ftd_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

 

 

(Mark One)

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

For the Quarterly Period Ended September 30, 2015

Or

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   No 

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   No 

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

Accelerated filer 

Non‑accelerated filer

Smaller reporting company

 

 

(Do not check if a smaller
reporting company)

 

 

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

There were 28,666,772 shares of the Registrant’s common stock outstanding at November 2, 2015.

 

 

 


 

Table of Contents

FTD COMPANIES, INC.

INDEX TO FORM 10‑Q

 

 

 

 

 

 

Page

PART I. 

 

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014

 

 

Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended September 30, 2015 and 2014

 

 

Condensed Consolidated Statements of Comprehensive Income/(Loss) for the Quarters and Nine Months Ended September 30, 2015 and 2014

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2015

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

 

 

Notes to Condensed Consolidated Financial Statements

 

Item 2.

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

28 

 

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 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.

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Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,

    

December 31,

 

 

    

2015

    

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,099

 

$

95,595

 

Accounts receivable, net of allowances of $4,489 and $8,991 at September 30, 2015 and December 31, 2014, respectively

 

 

29,886

 

 

32,753

 

Inventories

 

 

30,090

 

 

28,342

 

Income taxes receivable

 

 

12,397

 

 

 —

 

Deferred tax assets, net

 

 

12,154

 

 

17,233

 

Prepaid expenses and other current assets

 

 

11,124

 

 

17,816

 

Total current assets

 

 

110,750

 

 

191,739

 

Property and equipment, net

 

 

63,915

 

 

63,607

 

Intangible assets, net

 

 

357,088

 

 

435,653

 

Goodwill

 

 

646,120

 

 

632,212

 

Other assets

 

 

27,620

 

 

29,402

 

Total assets

 

$

1,205,493

 

$

1,352,613

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

38,310

 

$

70,301

 

Accrued liabilities

 

 

40,057

 

 

62,555

 

Accrued compensation

 

 

20,706

 

 

28,728

 

Deferred revenue

 

 

8,168

 

 

10,185

 

Income taxes payable

 

 

607

 

 

6,042

 

Current portion of long-term debt

 

 

20,000

 

 

20,000

 

Total current liabilities

 

 

127,848

 

 

197,811

 

Long-term debt

 

 

285,000

 

 

320,000

 

Deferred tax liabilities, net

 

 

131,369

 

 

149,834

 

Other liabilities

 

 

9,888

 

 

19,755

 

Total liabilities

 

 

554,105

 

 

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; 29,339,814 and 29,193,037 shares issued at September 30, 2015 and December 31, 2014, respectively

 

 

3

 

 

3

 

Treasury stock, 673,042 and no shares at September 30, 2015 and December 31, 2014, respectively

 

 

(20,000)

 

 

 —

 

Additional paid-in capital

 

 

673,317

 

 

666,338

 

Retained earnings

 

 

30,081

 

 

26,707

 

Accumulated other comprehensive loss

 

 

(32,013)

 

 

(27,835)

 

Total stockholders’ equity

 

 

651,388

 

 

665,213

 

Total liabilities and stockholders’ equity

 

$

1,205,493

 

$

1,352,613

 

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

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

157,745

 

$

94,052

 

$

820,020

    

$

379,498

 

Services

 

 

30,774

 

 

31,048

 

 

102,081

 

 

103,549

 

Total revenues

 

 

188,519

 

 

125,100

 

 

922,101

 

 

483,047

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues—products

 

 

113,504

 

 

71,097

 

 

568,106

 

 

290,049

 

Cost of revenues—services

 

 

4,763

 

 

4,983

 

 

14,613

 

 

15,343

 

Sales and marketing

 

 

38,249

 

 

22,650

 

 

185,299

 

 

82,596

 

General and administrative

 

 

30,252

 

 

19,737

 

 

92,750

 

 

52,674

 

Amortization of intangible assets

 

 

15,317

 

 

2,777

 

 

46,054

 

 

11,618

 

Restructuring and other exit costs

 

 

1,495

 

 

(67)

 

 

5,907

 

 

220

 

Total operating expenses

 

 

203,580

 

 

121,177

 

 

912,729

 

 

452,500

 

Operating income/(loss)

 

 

(15,061)

 

 

3,923

 

 

9,372

 

 

30,547

 

Interest income

 

 

122

 

 

144

 

 

371

 

 

442

 

Interest expense

 

 

(2,450)

 

 

(1,557)

 

 

(7,366)

 

 

(4,336)

 

Other income/(expense), net

 

 

131

 

 

(74)

 

 

557

 

 

398

 

Income/(loss) before income taxes

 

 

(17,258)

 

 

2,436

 

 

2,934

 

 

27,051

 

Provision/(benefit) for income taxes

 

 

(779)

 

 

(2,178)

 

 

(440)

 

 

8,108

 

Net income/(loss)

 

$

(16,479)

 

$

4,614

 

$

3,374

 

$

18,943

 

Earnings/(loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings/(loss) per share

 

$

(0.57)

 

$

0.24

 

$

0.12

 

$

0.98

 

Diluted earnings/(loss) per share

 

$

(0.57)

 

$

0.24

 

$

0.11

 

$

0.98

 

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Net income/(loss)

 

$

(16,479)

 

$

4,614

 

$

3,374

 

$

18,943

 

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(5,020)

 

 

(7,678)

 

 

(4,227)

 

 

(3,141)

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in net gains/(losses) on derivatives, net of tax of $37 and $(3) for the quarters ended September 30, 2015 and 2014, respectively and $31 and $(268) for the nine months ended September 30, 2015 and 2014, respectively

 

 

57

 

 

(4)

 

 

49

 

 

(419)

 

Other comprehensive loss

 

 

(4,963)

 

 

(7,682)

 

 

(4,178)

 

 

(3,560)

 

Comprehensive income/(loss)

 

$

(21,442)

 

$

(3,068)

 

$

(804)

 

$

15,383

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

Comprehensive

 

Retained

 

Stockholders’

 

 

  

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Loss

 

Earnings

 

Equity

 

Balance at December 31, 2014

 

29,193

 

$

3

 

 —

 

$

 —

 

$

666,338

 

$

(27,835)

 

$

26,707

 

$

665,213

 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,374

 

 

3,374

 

Other comprehensive loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,178)

 

 

 —

 

 

(4,178)

 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

8,204

 

 

 —

 

 

 —

 

 

8,204

 

Tax benefits from equity awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

311

 

 

 —

 

 

 

 —

 

 

311

 

Vesting of restricted stock units and related repurchases of common stock

 

127

 

 

 —

 

 —

 

 

 —

 

 

(2,021)

 

 

 —

 

 

 —

 

 

(2,021)

 

Repurchases of common stock

 

 —

 

 

 —

 

(673)

 

 

(20,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(20,000)

 

Issuance of common stock through employee stock purchase plan

 

20

 

 

 —

 

 —

 

 

 —

 

 

478

 

 

 —

 

 

 —

 

 

478

 

Exercise of stock options

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7

 

 

 —

 

 

 —

 

 

7

 

Balance at September 30, 2015

 

29,340

 

$

3

 

(673)

 

$

(20,000)

 

$

673,317

 

$

(32,013)

 

$

30,081

 

$

651,388

 

 

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)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

3,374

 

$

18,943

 

Adjustments to reconcile net income to net cash provided by/(used for) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

63,265

 

 

19,297

 

Impairment of fixed assets

 

 

1,282

 

 

 —

 

Stock-based compensation

 

 

8,204

 

 

5,509

 

Provision for doubtful accounts receivable

 

 

1,315

 

 

1,342

 

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

 

 

1,020

 

 

598

 

Deferred taxes, net

 

 

(9,108)

 

 

(7,212)

 

Excess tax benefits from equity awards

 

 

(311)

 

 

(387)

 

Other, net

 

 

44

 

 

125

 

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

 

 

 

 

 

 

 

Accounts receivable, net

 

 

2,592

 

 

(1,751)

 

Inventories

 

 

(2,922)

 

 

1,907

 

Prepaid expenses and other assets

 

 

8,828

 

 

1,447

 

Accounts payable and accrued liabilities

 

 

(59,951)

 

 

(17,562)

 

Deferred revenue

 

 

(2,022)

 

 

1,914

 

Income taxes receivable or payable

 

 

(11,462)

 

 

1,040

 

Other liabilities

 

 

(6,852)

 

 

(106)

 

Net cash provided by/(used for) operating activities

 

 

(2,704)

 

 

25,104

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Cash paid for acquisitions, net of cash acquired

 

 

(9,935)

 

 

 —

 

Purchases of property and equipment

 

 

(10,700)

 

 

(5,364)

 

Purchases of intangible assets

 

 

(60)

 

 

 —

 

Net cash used for investing activities

 

 

(20,695)

 

 

(5,364)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 —

 

 

200,000

 

Payments on long-term debt

 

 

(35,000)

 

 

(200,000)

 

Payments for debt issue costs

 

 

 —

 

 

(3,806)

 

Exercise of stock options and purchases from employee stock plans

 

 

485

 

 

312

 

Repurchases of common stock

 

 

(22,021)

 

 

(1,760)

 

Excess tax benefits from equity awards

 

 

311

 

 

387

 

Net cash used for financing activities

 

 

(56,225)

 

 

(4,867)

 

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

 

 

(872)

 

 

(252)

 

Change in cash and cash equivalents

 

 

(80,496)

 

 

14,621

 

Cash and cash equivalents, beginning of period

 

 

95,595

 

 

48,162

 

Cash and cash equivalents, end of period

 

$

15,099

 

$

62,783

 

 

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

 

 

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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™, Sincerely™, and RedEnvelope® in the U.S. While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet dipped berries and other sweets, personalized gifts, premium fresh fruit baskets, gift baskets, wine and champagne, jewelry, and spa products.

The principal operating subsidiaries of FTD Companies, Inc. are Florists’ Transworld Delivery, Inc., FTD.COM Inc. (“FTD.COM”), Interflora British Unit (“Interflora”), and Provide Commerce, Inc. (“Provide Commerce”). The operations of the Company include those of its subsidiary, Interflora, Inc., of which one‑third is owned by a third party. The Company’s corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego and San Francisco, 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, an indirect wholly-owned subsidiary of Liberty, 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) 10.2 million 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 condensed consolidated financial statements are unaudited and 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, 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.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. This guidance was deferred by ASU 2015-14, issued by the FASB in August 2015, and is now effective for fiscal years and interim periods beginning on or after December 15, 2017 with early adoption permitted as of the original effective date for 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. Additionally in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, to clarify that an entity may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether or not there are any outstanding borrowings on the line-of-credit arrangement. The amendments in these ASUs 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. The Company expects that these updates will reduce both other assets and the outstanding debt balance by approximately $3.1 million at September 30, 2015.

In April 2015, FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software - Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. 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 can be applied prospectively to all arrangements entered into or materially modified after the effective date or retrospectively and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In July 2015, FASB issued ASU No. 2015-11, Inventory—Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The update does not apply to inventory that is measured using last-in, first-out or the retail inventory method. The update applies to all other inventory, which includes inventory that is measured using first-in, first-out or average cost methods. The amendments in this ASU will be effective for the Company for fiscal years, and the interim periods within those years, beginning after December 15, 2016. The amendments must be applied prospectively and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In September 2015, FASB issued ASU No. 2015-16, Business Combinations —Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are

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(Unaudited)

determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. 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 must be applied prospectively and early adoption is permitted. The Company has adopted the amendments in this update, which did not have a material impact on the Company’s consolidated financial statements.

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 sweets; 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) 10.2 million 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 nine months ended September 30, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the preliminary estimates of fair value of the assets 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

 

 

8,302

 

Inventories

 

 

18,650

 

Prepaid expenses

 

 

11,550

 

Other assets

 

 

14,931

 

Property and equipment

 

 

42,198

 

Accounts payable and accrued liabilities

 

 

(82,741)

 

Deferred tax liabilities, net

 

 

(88,171)

 

Other liabilities

 

 

(13,342)

 

Total net liabilities assumed

 

 

(50,542)

 

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

 

 

313,643

 

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 is based on statutory tax rates and does not reflect any cost savings or other benefits that may be obtained through anticipated synergies as a result of the Acquisition.

 

 

 

 

 

 

 

 

 

 

For the Quarter

 

For the Nine Months

 

(in thousands, except per share amounts)

    

Ended September 30, 2014

    

Ended September 30, 2014

 

Revenues

 

$

191,512

 

$

964,038

 

Net income/(loss)

 

$

(5,793)

 

$

324

 

Basic and diluted earnings per share

 

$

(0.20)

 

$

0.01

 

 

 

 

3. SEGMENT INFORMATION

Prior to the Acquisition, the Company reported its business operations in three reportable segments: Consumer, Florist, and International. As a result of the Acquisition, the Company began reporting its business in four 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 and nine months ended September 30, 2014.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Products revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

59,573

 

$

54,714

 

$

245,295

 

$

238,383

 

Florist

 

 

10,692

 

 

10,123

 

 

39,510

 

 

37,023

 

International

 

 

30,765

 

 

32,381

 

 

108,809

 

 

117,454

 

Provide Commerce

 

 

60,465

 

 

 —

 

 

440,249

 

 

 —

 

Segment products revenues

 

 

161,495

 

 

97,218

 

 

833,863

 

 

392,860

 

Services revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Florist

 

 

26,061

 

 

26,115

 

 

86,412

 

 

87,038

 

International

 

 

4,773

 

 

4,998

 

 

15,891

 

 

16,757

 

Segment services revenues

 

 

30,834

 

 

31,113

 

 

102,303

 

 

103,795

 

Intersegment eliminations

 

 

(3,810)

 

 

(3,231)

 

 

(14,065)

 

 

(13,608)

 

Consolidated revenues

 

$

188,519

 

$

125,100

 

$

922,101

 

$

483,047

 

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Intersegment revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

(3,160)

 

$

(3,166)

 

$

(13,182)

 

$

(13,362)

 

Florist

 

 

(60)

 

 

(65)

 

 

(222)

 

 

(246)

 

Provide Commerce

 

 

(590)

 

 

 —

 

 

(661)

 

 

 —

 

Total intersegment revenues

 

$

(3,810)

 

$

(3,231)

 

$

(14,065)

 

$

(13,608)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Segment operating income/(loss)(a):

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

9,641

 

$

5,060

 

$

27,995

 

$

23,738

 

Florist

 

 

10,067

 

 

10,660

 

 

36,327

 

 

35,906

 

International

 

 

3,460

 

 

3,763

 

 

15,260

 

 

15,330

 

Provide Commerce

 

 

(5,679)

 

 

 —

 

 

29,307

 

 

 —

 

Total segment operating income

 

 

17,489

 

 

19,483

 

 

108,889

 

 

74,974

 

Unallocated expenses(b)

 

 

(11,198)

 

 

(10,292)

 

 

(36,252)

 

 

(25,130)

 

Depreciation expense and amortization of intangible assets

 

 

(21,352)

 

 

(5,268)

 

 

(63,265)

 

 

(19,297)

 

Operating income/(loss)

 

 

(15,061)

 

 

3,923

 

 

9,372

 

 

30,547

 

Interest expense, net

 

 

(2,328)

 

 

(1,413)

 

 

(6,995)

 

 

(3,894)

 

Other income/(expense), net

 

 

131

 

 

(74)

 

 

557

 

 

398

 

Income/(loss) before income taxes

 

$

(17,258)

 

$

2,436

 

$

2,934

 

$

27,051

 


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(Unaudited)

(a)

Segment operating income/(loss) is operating income/(loss) 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), net.

(b)

Unallocated expenses include various corporate costs, such as corporate finance, legal, and certain 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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

U.S.

 

$

152,981

 

$

87,721

 

$

797,401

 

$

348,836

 

U.K.

 

 

35,538

 

 

37,379

 

 

124,700

 

 

134,211

 

Consolidated revenues

 

$

188,519

 

$

125,100

 

$

922,101

 

$

483,047

 

 

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

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

U.S

 

$

285,510

 

$

272,659

 

U.K.

 

 

7,787

 

 

8,335

 

Total long-lived assets

 

$

293,297

 

$

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

Current

 

$

11,057

 

$

10,913

 

Past due

 

 

680

 

 

3,268

 

Total

 

$

11,737

 

$

14,181

 

 

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

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

Current

 

$

11,057

 

$

10,913

 

Past due:

 

 

 

 

 

 

 

1 - 150 days past due

 

 

151

 

 

147

 

151 - 364 days past due

 

 

161

 

 

163

 

365 - 730 days past due

 

 

262

 

 

244

 

731 or more days past due

 

 

106

 

 

2,714

 

Total

 

$

11,737

 

$

14,181

 

 

Financing receivables on nonaccrual status at September 30, 2015 and December 31, 2014, totaled $0.7 million and $3.3 million, respectively.

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

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

Allowance for credit losses:

 

 

 

 

 

 

 

Balance at January 1

 

$

3,200

 

$

3,213

 

Provision

 

 

233

 

 

178

 

Write-offs charged against allowance

 

 

(2,799)

 

 

(216)

 

Balance at September 30

 

$

634

 

$

3,175

 

Ending balance collectively evaluated for impairment

 

$

588

 

$

3,157

 

Ending balance individually evaluated for impairment

 

$

46

 

$

18

 

Recorded investments in financing receivables:

 

 

 

 

 

 

 

Balance collectively evaluated for impairment

 

$

693

 

$

3,294

 

Balance individually evaluated for impairment

 

$

11,044

 

$

11,051

 

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 September 30, 2015 and December 31, 2014. The average recorded investment in such loans was less than $0.1 million in each of the nine months ended September 30, 2015 and 2014. Interest income recognized on impaired loans was less than $0.1 million in each of the nine months ended September 30, 2015 and 2014.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Property and Equipment

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

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

Land and improvements

 

$

1,607

 

$

1,614

 

Buildings and improvements

 

 

16,144

 

 

16,203

 

Leasehold improvements

 

 

16,405

 

 

16,092

 

Equipment

 

 

13,520

 

 

7,796

 

Computer equipment

 

 

30,956

 

 

27,144

 

Computer software

 

 

46,258

 

 

38,409

 

Furniture and fixtures

 

 

3,703

 

 

4,909

 

 

 

 

128,593

 

 

112,167

 

Accumulated depreciation

 

 

(64,678)

 

 

(48,560)

 

Total

 

$

63,915

 

$

63,607

 

Depreciation expense, including the amortization of leasehold improvements, was $6.0 million and $2.5 million for the quarters ended September 30, 2015 and 2014, respectively, and $17.2 million and $7.7 million for the nine months ended September 30, 2015 and 2014, respectively.

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 term of the Services Agreement. 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 Services Agreement terminated on 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. 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 $0.3 million. The purchase price was allocated to the assets acquired based on their relative fair values, resulting in allocated values of $0.1 million to fixed assets, $0.1 million to inventory, and $0.1 million to the trademark and trade name.

The I.S. Group Limited

Interflora holds an equity investment of 20.4% in The I.S. Group Limited (“I.S. Group”). The investment was $1.6 million at September 30, 2015 and $1.7 million at December 31, 2014, and is included in other assets in the condensed consolidated balance sheets. 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

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(Unaudited)

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. In the quarters ended September 30, 2015 and 2014, revenues related to products sold to and commissions earned from I.S. Group were $0.6 million and $0.7 million, respectively, and $2.0 million and $2.3 million for the nine months ended September 30, 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 less than $0.1 million in the quarters ended September 30, 2015 and 2014, and $0.3 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively. Amounts due from I.S. Group were $0.3 million and $0.5 million at September 30, 2015 and December 31, 2014, respectively, and amounts payable to I.S. Group were $1.1 million and $1.5 million at September 30, 2015 and December 31, 2014, respectively.

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

Goodwill

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2015 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provide

 

 

 

 

 

    

Consumer

    

Florist

    

International

    

Commerce

    

Total

 

Goodwill at December 31, 2014

 

$

133,226

 

$

109,651

 

$

92,259

 

$

297,076

 

$

632,212

 

Foreign currency translation

 

 

 —

 

 

 —

 

 

(2,659)

 

 

 —

 

 

(2,659)

 

Provide Commerce acquisition(a) 

 

 

 —

 

 

 —

 

 

 —

 

 

16,567

 

 

16,567

 

Goodwill at September 30, 2015

 

$

133,226

 

$

109,651

 

$

89,600

 

$

313,643

 

$

646,120

 


(a)

Adjustments to goodwill include revisions to preliminary fair value amounts and the final working capital adjustment, which were recorded during the nine months ended September 30, 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 $762.4 million at September 30, 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

Gross

 

Accumulated

 

 

 

 

Gross

 

Accumulated

 

 

 

 

 

    

Value

    

Amortization

    

Net

    

Value

    

Amortization

    

Net

 

Complete technology

 

$

77,658

 

$

(46,783)

 

$

30,875

 

$

77,847

 

$

(41,480)

 

$

36,367

 

Customer contracts and relationships

 

 

195,704

 

 

(138,725)

 

 

56,979

 

 

199,271

 

 

(104,972)