quarter Ended
March 31,
  Change  
 
  2015   2014   $   %  
 
  (in thousands, except percentages
and average order values)

 

Segment revenues

  $ 55,256   $ 60,997   $ (5,741 )   (9 )%

Segment operating income

  $ 7,977   $ 8,034   $ (57 )   (1 )%

Key metrics and other financial data:

                         

Consumer orders

    887     921     (34 )   (4 )%

Average order value (in GBP)

  £ 33.77   £ 33.47   £ 0.30     1 %

Average order value (in USD)

  $ 51.08   $ 55.47   $ (4.39 )   (8 )%

Segment operating margin

    14 %   13 %            

Average currency exchange rate: GBP to USD

    1.51     1.65              

        We present certain results from our International segment on a constant currency basis. Such constant currency information compares results between periods as if foreign currency exchange rates had remained constant period- over-period. We calculate constant currency by applying the foreign currency exchange rate for the prior period to the local currency results for the current period.

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International Segment Revenues

        International segment revenues decreased $5.7 million, or 9% ($0.4 million, or 1%, in constant currency), for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. The decrease in revenues was due to a decrease in consumer order volume of 4% primarily related to declines in the Valentine's Day and U.K. Mother's Day holiday periods, offset in part by growth in order volume outside of the holiday period. Excluding the unfavorable impact of foreign currency exchange rates, average order value increased 1% for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014.

International Segment Operating Income

        International segment operating income decreased $0.1 million, or 1% (increased $0.7 million, or 9%, in constant currency), for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. Revenue decreases of $5.7 million ($0.4 million in constant currency) were offset by a decrease in operating expenses of $5.6 million ($1.1 million in constant currency). Cost of revenues decreased $4.2 million ($0.5 million in constant currency) primarily driven by decreased product costs related to the decrease in order revenues. Sales and marketing expenses decreased $1.3 million ($0.8 million in constant currency) related to lower consumer order volume, reduced brand advertising, and closure of the concession stands, partially offset by investments related to improving customer service metrics. International segment operating margin increased to 14% for the quarter ended March 31, 2015, compared to 13% for the quarter ended March 31, 2014.

PROVIDE COMMERCE SEGMENT

        The results of operations for Provide Commerce for the quarter ended March 31, 2014 are set forth below and were derived from the unaudited pre-Acquisition results of operations of Provide Commerce. These unaudited pre-Acquisition results of operations of Provide Commerce have been included herein for informational purposes only and do not purport to be indicative of the results of future operations of the Provide Commerce segment or the results that would have actually been attained had the Acquisition been completed on or prior to January 1, 2014.

 
  Quarter Ended March 31,    
   
 
 
   
  2014   Change  
 
  2015   (Pre-Acquisition)   $   %  
 
  (in thousands, except percentages
and average order values)

 

Segment revenues

  $ 183,236   $ 192,055   $ (8,819 )   (5 )%

Segment operating income

  $ 8,912   $ 10,445   $ (1,533 )   (15 )%

Key metrics and other financial data:

                         

Consumer orders

    3,579     3,804     (225 )   (6 )%

Average order value

  $ 50.77   $ 50.07   $ 0.70     1 %

Segment operating margin

    5 %   5 %            

Provide Commerce Segment Revenues

        Provide Commerce segment revenues decreased $8.8 million, or 5%, for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, primarily driven by a 6% decrease in consumer order volume partially offset by a 1% increase in average order value. Revenue declines in the ProFlowers business were only partially offset by growth in the Gourmet Foods and Personal Creations businesses.

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Provide Commerce Segment Operating Income

        Provide Commerce segment operating income decreased $1.5 million, or 15%, for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014, as the revenue decrease of $8.8 million was partially offset by a $7.3 million decrease in operating expenses. The decrease in operating expenses was due primarily to reductions in product and shipping costs associated with the lower order volume, as well as reduced marketing expenditures, during the quarter ended March 31, 2015. Despite these reductions, the Company incurred costs associated with excess product and inefficient marketing programs for Valentine's Day that were committed to prior to the Acquisition date. Provide Commerce segment operating margin remained consistent at 5% for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014.

UNALLOCATED EXPENSES

 
  Quarter Ended
March 31,
  Change  
 
  2015   2014   $   %  
 
  (in thousands, except percentages)
 

Unallocated expenses

  $ 13,511   $ 6,839   $ 6,672     98 %

        Unallocated expenses include various corporate costs, such as corporate finance, legal, and human resources costs. In addition, unallocated expenses include stock-based compensation for all eligible Company employees, restructuring and other exit costs, transaction and integration-related costs, and litigation and dispute settlement charges or gains.

        Unallocated expenses increased $6.7 million for the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014. During the quarter ended March 31, 2015, we incurred $4.2 million of transaction and integration-related costs and $2.2 million of restructuring and other exit costs associated with the Acquisition. Personnel-related costs increased $0.8 million, primarily due to increased headcount, stock-based compensation, and other compensation costs. Costs related to insurance and other professional services fees increased $0.4 million. Partially offsetting these increases was a decrease in litigation and dispute settlement charges of $0.7 million in the quarter ended March 31, 2015, compared to the quarter ended March 31, 2014.

LIQUIDITY AND CAPITAL RESOURCES

2013 Credit Agreement

        On July 17, 2013, FTD Companies, Inc. entered into a credit agreement (the "2013 Credit Agreement") with Interflora British Unit, certain wholly-owned domestic subsidiaries of FTD Companies, Inc. party thereto as guarantors, the financial institutions party thereto from time to time, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of America, N.A., as the administrative agent for the lenders, which provided for a $350 million five-year revolving credit facility. On July 17, 2013, FTD Companies, Inc. drew $220 million of the $350 million revolving credit facility and used this, together with approximately $19 million of its existing cash balance, to repay amounts outstanding under its previous credit facility in full and to pay fees and expenses related to the 2013 Credit Agreement.

        On September 19, 2014, the Company entered into an amendment to the 2013 credit agreement (the "Amended and Restated Credit Agreement"). Among other things, the Amended and Restated Credit Agreement provided for a term loan in an aggregate principal amount of $200 million, the proceeds of which were used to repay a portion of outstanding revolving loans under the Amended and Restated Credit Agreement, and also provided for a revolving loan advance (the "Acquisition Advance") to finance the cash portion of the Acquisition purchase price. On December 31, 2014, we

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borrowed $120 million under the Acquisition Advance to fund the cash portion of the Acquisition purchase price.

        The obligations under the Amended and Restated Credit Agreement are guaranteed by certain of FTD Companies, Inc.'s wholly-owned domestic subsidiaries (together with FTD Companies, Inc., the "U.S. Loan Parties"). In addition, the obligations under the Amended and Restated Credit Agreement are secured by a lien on substantially all of the assets of the U.S. Loan Parties, including a pledge of all of the outstanding capital stock of certain direct subsidiaries of the U.S. Loan Parties (except with respect to foreign subsidiaries and certain domestic subsidiaries whose assets consist primarily of foreign subsidiary equity interests, in which case such pledge is limited to 66% of the outstanding capital stock).

        The interest rates applicable to borrowings under the Amended and Restated Credit Agreement are based on either LIBOR plus a margin ranging from 1.50% per annum to 2.50% per annum, or a base rate plus a margin ranging from 0.50% per annum to 1.50% per annum, calculated according to the Company's net leverage ratio. In addition, the Company pays a commitment fee ranging from 0.20% per annum to 0.40% per annum on the unused portion of the revolving credit facility. The interest rates (based on LIBOR) at March 31, 2015 under the term loan and the revolving credit facility were 2.28% and 2.18%, respectively. The commitment fee rate at March 31, 2015 was 0.30%. The Amended and Restated Credit Agreement contains customary representations and warranties, events of default, affirmative covenants, and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, and asset sales, and the Company's ability to incur additional debt and additional liens. The Company was in compliance with all covenants under the Amended and Restated Credit Agreement at March 31, 2015.

        The term loan is subject to amortization payments of $5 million per quarter and customary mandatory prepayments under certain conditions. During the quarter ended March 31, 2015, the Company paid down $20 million of the amounts outstanding under the revolving credit facility. The outstanding balance of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019.

        The degree to which our assets are leveraged and the terms of our debt could materially and adversely affect our ability to obtain additional capital, as well as the terms at which such capital might be offered to us. We currently expect to have sufficient liquidity to meet our obligations for at least the next twelve months, including interest payment obligations, quarterly amortization payments and mandatory prepayments, if any, under the Amended and Restated Credit Agreement.

Quarter Ended March 31, 2015 compared to Quarter Ended March 31, 2014

        Our total cash and cash equivalents balance decreased by $19.2 million to $76.4 million at March 31, 2015, compared to $95.6 million at December 31, 2014. Our summary cash flows for the periods presented were as follows (in thousands):

 
  Quarter Ended
March 31,
 
 
  2015   2014  

Net cash provided by operating activities

  $ 21,941   $ 15,515  

Net cash used for investing activities

  $ (3,602 ) $ (1,498 )

Net cash used for financing activities

  $ (36,615 ) $ (840 )

        Net cash provided by operating activities increased by $6.4 million. Net cash provided by operating activities is driven by our net income adjusted for non-cash items including, but not limited to,

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depreciation and amortization, deferred taxes, stock-based compensation, and changes in working capital. The increase in net cash provided by operating activities was due to an increase of $11.2 million in non-cash items and a $2.8 million favorable change in operating assets and liabilities, partially offset by a decrease of $7.6 million in net income. Changes in working capital can cause variation in our cash flows provided by operating activities due to seasonality, timing, and other factors.

        Net cash used for investing activities increased by $2.1 million due to an increase in purchases of property and equipment. We currently anticipate that our total capital expenditures for 2015 will be approximately $25 million. The actual amount of future capital expenditures may fluctuate due to a number of factors, including, without limitation, potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

        Net cash used for financing activities increased by $35.8 million. The increase in net cash used for financing activities was primarily due to the repayment of $25.0 million of outstanding amounts under the Amended and Restated Credit Agreement during the quarter ended March 31, 2015. In addition, we paid $10.0 million to repurchase 331,084 shares of our common stock under the Repurchase Program, as described below, and we also paid $2.0 million related to withholding taxes on vested restricted stock units, during the quarter ended March 31, 2015. During the quarter ended March 31, 2014, we paid $1.2 million related to withholding taxes on vested restricted stock units. We withhold shares to cover withholding taxes on vested restricted stock units and pay these taxes in cash.

        We currently expect to continue to generate positive cash flows from operations at least for the next twelve months. We may use our existing cash balances and future cash generated from operations to fund, among other things, working capital, stock repurchases, interest payment obligations, quarterly amortization payments and mandatory prepayments, if any, under the Amended and Restated Credit Agreement, capital expenditures, and acquisitions.

        If we need to raise additional capital through public or private debt or equity financings, strategic relationships, or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing existing services or products, acquiring other services, businesses, or technologies, or funding significant capital expenditures and may have a material adverse effect on our business, financial position, results of operations, and cash flows, as well as impair our ability to service our debt obligations. If additional funds were raised through the issuance of equity or convertible debt securities, the percentage of stock owned by the then-current stockholders could be reduced. Furthermore, such equity or any debt securities that we issue might have rights, preferences, or privileges senior to holders of our common stock. In addition, trends in the securities and credit markets may restrict our ability to raise any such additional funds, at least in the near term.

        On February 27, 2014, our board of directors authorized a common stock repurchase program (the "Repurchase Program") that allows us to repurchase up to $50 million of FTD common stock from time to time over a two-year period in both open market and privately negotiated transactions. No purchases were made under the Repurchase Program prior to 2015. As of March 31, 2015, the Company has repurchased 331,084 shares under the Repurchase Program at an average cost per share of $30.20. In addition, during April 2015, the Company repurchased an additional 341,958 shares under the Repurchase Program at average cost per share of $29.24.

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Contractual Obligations and Other Commitments

        There have been no material changes, outside the ordinary course of business, related to the Company's contractual obligations or other commitments as disclosed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Off-Balance Sheet Arrangements

        At March 31, 2015, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

RECENT ACCOUNTING PRONOUNCEMENTS

        In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, as codified in FASB Accounting Standards Codification ("ASC") 740. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU were effective for the Company beginning January 1, 2015. The amendments were applied prospectively to all unrecognized tax benefits that existed at the effective date. This update did not have a material impact on our consolidated financial statements.

        In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The amendments in this ASU affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The amendments in this ASU require an entity to recognize revenue related to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Tentatively, the amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2017. Adoption is permitted for fiscal years and interim periods beginning after December 15, 2016. We are currently assessing the impact of this update on our consolidated financial statements.

        In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items, which eliminates the concept of extraordinary items from GAAP. The amendments in this ASU eliminate the requirement that an entity separately classify, present, and disclose extraordinary events and transactions. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2015. The amendments should be applied prospectively and retrospective application is permitted. We do not expect this update to have a material impact on our consolidated financial statements.

        In April 2015, FASB issued ASU No. 2015-03, Interest—Imputation of Interest, which simplifies the presentation of debt issuance costs, by requiring debt issuance costs related to a debt liability to be

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presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2015. The amendments should be applied on a retrospective basis. We expect that this update will reduce both other assets and the outstanding debt balance by approximately $6 million as of March 31, 2015.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        There have been no material changes related to the Company's market risk as disclosed in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

        As permitted by interpretive guidance issued by the Securities and Exchange Commission ("SEC") staff, companies are allowed to exclude acquired businesses from their assessment of internal control over financial reporting during the first year after completion of an acquisition while integrating the acquired company. Accordingly, as Provide Commerce was acquired by the Company on December 31, 2014, management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2014 excluded Provide Commerce. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report excludes any evaluation of the internal controls of Provide Commerce. Provide Commerce's assets and revenues represented approximately 52% and approximately 50% of the Company's consolidated total assets and consolidated total revenues, respectively, as of and for the three months ended March 31, 2015.

Changes in internal controls

        As the Company completed the acquisition of Provide Commerce on December 31, 2014, the Company is currently evaluating the internal controls of Provide Commerce and the impact of Provide Commerce on the Company's internal control over financial reporting. Except as described in this Item 4, during the Company's most recent quarter, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

        Since the Company excluded Provide Commerce from its assessment of internal control over financial reporting as of December 31, 2014, such assessment did not include the material weaknesses identified by Provide Commerce's external auditor related to the audit of the December 31, 2013

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Provide Commerce financial statements. The following deficiencies were considered to be material weaknesses in Provide Commerce's internal controls in connection with that audit:

        The Company is assessing plans to improve the competency and staffing of the accounting department of the Provide Commerce segment as well as the general information technology controls for this segment. The Company will include Provide Commerce in its evaluation of internal control over financial reporting that will be included in its Annual Report on Form 10-K for the year ending December 31, 2015.

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PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        For a description of our material pending legal proceedings, please refer to Note 15—"Contingencies—Legal Matters" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

ITEM 1A.    RISK FACTORS

        There have been no material changes in our risk factors from those disclosed in "Risk Factors" included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECRUITIES AND USE OF PROCEEDS

        The following table provides information regarding repurchases of our common stock during the quarter ended March 31, 2015:

Period
  Total
Number of
Shares
Purchased
  Average
Price Paid
Per
Share
  Number of Shares
Purchased as Part
of Publicly
Announced
Plans or
Programs(a)
  Maximum Number
of Shares That
May Yet Be
Purchased Under
the Plans
or Programs(b)
 

January 1 - January 31

      $          

February 1 - February 28

                 

March 1 - March 31

    331,084     30.20     331,084     1,324,504  

Total

    331,084   $ 30.20     331,084     1,324,504  

(a)
On February 27, 2014, the Company's board of directors authorized the Repurchase Program, a common stock repurchase program that allows FTD Companies, Inc. to repurchase up to $50 million of its common stock from time to time over a two-year period in both open market and privately negotiated transactions. No purchases were made under the Repurchase Program prior to 2015.

(b)
Maximum number of shares based on average price per share (which includes commission).

ITEM 6.    EXHIBITS

        See the Exhibit Index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 7, 2015

  FTD COMPANIES, INC. (Registrant)

 

By:

 

/s/ BECKY A. SHEEHAN


Becky A. Sheehan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

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EXHIBIT INDEX

 
   
   
  Incorporated by Reference to
 
   
  Filed
with this
Form 10-Q
No.   Exhibit Description   Form   File No.   Date Filed
 

10.1

 

FTD Companies, Inc. 2015 Management Bonus Plan

  X            
 

10.2

 

Amendment to Service Agreement between Liberty Interactive Corporation and Provide Commerce, Inc.

 

X

           
 

10.3

 

Purchase and Sale Agreement dated as of April 30, 2015 by and between Provide Creations, Inc. and Provide Gifts, Inc.

 

X

 

 

 

 

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

 

X

           
 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

 

X

           
 

32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002

 

X

           
 

32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002

 

X

           
 

101.INS

 

XBRL Instance Document

 

X

           
 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

X

           
 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document

 

X

           
 

101.LAB

 

XBRL Taxonomy Label Linkbase Document

 

X

           
 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document

 

X

           
 

101.DEF

 

XBRL Taxonomy Extension Definition Document

 

X

           

46




Exhibit 10.1

 

FTD COMPANIES, INC.

2015 MANAGEMENT BONUS PLAN

 

I.                                        PURPOSES OF THE PLAN

 

1.01 The FTD Companies, Inc. (the “Company”) 2015 Management Bonus Plan (the “Plan”) is hereby established under the Incentive Bonus Program of the Company’s stockholder-approved Amended and Restated 2013 Incentive Compensation Plan (the “2013 ICP”) and is intended to promote the interests of the Company by creating an incentive program to (i) attract and retain employees who will strive for excellence and (ii) motivate those individuals to achieve above-average objectives by providing them with rewards for contributions to the financial performance of one or more business segments or business units of the Company.

 

1.02 For purposes of the Plan, the financial performance for the 2015 fiscal year of the Company shall be measured to determine the bonus amounts (if any) payable for such fiscal year to the participants in the Plan.

 

II.                                   ADMINISTRATION OF THE PLAN

 

2.01 The Plan is hereby adopted by the Compensation Committee of the Company’s Board of Directors (the “Committee”) as a special cash bonus program under the Incentive Bonus Program of the 2013 ICP and shall be administered by the Committee pursuant to the administrative authority provided the Committee under the 2013 ICP and the Incentive Bonus Program thereunder.

 

2.02 The bonuses that may be earned under the Plan shall be tied to the financial performance of the Company for the Company’s 2015 fiscal year ending December 31, 2015 (the “2015 Fiscal Year”). The Committee shall establish the applicable performance goals for the Company in writing not later than ninety (90) days after the commencement of the 2015 Fiscal Year, provided that the outcome of the applicable goals must be substantially uncertain at the time of their establishment (the “Performance Goals Schedule”). The Performance Goals Schedule shall be attached to the minutes of the meeting or the consent resolutions at or by which such performance goals were established.

 

2.03 The interpretation and construction of the Plan and the adoption of rules and regulations for administering the Plan shall be made by the Committee in its sole discretion. Decisions of the Committee shall be final and binding on all parties who have an interest in the Plan.

 

III.                              DETERMINATION OF PARTICIPANTS

 

3.01 The following individuals (each, a “Participant”) will participate in the Plan on the following basis:

 

1



 

(i) The bonus potential for Robert S. Apatoff shall be allocated one hundred percent (100%) to the consolidated financial results of the Company.

 

(ii) The bonus potential for the individuals set forth on Schedule I attached hereto shall be allocated to the financial results of the Company and to achievement of such person’s approved divisional or departmental goals for the 2015 Fiscal Year as set forth on such Schedule I next to the name of each person.  The Company’s CEO shall approve all divisional or departmental goals.

 

3.02 Except as provided below and except as otherwise provided in any employment agreement or severance agreement between the Company (or a subsidiary thereof) and a Participant, if a Participant does not continue in the employ of the Company or one of its subsidiaries through the last business day of the 2015 Fiscal Year (the “Bonus Qualification Date”), then such Participant will not be eligible to receive a bonus under the Plan. However, the following special partial payment provisions shall be in effect:

 

(i) Should the Participant’s employment terminate prior to the Bonus Qualification Date as a result of death or permanent disability (as defined below), then that individual or such individual’s estate shall be entitled to a pro-rated portion of the bonus such individual would have earned, based on the Company’s actual performance for the 2015 Fiscal Year had such individual continued in the Company’s employ through the Bonus Qualification Date.

 

(ii) A Participant who is on a leave of absence or whose employment terminates after the start of the 2015 Fiscal Year but recommences prior to the Bonus Qualification Date may remain eligible at the discretion of the Committee, and the Committee may provide that individual with a pro-rated portion (based on period or periods of active employment during such year) of the bonus such individual would have earned, based on the Company’s actual performance for the 2015 Fiscal Year had such individual remained continuously in the Company’s employ through the Bonus Qualification Date.

 

3.03 For purposes of the Plan:

 

A. A Participant shall be considered an employee for so long as such individual remains employed by the Company or one or more corporations that are subsidiary corporations of the Company at all times during the 2015 Fiscal Year.

 

B. Each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company shall be considered to be a subsidiary of the Company, provided each such corporation (other than the last corporation in the unbroken chain) owns, at the time of determination, stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

2



 

C. Unless defined otherwise in any employment or severance agreement entitling the Participant to a full or pro-rated bonus upon a disability termination, permanent disability shall mean the Participant’s inability to engage in any substantial activity necessary to perform the duties and responsibilities of his position with the Company (or any subsidiary thereof) by reason of any medically-determinable physical or mental impairment which can be expected to result in such individual’s death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months.

 

D. In no event shall there be any duplication of bonus payments under this Plan and any employment agreement or severance agreement between the Company (or any subsidiary thereof) and a Participant that provides such individual with a stated bonus or bonus formula for a particular year or includes an annual bonus payment as part of a severance pay formula thereunder. Accordingly, in order to avoid any such potential duplication, such Participant shall only be entitled to receive the annual bonus amount to which he may otherwise be entitled under his employment or severance agreement based on the terms and conditions set forth therein and shall not be entitled to any bonus payment under the Plan. However, the accelerated vesting of any outstanding equity awards held by the Participant under any of the Company’s stock plans, including any outstanding stock options, restricted stock or restricted stock unit awards, or the extension of any exercise periods for such stock options, shall not be deemed to constitute a bonus payment for purposes of this Section 3.03D.

 

IV.                               BONUS AWARDS

 

4.01 The following provisions shall govern the calculation and payment of the individual bonus awards that become payable under the Plan.

 

(a) The individual bonus award payable under the Plan to each Participant for the 2015 Fiscal Year shall be payable in cash on the Bonus Payment Date (as defined in Section 5.01), with the cash bonus amount to be determined on the basis of the performance of the Company and the achievement of the divisional or departmental goals, as applicable, to which the bonus potential for that Participant has been allocated in accordance with Section 3.01.

 

(b) The performance of the Company shall be measured in terms of (i) the revenue for the Company and (ii) the net income before depreciation, amortization, stock based compensation, interest and taxes, and certain other expenses and subject to certain adjustments, all as specified in Section 4.02 (“Adjusted EBITDA”), for the Company.  Accordingly, fifty percent (50%) of the portion of the bonus potential allocated to the performance of the Company shall be based upon the achievement of the revenue target (“Revenue Targets”) specified for the Company in the Performance Goals Schedule, and the remaining fifty percent (50%) of the bonus potential allocated to the performance of the Company shall be based upon the achievement of the Adjusted EBITDA target (“Adjusted EBITDA Targets”) specified for the Company in the Performance Goals Schedule.

 

3



 

4.02 The following provisions shall govern the calculation of the levels at which the Revenue Targets and Adjusted EBITDA Targets are attained for the 2015 Fiscal Year and the determination of the bonus amounts based on those calculations:

 

(a) The actual level at which revenue for the Company has been attained for the 2015 Fiscal Year will be determined on the basis of the revenues to be reported in the Company’s Financial Statements (as defined in Section 4.03) for such fiscal year and will be calculated, for purposes of the Plan, in a manner consistent with the methodology utilized by the Committee in establishing the Company Revenue Targets.

 

(b) In determining the actual level at which Adjusted EBITDA for the Company has been attained, Adjusted EBITDA will be determined consistent with the Company’s methodology for calculating Adjusted EBITDA for financial reporting purposes. For financial reporting purposes, Adjusted EBITDA is defined as net income before net interest expense, provision (benefit) for income tax expense, depreciation, amortization, stock-based compensation, litigation or dispute settlement charges or gains (including, without limitation, fees, expenses, damages and settlement costs related to litigation, arbitration, investigations, disputes or similar matters), transaction related costs (including, without limitation, expenses resulting from actual or potential transactions such as business combinations, mergers, acquisitions, and financing transactions, and including compensation expense and expense for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms), restructuring and other exit costs (including, without limitation, severance expenses, facility closure expenses, relocation costs and other restructuring charges) and impairment of goodwill, intangible assets and long-lived assets.  In addition, to the extent the following are not otherwise taken into account in calculating Adjusted EBITDA for financial reporting purposes, Adjusted EBITDA shall be calculated before, and expenses for the purpose of calculating Adjusted EBITDA shall exclude: (1) any bonus amounts which accrue under this Plan; (2) any adjustments to Adjusted EBITDA attributable to a change in accounting principles that occurs after the start of the 2015 Fiscal Year (such that the actual Adjusted EBITDA is calculated consistently with Adjusted EBITDA target as it relates to accounting principles) ; (3) all items of gain, loss or expense determined to be extraordinary, unusual or non-recurring (it being understood and agreed that Item 10(e) of Regulation S-K under the Securities Act of 1933 shall not constitute a limitation on any such determination); (4) losses, charges or expenses with respect to litigation, investigations or other legal matters; and (5) all items of gain, loss or expense related to the sale or divestiture of a business; provided, however, that in determining the actual level at which the Company Adjusted EBITDA has been attained, the associated amount under clause (1), clause (3) or clause (4) shall be excluded from the calculation of Adjusted EBITDA only to the extent the actual aggregate amount under clause (1), clause (3) or clause (4) exceeds the aggregate budgeted amount therefor that was included in the Company’s Adjusted EBITDA Targets set forth in the Performance Goals.

 

(c) In the event the actual foreign currency exchange rate (determined as set forth below) for the GBP: U.S. Dollar for the 2015 Fiscal Year is lower than 1:1.48 (the “GBP Floor”), the final revenue and/or Adjusted EBITDA calculations for the Company will be adjusted using the GBP Floor. In the event the actual foreign currency exchange rate (determined as set forth below) for the Euro: U.S. Dollar for the 2015 Fiscal Year is lower than 1:1.11 (the

 

4



 

Euro Floor”), the final revenue and Adjusted EBITDA calculations for the Company will be adjusted using the Euro Floor. For the purpose of clarity, the GBP Floor and/or the Euro Floor will not be used to adjust the final revenues and Adjusted EBITDA calculations in the event the actual foreign currency exchange rates for the GBP: U.S. Dollar and/or the Euro: U.S. Dollar for such financial measures for the 2015 Fiscal Year are higher than the GBP Floor or the Euro Floor, respectively. For the purposes of this paragraph, an “actual foreign currency exchange rate” will be determined for each of year-end revenues and Adjusted EBITDA and calculated by (i) translating into U.S. Dollars the year-end revenues and Adjusted EBITDA amounts for the applicable non-U.S. subsidiaries in a manner consistent with the Company’s historical methodology for financial reporting purposes and (ii) dividing each such U.S. Dollars amount by its pre-translation (GBP or Euro) year-end revenues or Adjusted EBITDA amount, as applicable.

 

(d) In the event the Company acquires other companies or businesses during the 2015 Fiscal Year, the financial performance of those acquired entities shall not be taken into account in determining whether the Revenue Targets or Adjusted EBITDA Targets for the Company for the 2015 Fiscal Year have been achieved.

 

(e) Should the Company sell, divest or spin off a business during the 2015 Fiscal Year and the financial performance of such business was taken into account in establishing the Revenue Targets and Adjusted EBITDA Targets set forth in the Performance Goals Schedule, then for the purpose of determining whether the Revenue Targets or Adjusted EBITDA Targets for the Company for the 2015 Fiscal Year have been attained, the revenue and Adjusted EBITDA calculations for the Company shall be made (1) by taking into account the actual revenue and Adjusted EBITDA performance of the divested business during the portion of the 2015 Fiscal Year preceding the closing of such sale, divestiture or spin off and (2) for the post-closing portion of the 2015 Fiscal Year, by assuming that the sold, divested or spun business attained the level of revenue and Adjusted EBITDA performance that was projected for that period by the Committee for purposes of establishing the “Target” bonus payout levels (i.e., payout level 6) for the Revenue Targets and Adjusted EBITDA Targets for the Company.

 

4.03 The Committee shall, within seventy-five (75) days following the close of the 2015 Fiscal Year, determine and certify on the basis of the Company’s financial statements for such fiscal year as publicly reported by the Company in connection with its earnings release related to the 2015 Fiscal Year (the “Financial Statements”), the actual level of attainment for revenue and Adjusted EBITDA for the 2015 Fiscal Year. Such certification shall be included as part of the formal minutes of the meeting at which such determinations are made. On the basis of such certification, the Committee shall determine the actual bonus award for each Participant.  However, the Committee, in making such determination, shall not award a bonus in excess of the dollar amount determined for the Participant on the basis of the bonus potential established for the particular levels at which revenue and Adjusted EBITDA for the 2015 Fiscal Year are in fact attained unless the Committee determines that it is in the best interests of the Company to do so. In the event that revenue or Adjusted EBITDA falls between two specified levels set forth in the schedule approved by the Committee, the resulting bonus amount shall be interpolated on a straight-line basis between those two points. In no event shall the bonus awarded to any Participant exceed the maximum dollar limitation of Section 4.05.

 

5



 

4.04 Except as otherwise provided in Section 3.02, no Participant shall earn or accrue any right to any portion of a bonus award hereunder until the Bonus Qualification Date.

 

4.05 In no event shall the actual bonus amount payable under this Plan to any individual Participant for the 2015 Fiscal Year exceed the dollar amount of One Million Five Hundred Thousand dollars ($2,000,000).

 

V.                                    PAYMENT OF BONUS AWARDS

 

5.01 The actual bonus to which each Participant becomes entitled based on the certified level at which the Revenue and Adjusted EBITDA Targets are actually attained for the 2015 Fiscal Year shall be paid in cash, subject to the Company’s collection of all applicable federal, state and local income, employment and payroll withholding taxes. Schedule II attached hereto sets forth the bonus amounts payable to each Participant based on the level at which such Revenue and Adjusted EBITDA Targets are attained. Except as otherwise provided in Section 3.02, the bonus payments shall be made in the 2016 calendar year but not later than March 15, 2016, with the actual payment date to constitute the Bonus Payment Date.

 

VI.                               GENERAL PROVISIONS

 

6.01 The Committee may at any time amend, suspend or terminate the Plan, provided such action is effected by written resolution and is subject to stockholder approval to the extent required under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Moreover, the Committee reserves the right to amend this Plan as may be necessary or appropriate to avoid adverse tax consequences under Section 409A of the Code.

 

6.02 No amounts awarded or accrued under this Plan shall actually be funded, set aside or otherwise segregated prior to payment. The obligation to pay the bonuses awarded hereunder shall at all times be an unfunded and unsecured obligation of the Company. Plan participants shall have the status of general creditors and shall look solely to the general assets of the Company for the payment of their bonus awards.

 

6.03 No Participant shall have the right to alienate, pledge or encumber his/her interest in this Plan or any bonus payable hereunder, and such interest shall not (to the extent permitted by law) be subject in any way to the claims of the employee’s creditors or to attachment, execution or other process of law.

 

6.04 Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Committee, nor any provision of the Plan, shall be construed so as to grant any person the right to remain in the employ of the Company or its subsidiaries for any period of specific duration. Rather, each employee will be employed “at-will,” which means that either such employee or the Company may terminate the employment relationship at any time for any reason, with or without cause, subject in each case to any applicable benefits that may become payable under any employment agreement between such person and the Company or any of its subsidiaries.

 

6



 

6.05 The Plan shall be administered, operated and construed in compliance with the requirements of the short-term deferral exception to Section 409A of the Code and Treasury Regulations Section 1.409A-1(b)(4). Accordingly, to the extent there is any ambiguity as to whether one or more provisions of the Plan would otherwise contravene the requirements or limitations of Section 409A of the Code applicable to such short-term deferral exception, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the requirements or limitations of Section 409A of the Code and the Treasury Regulations thereunder that apply to such exception.

 

6.06 This is the full and complete agreement between the Participants and the Company with respect to their incentive bonus compensation for the 2015 Fiscal Year and the related service period through the Bonus Qualification Date. This Plan does not supersede, but is supplemental to, any provisions of any employment agreement to which any of the Participants in this Plan may be a party.

 

7


 

SCHEDULE I

 

Name

 

Corporate

 

Divisional/Departmental

Dorion, Michael

 

20% (Consolidated); 60% (Domestic)

 

20%

Howard, Clark

 

20% (Consolidated); 60% (Domestic)

 

20%

Hughes, Rhys

 

30% (Consolidated)

 

70%

Levin, Scott

 

80% (Consolidated)

 

20%

Michie, Cheryl

 

20% (Consolidated); 60% (Domestic)

 

20%

Moeller, Tom

 

30% (Consolidated)

 

70%

Mueller, Holger

 

20% (Consolidated); 60% (Domestic)

 

20%

Saunders, Anne

 

30% (Consolidated)

 

70%

Sheehan, Becky

 

80% (Consolidated)

 

20%

 



 

SCHEDULE II

 

 

 

Rob Apatoff

 

Becky Sheehan/Scott Levin

 

 

 

Consolidated

 

Consolidated

 

 

 

Revenue

 

Adj EBITDA

 

Revenue

 

Adj EBITDA

 

 

 

Payout %

 

Payout %

 

Payout %

 

Payout %

 

1

 

25.0

%

25.0

%

20.0

%

20.0

%

2

 

30.0

%

30.0

%

24.0

%

24.0

%

3

 

35.0

%

35.0

%

28.0

%

28.0

%

4

 

40.0

%

40.0

%

32.0

%

32.0

%

5

 

45.0

%

45.0

%

36.0

%

36.0

%

6

 

50.0

%

50.0

%

40.0

%

40.0

%

7

 

55.0

%

55.0

%

42.0

%

42.0

%

8

 

60.0

%

60.0

%

44.0

%

44.0

%

9

 

65.0

%

65.0

%

46.0

%

46.0

%

10

 

70.0

%

70.0

%

48.0

%

48.0

%

11

 

75.0

%

75.0

%

50.0

%

50.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Anne Saunders

 

Tom Moeller / Rhys Hughes

 

 

 

Consolidated

 

Division

 

Consolidated

 

Division

 

 

 

Payout %

 

Payout %

 

Payout %

 

Payout %

 

1

 

11.3

%

26.3

%

15.0

%

35.0

%

2

 

13.5

%

31.5

%

18.0

%

42.0

%

3

 

15.8

%

36.8

%

21.0

%

49.0

%

4

 

18.0

%

42.0

%

24.0

%

56.0

%

5

 

20.3

%

47.3

%

27.0

%

63.0

%

6

 

22.5

%

52.5

%