ftd_Current folio_10K

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑K

 

 

(Mark One)

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

 

For the Fiscal Year Ended December 31, 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
(State or other jurisdiction of
incorporation or organization)

32‑0255852
(I.R.S. Employer Identification No.)

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

60515
(Zip Code)

 

(630) 719‑7800

(Registrant’s telephone number, including area code)

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

 

 

Title of Each Class

Name of Exchange on Which Registered

Common Stock, par value $0.0001 per share

The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   No 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. 

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

 

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2015), based upon the closing sale price of the registrant’s common stock as reported on the NASDAQ Global Select Market was $514.6 million. At March 7, 2016, there were 27,714,097 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10‑K, to the extent not set forth herein, is incorporated herein by reference to the registrant’s definitive proxy statement relating to the 2016 annual meeting of stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 31, 2015.

 

 

 


 

Table of Contents

FTD COMPANIES, INC.

INDEX TO FORM 10‑K

For the Year Ended December 31, 2015

 

 

 

 

 

 

 

Page

PART I. 

 

 

 

 

Item 1.

Business

 

Item 1A.

Risk Factors

13 

 

Item 1B.

Unresolved Staff Comments

33 

 

Item 2.

Properties

33 

 

Item 3.

Legal Proceedings

34 

 

Item 4.

Mine Safety Disclosures

35 

PART II. 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

36 

 

Item 6.

Selected Financial Data

39 

 

Item 7.

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

41 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

63 

 

Item 8.

Financial Statements and Supplementary Data

64 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

64 

 

Item 9A.

Controls and Procedures

64 

 

Item 9B.

Other Information

65 

PART III. 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

65 

 

Item 11.

Executive Compensation

65 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

65 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

65 

 

Item 14.

Principal Accounting Fees and Services

65 

PART IV. 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

66 

Signatures 

67 

 

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


 

Table of Contents

Forward‑Looking Statements

This Annual Report on Form 10‑K (this “Form 10‑K”) and the documents incorporated herein by reference contain 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 this Form 10‑K and additional factors that accompany the related forward‑looking statements in this Form 10‑K and our other filings with the Securities and Exchange Commission. 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


 

Table of Contents

PART I

ITEM 1.  BUSINESS

Overview

FTD Companies, Inc.,  together with its subsidiaries (referred to herein as the “Company,” “FTD,” “we,” “us,” or “our”) is 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® and Interflora® brands, both of which are supported by the iconic Mercury Man logo®. 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 iconic Mercury Man logo is displayed in nearly 40,000 floral shops in approximately 150 countries. Today, the gold “Mercury Man” is one of the most recognized logos in the world and we are one of the largest and most trusted e-commerce floral and gift retailers in the world. Our diversified portfolio of brands also includes ProFlowers®, ProPlants®, Shari’s Berries®, Personal Creations®, RedEnvelope®, Cherry Moon Farms®, Flying Flowers®, Flowers Direct®, Sesame®, Ink CardsTM, PostagramTM, and Gifts.comTM. 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.

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. (“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) 10.2 million shares of FTD common stock (the “Acquisition”). At December 31, 2015, Liberty holds approximately 37% of the outstanding shares of FTD common stock. For additional information and risks associated with the Acquisition, see “Risk Factors,” which appears in Item 1A of this Form 10‑K.

We believe the Acquisition furthers our vision to become the leading and most trusted floral and gifting company in the world as it brought together two complementary businesses to offer customers a greater variety of floral and gifting products and an enhanced shopping experience. We believe the Acquisition expanded the breadth of our brand and resulted in the following strategic benefits, among others: 

·

enhanced consumer floral and gifting categories by combining FTD's iconic brands, FTD and Interflora, and the Mercury Man logo with Provide Commerce's respected and highly recognizable e-commerce brands, as described below;

·

diversified revenue streams and broadened consumer demographics through the combination of FTD's and Provide Commerce's complementary businesses and customer bases, with opportunities for cross-selling brands; and

·

generation of significant cost synergies to increase stockholder value, including approximately $25 million in annual cost synergies expected by the end of 2017, through efficiencies in operations, including procurement and fulfillment, general and administrative, marketing, and information technology costs.

About FTD Companies

On August 18, 1910, thirteen American retail florists, led by John Valentine, agreed to exchange orders for out‑of‑town deliveries. In telegraphing orders to each other from opposite sides of the country, they hoped to eliminate their reliance on trains to send flowers to far away recipients. At the time, lengthy transit times made sending flowers to friends and relatives in distant locations almost impossible. The flowers could not survive the long journey. Soon independent florists all over America were telegraphing and telephoning orders to each other using the FTD network. They found that, by working together, they were able to make the seemingly impossible, possible. For the first time, beautiful bouquets could be made and personally hand-delivered anywhere in the country within a day. The idea revolutionized the way flowers could be sent; customers could now mark special occasions with flowers from afar. Originally called “Florists’ Telegraph Delivery Association,” FTD was the world’s first flowers‑by‑wire service. In

4


 

Table of Contents

1914, FTD adopted the Roman messenger god as its logo and the Mercury Man has ever since been our iconic logo. In 1965, FTD expanded to include international transactions, and the company was renamed “Florists’ Transworld Delivery” to reflect its growing worldwide presence.

Not surprisingly, it was not long before florists outside of the U.S. wanted to provide the same delivery service to distant locations. In the U.K., a nursery owner from Essex and a florist in Glasgow brought the concept to the U.K., and on May 30, 1923, Florists’ Telegraph Delivery Association launched in the U.K. In the 1950’s, the name Interflora was adopted, which is one of the most recognized brands in the U.K. and the Republic of Ireland. FTD acquired Interflora in July 2006. Our Interflora brand recognition within the flower delivery market has prompted and unprompted awareness more than twice that of our competitors. In April 2012, Interflora acquired certain assets of the Gifts Division of Flying Brands Limited, including the Flying Flowers and Flowers Direct businesses.

Provide Commerce was founded in 1998 under the name ProFlowers, Inc. In 2003, ProFlowers, Inc. changed its name to Provide Commerce, Inc. Subsequent to its initial public offering in 2003 and prior to its acquisition by Liberty in 2006, Provide Commerce was an independent, publicly traded company.

FTD Companies, Inc. is a Delaware corporation headquartered in Downers Grove, Illinois that was formed in April 2008 in connection with United Online’s acquisition of FTD Group, Inc. (“FTD Group”). FTD Group, a wholly owned subsidiary of FTD Companies, Inc., is a Delaware corporation that was formed in 2003 by a private investment fund affiliated with Leonard Green & Partners, L.P. solely for the purpose of acquiring majority ownership of FTD, Inc. FTD, Inc., a wholly owned subsidiary of FTD Group, is a Delaware corporation that commenced operations in 1994 when FTD converted from a not‑for‑profit cooperative to a for‑profit corporation. FTD, Inc.’s principal operating subsidiaries are Florists’ Transworld Delivery, Inc., FTD.COM Inc. (“FTD.COM”), Interflora, and Provide Commerce.

On November 1, 2013, FTD Companies, Inc. became an independent, publicly traded company on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “FTD.” Prior to November 1, 2013, FTD was a wholly owned subsidiary of United Online, Inc. (“United Online”). On November 1, 2013, United Online separated into two independent, publicly traded companies: FTD Companies, Inc. and United Online, Inc. (the “Separation”). The Separation was consummated through a tax‑free dividend involving the distribution of all shares of FTD common stock to United Online’s stockholders. In connection with the Separation, holders of United Online common stock received one share of FTD common stock for every five shares of United Online common stock held on the record date (prior to giving effect to a reverse stock split of United Online shares). For additional information and risks associated with our separation from United Online, see “Risk Factors,” which appears in Item 1A of this Form 10‑K.

Our Businesses

Our FTD Consumer business in the U.S. and Canada operates primarily through our www.ftd.com website, associated mobile sites, and the 1‑800‑SEND‑FTD telephone number. 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 majority of Consumer orders are hand delivered by our floral network members, with same‑day delivery available in most locations. The other Consumer orders are fulfilled and shipped directly to the recipient in a special, elegant FTD gift box through our company-operated distribution network or by third parties via next‑day and future‑day delivery services.

Our Provide Commerce business operates primarily through the www.proflowers.com,  www.berries.com, www.personalcreations.com, www.proplants.com, and www.gifts.com websites, associated mobile sites and applications, and various telephone numbers. Floral and gift offerings include fresh‑cut flowers, floral arrangements, plants, gourmet‑dipped berries and other products, premium fresh fruit baskets, and personalized gifts and other gifting products. Consumer orders are fulfilled primarily through our company‑operated distribution network or by third‑party suppliers who ship directly to the recipient.

Our FTD Florist business operates in the business‑to‑business market. We provide a comprehensive suite of products and services to members of our floral network, including services that enable our floral network members to send, receive, and deliver floral orders. Floral network members include traditional retail florists, as well as other retail locations offering floral and related products, that are located primarily in the U.S. and Canada. We also provide products and services to other companies in need of floral and gifting solutions. Our large floral network provides an order fulfillment vehicle for our consumer businesses that allows us to offer same‑day delivery capability (subject to certain limitations) to recipients throughout the U.S. and Canada.

5


 

Table of Contents

Interflora is a premier floral and gifting company in the U.K. and offers the widest range of products and delivery options, and the highest service levels in the U.K. and the Republic of Ireland. Interflora operates primarily through its www.interflora.co.uk, www.flyingflowers.co.uk, www.flowersdirect.co.uk, and www.interflora.ie websites, associated mobile sites and applications, and various telephone numbers. Our portfolio of brands also includes Flying Flowers and Flowers Direct. Our products include: floral gift products, sympathy arrangements, personalized items, and occasion‑specific gifts and plants. Consumers can also design their own bouquet, stem by stem, online using My Interflora CreationTM. In addition to our floral offerings, we also offer a wide range of finishing touches such as bears, chocolates, and wine, together with a range of non‑floral gifts, including tailored food gifts through My Interflora Creation. Interflora’s floral gift offerings are made possible through its network of florists in the U.K. and the Republic of Ireland, with the majority of its products being delivered through its floral network. Consumers also have the option of ordering specific products that are presented in specially designed elegant gift boxes and delivered by third‑party couriers. We also provide products and services to floral network members, funeral directors, independent gift shops, other retailers, and other companies in need of floral and gifting solutions.

Industry Background

Floral Industry

Floral industry retail purchases in the U.S., including flowers, potted plants, and seeds, were approximately $30 billion in 2015, according to and as updated by the U.S. Department of Commerce. Floral industry retail purchases in the U.K., including fresh‑cut flowers and indoor plants, were approximately £2.2 billion in 2013, according to the latest available study by Mintel, a market research company. Both the U.S. and U.K. markets are highly fragmented, with thousands of floral industry participants. Trends in the floral retail markets include the following:

·

Floral mass marketers, such as our consumer businesses, capture floral orders from consumers via websites, associated mobile sites and applications, and telephone. The floral mass marketers’ share of retail floral purchases has expanded due to shifting consumer preferences towards purchasing floral products online and through mobile sites and applications, and the emergence of prominent brands with national or international exposure.

·

Increasing consumer interest in floral arrangements shipped directly to consumer recipients via common carrier has also benefited floral mass marketers.

There were approximately 14,600 retail florists in the U.S. in 2012, according to the U.S. Census Bureau’s most recent study. Supermarkets, mass merchants, and other retailers have established or increased their presence in the floral retail market by adding a variety of floral and related gift products to their merchandise assortments. The continuance of supermarkets and mass merchants as increasingly important distribution channels within the floral retail market has led many traditional retail florists to expand their merchandise offerings to include a larger selection of gift items, outdoor nursery stock, and seasonal decorations, among other items.

Floral wire services utilize proprietary network communication systems to enable the transmission and fulfillment of orders among floral network members. Floral wire services may include order transmission, clearinghouse services, marketing, and other services in support of the floral network. Order clearinghouse services play an important role by ensuring the flow of payment between a floral network member sending an order received from a consumer and the member receiving and fulfilling the order, thereby eliminating counterparty credit risk for the floral network members. Providers of floral wire services may offer a broad range of services that are designed to promote revenue growth and facilitate the efficient operation of a retail florist’s business. Traditional retail florists often rely on floral network services to provide incoming order volume.

Specialty Food and Gift Industry

The retail specialty food market generated approximately $70 billion of sales in 2013, according to Specialty Food Magazine. Manufacturer sales of specialty foods direct to consumers represented 15% of such sales in 2013. In addition, purchases of sweets and personalized items as gifts totaled approximately $25 billion in 2012, based on

6


 

Table of Contents

research conducted by a third‑party market research firm retained by Provide Commerce. Trends in the specialty food and gift industry have included the following:

·

Online gifting businesses capture food and personalized gift orders from consumers via websites, associated mobile sites and applications, and telephone. The research noted above showed that 72% of individuals over the age of 18 report having purchased a gift online.

·

Consumer interest in purchasing one‑of‑a‑kind gifts, and a willingness to pay a premium for them, has rewarded gifting companies offering innovative food and gift‑themed merchandise, leveraging personalization and customization extensively.

Our Business Strategy

Our vision is 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 strive to attain these goals through the following key strategies:

·

Innovative Product Selection:  Our extensive range of fresh‑cut flowers and floral arrangements, plants, gourmet food products, personalized gifts, wine and champagne, jewelry, and other gifting items provides our customers with innovative offerings in expressing life’s most important sentiments. We offer exclusive products by FTD, Interflora, ProFlowers, Shari’s Berries, Personal Creations, and Cherry Moon Farms and other exclusive products designed with our strategic partners. Our premium and branded floral gift products include FTD Luxe Collection, My Interflora Creation, FTD Color Confections, FTD Expressions® Collection, FTD® College Rose™ Collection, FTD Color Your Day™ Collection, Better Homes and Gardens® Collection, USO® Collection, Jane Seymour Silk Botanicals, and Vera Wang Flowers, along with Baccarat®, and Waterford®, among others. Any third party trademarks are the property of their respective owners.  

·

Strong Brand Awareness:  We believe that building greater awareness of our brands and communicating brand differentiation, both within and beyond the existing customer base, are important for growth. We promote our brands through a variety of traditional and digital marketing and promotional techniques, including online, social, print, radio, email, direct mail, public relations, and television.

·

High-Quality, Consistent Fulfillment Capabilities:  We believe a key differentiator for our brands is delivering high-quality, consistent products and services to our customers. Having strong relationships with quality suppliers is crucial to the success of our platform. To maintain high standards, we have established quality assurance programs to review and test our suppliers on an ongoing basis. We continue to work with suppliers to explore new methods to preserve quality and freshness, ensure a diverse product offering, maintain efficient technology, and reduce costs. In addition, we regularly seek out new suppliers to provide the broadest available selection of quality products for the benefit of our customers. Our extensive flower selection is largely sourced from Colombia, the U.S., Kenya, Holland, Ecuador, and Thailand. In addition, our strawberries are largely sourced from the U.S. and Mexico. Further, we offer a variety of delivery options, including same‑day delivery to the U.S., Canada, the U.K., and the Republic of Ireland, next‑day and future‑day delivery service throughout the world (subject to certain limitations), and three‑hour, as well as morning and afternoon delivery options in the U.K.

Our fulfillment model includes independent retail florists, third‑party suppliers who ship directly to our customers and now, with the addition of Provide Commerce, company‑operated distribution facilities that ship product directly to our customers. Further, we are part of an international network with nearly 40,000 floral shops displaying our iconic Mercury Man logo, enabling consumers to purchase products for delivery in approximately 150 countries. We will continue to optimize our distribution network, enabling us to deliver our products to customers in a high-quality manner while improving the efficiency of our fulfillment and logistics operations.

·

Strong Relationships with Our Floral Network Members:  Maintaining strong relationships with our floral network members is key to our success. FTD has both customer and supplier relationships with our florist network members. To maintain high standards among our floral network members, we have member

7


 

Table of Contents

training programs and have established a quality assurance program to review and test the quality of our floral network members. We believe that our florist network members have the unique blend of skills, creativity and attention to detail needed to create unique and special handmade arrangements. Further, our floral network members have important roles in supporting our brands.

·

Customer Satisfaction and Loyalty:  We believe that by continuing to offer innovative product and service offerings and delivering high-quality, consistent products to consumers, we can increase customer satisfaction, and, in turn, increase customer loyalty, thereby enabling growth. We offer our customers a satisfaction guarantee for fresh, beautiful floral arrangements, plants, and gifts. We strive to deliver high‑caliber customer service to our consumer customers, floral network members, and other customers. We operate a customer service center in our headquarters in Downers Grove, Illinois; San Diego, California; and in other locations in the U.S., the U.K., and also in outsourced locations. High-quality products and excellent customer service are critical to our brand strength and brand loyalty.

·

Strong Operating Performance and Cash Flows:  We manage our business with a focus on profitability, discipline in our cost structure, and cash flow generation.

As part of our business strategy, we continue to expand the breadth of our brands through organic growth and, where appropriate, through the acquisition of complementary businesses. The Acquisition was part of this strategy. We will explore opportunities to differentiate our floral and gift branded product offerings with a mind to providing customers greater options in expressing life’s most important sentiments. We also seek to provide higher value offerings to our customers, which may, for example, include bundled floral and gift product offerings. In addition, we believe our ability to acquire and retain customers effectively is critical to our success. We continue to seek expansion of our business by, among other things, marketing to our current and potential consumer and floral network customers. Our marketing efforts are primarily focused on generating orders from new and existing customers; increasing the value of our offerings to our customers thereby increasing average order value; increasing the penetration of sales of our services and products to our floral network members; attracting new members to our floral networks; and marketing our products and services to alternative channels such as supermarkets, mass merchants, and other retail locations.

In an effort to acquire and retain consumers, we engage in multi‑channel, integrated marketing efforts, which include online advertising and marketing, including search engine marketing and optimization; social media and group‑buying programs; co‑marketing and affiliate partnerships and loyalty programs such as airlines and other corporate and travel companies; database marketing to existing consumer customers featuring email promotions; direct mail and other forms of print advertising; an email‑based reminder service that provides consumers with personalized reminders of occasions such as birthdays, anniversaries, and key gift‑giving holidays; and radio, public relations, television, and other offline advertising. As consumer shopping continues to migrate from computers to mobile devices, we are committed to providing the best shopping experience from all types of devices. In addition, we modify our website formats and redesign our offerings based on customer purchasing patterns. Our objective is to continually innovate and evolve the customer experience, inspiring unprecedented brand loyalty and passion.

Marketing efforts related to our floral network members include member appreciation and training events; sponsorship and participation in floral and retail industry trade shows; and offline media campaigns. In addition, many of our consumer marketing efforts are also designed to integrate with and enhance the businesses of our floral network members. By enhancing the FTD and Interflora brands, we increase the possibility that a consumer will place an order directly with one of our floral network members since floral retailers frequently highlight their association with our floral networks in their own marketing efforts. We also employ dedicated sales forces to market our products and services to our floral network members and to encourage other floral retailers to buy floral and gift products and services from us.

Reportable Segments

With the management changes that occurred in conjunction with the Separation, we began reporting our business operations in three operating and reportable segments: Consumer, Florist, and International. As a result of the Acquisition, our operating and reportable segments changed to include a fourth segment: Provide Commerce. Accordingly, as of December 31, 2014, our operating and reportable segments consist of Consumer, Provide Commerce, Florist, and International.

8


 

Table of Contents

As the Acquisition was completed on December 31, 2014, the Company’s consolidated balance sheet at December 31, 2014 included the Provide Commerce assets acquired and liabilities assumed in the Acquisition. However, no results of operations of Provide Commerce were included in the Company’s consolidated statement of operations for the year ended December 31, 2014. For the year ended December 31, 2015, the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presented reflects this four operating and reportable segment presentation. The financial information provided in the MD&A related to Provide Commerce for the year ended December 31, 2014, is provided for informational purposes only and is unaudited. For additional information about our reportable segments refer to MD&A in Part II, Item 7 of this Form 10-K and Note 3—“Segment Information” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K.

Consumer Segment.  Through our Consumer segment, we are a leading direct marketer of floral and gift products for consumers, primarily in the U.S. and Canada. We operate primarily through the www.ftd.com website, associated mobile sites, and the 1‑800‑SEND‑FTD telephone number. The majority of consumer orders are hand delivered by our floral network members, who provide same‑day and future‑day delivery services. The other consumer orders are fulfilled and shipped directly to the recipient in an elegant gift box by third parties, who provide next‑day and future‑day delivery services. This segment has a negative working capital model as consumers generally pay us before payment is required to be made to the floral network members and other third‑party vendors. 

Provide Commerce Segment.  Through our Provide Commerce segment, we are a leading direct marketer 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.proplants.com, and www.gifts.com websites, associated mobile sites and applications, and various telephone numbers. Consumer orders for this segment are fulfilled primarily by us or third‑party suppliers and shipped directly to the recipient in a gift box on the delivery date specified by the sender. A smaller portion of the consumer orders for this segment are fulfilled by the FTD floral network members.

Florist Segment.  Through our Florist segment, we are, together with Interflora, the world’s largest and most experienced floral network, offering 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 comprehensive suite of services includes, among other things, access to the FTD brand and the Mercury Man logo, which are supported by various FTD marketing campaigns; clearinghouse and order transmission services that enable our members to send, receive, and deliver floral and gift orders; access to the floral network; directory publication services; credit card processing services; e‑commerce website services; online advertising tools; and system support services. Our large floral network provides an order fulfillment vehicle for our consumer orders that allows us to offer same‑day delivery capability (subject to certain limitations) to recipients throughout the U.S. and Canada.

We sell products to floral network members, including fresh‑cut flowers, branded and non‑branded containers, packaging, marketing products, and a wide variety of other floral‑related supplies. Selling branded containers to our members helps to ensure that the consumer orders fulfilled by our floral network members are consistent with the product imagery displayed on our websites. We also provide point‑of‑sale systems and related technology services that enable our floral network members to transmit and receive orders and manage several back‑office functions of a retailer’s business, including accounting, customer relationship management, direct marketing campaigns, delivery route management, and event planning.

International Segment.  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 to consumers and operates primarily through its www.interflora.co.uk,  www.flyingflowers.co.uk, and www.interflora.ie websites, associated mobile sites and applications, and various telephone numbers. Our portfolio of brands also includes Flying Flowers and Flowers Direct. Orders are transmitted to floral network members or third‑party suppliers for processing and delivery. The majority of consumer orders are hand delivered by our floral network members, who provide same‑day delivery, including three‑hour, as well as morning and afternoon delivery options, and future‑day delivery services. The remaining consumer orders are fulfilled and shipped directly to the recipient in an elegant gift box by third parties, who provide next‑day and future‑day delivery services. This segment has a negative working capital model, as consumers generally pay us before payment is required to be made to floral network members or other third‑party vendors. Interflora, together with the Florist segment, is the world’s largest and most experienced floral network, offering products and services to floral network members, funeral directors, independent gift shops, other retailers, and to other companies in need of

9


 

Table of Contents

floral and gifting solutions. These include access to the Interflora brand and the Mercury Man logo, services that enable our members to send, receive, and deliver floral and gift orders, and e‑commerce website services. In addition, we sell fresh‑cut flowers, certain associated gift products, and floral‑related supplies to our floral network members and other customers. Our large floral network provides an order fulfillment vehicle for our consumer orders that allows us to offer multiple delivery options (subject to certain limitations) to recipients throughout the U.K. and the Republic of Ireland.

As the Acquisition was completed on December 31, 2014, no results of operations of Provide Commerce were included in the Company’s consolidated statements of operations for the years ended December 31, 2014 and 2013. Segment revenues from external customers, as a percentage of total revenues, for the years ended December 31, 2015, 2014, and 2013 were as follows:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31,

 

 

    

2015

    

2014

    

2013

 

Consumer

 

25

%  

47

%  

48

%

Provide Commerce

 

48

%  

 —

%  

 —

%

Florist

 

13

%  

25

%  

26

%

International

 

14

%  

28

%  

26

%

Total revenues

 

100

%  

100

%  

100

%

Competition

Consumer market.  The consumer market for flowers and gifts is highly competitive as consumers can purchase the products we offer from numerous sources, including traditional local retail florists, supermarkets, mass merchants, gift retailers, floral and gift mass marketers, specialty markets, and catalog companies. The nature of the internet as a marketplace facilitates competitive entry and comparative shopping, which further drives competition. We believe the primary competitive factors in the consumer market are strength of brand, price, quality of products, selection, fulfillment capabilities, customer service, website performance, and ordering convenience. While the acquisition of Provide Commerce increased our participation in the U.S. consumer floral and gift market, the market continues to be very large and fragmented. In the U.S., our key competitors include online, catalog, floral and gift retailers, and mass market retailers, including such companies as 1‑800‑FLOWERS.COM, Inc. In addition, in the gourmet foods category we also compete with online and specialty companies. Further, we compete with personalized gift retailers and other general gift companies which also offer personalized products.

Floral network services market.  The floral network services market is highly competitive as well, and retail florists and other companies may choose from a variety of providers that offer similar products and services. We believe the primary competitive factors in this market are price, order volume, customer service, services offered, strength of brand, and fulfillment capabilities. Our key competitors in the U.S. floral network services market include providers of online or e‑commerce services, retailers and wholesalers of floral‑related products, and other floral network services providers, such as Teleflora and BloomNet Wire Service, a subsidiary of 1‑800‑FLOWERS.COM, Inc. The number of retail florists has been declining for more than a decade. As the number of retail florists decreases, competition for the business of the remaining retail florists may intensify. However, other non‑florist retail locations and other companies may continue to expand their floral and gifting needs.

International market.  We face strong competition in the consumer markets in the U.K. and the Republic of Ireland, with similar trends and competitive factors as those seen in the U.S. The markets in the U.K. and Republic of Ireland are also large and highly fragmented. Key competitors in the international consumer market include mass market retailers such as Marks and Spencer, plc, Next, Waitrose/John Lewis, Tesco, as well as online catalog and specialty gift retailers such as Serenata, Moonpig, Bunches, and Arena. In the business‑to‑business market there is competition for floral network services primarily from eflorist and iflorist.

Although we believe that we can compete favorably with respect to many competitive factors, in both the consumer and the floral network services markets, some of our competitors may have an advantage over us with respect to certain factors. Some of our competitors may engage in more aggressive pricing, may devote significantly greater resources to marketing campaigns or other aspects of their business, or may respond more quickly and effectively than we can to new or changing opportunities or customer requirements.

10


 

Table of Contents

Seasonality and Cyclicality

Our revenues, operating results, and cash flows across all four of our segments typically exhibit seasonality. Revenues, operating results, and cash flows tend to be lower for the quarter ending September 30 because none of the most popular floral and gift‑giving holidays, which include Mother’s Day, Valentine’s Day, Christmas, Easter, and Thanksgiving, fall within that quarter. In addition, depending on the year, Easter and the U.K. Mother’s Day sometimes fall within the quarter ending March 31 and sometimes fall within the quarter ending June 30. Furthermore, depending on the year, certain of the most popular floral and gift‑giving holidays, such as Valentine’s Day, may occur on a weekend or government holiday, which historically has negatively impacted orders. The Provide Commerce business experiences a greater level of seasonality than the legacy FTD business. The Provide Commerce business has historically generated an operating loss and used cash for operations during the third quarter. Historically, almost two‑thirds of the Provide Commerce revenues and almost all of its operating profit have been generated in the first half of the year. Within the Provide Commerce segment, the Personal Creations business is highly seasonal with approximately half of its revenues and substantially all of its operating profit generated in the fourth quarter with the Christmas season. As a result of these variations, we believe that comparisons of our revenues and operating results for any period with those of the immediately preceding period, or in some instances, the same period of the preceding fiscal year, may be of limited relevance in evaluating our historical performance and predicting our future financial performance. Our working capital and any short‑term borrowings may also fluctuate during the year as a result of the factors described above.

Revenue Sources

We generate revenues primarily from the sale of products and services, as further described below:

·

Products revenues.  Products revenues are derived primarily from selling floral, specialty foods, gourmet-dipped berries and other sweets, personalized gifts, and other gift items to consumers and include the related shipping and service fees. Products revenues also include revenues generated from sales of fresh flowers, branded and non‑branded containers, packaging and promotional products, and a wide variety of other floral‑related supplies to floral network members.

·

Services revenues.  Services revenues related to orders sent through the floral network are variable based on the number of orders and/or on the value of orders and are recognized in the period in which the orders are delivered. Services revenues also include membership and other subscription‑based fees from floral network members that are recognized as earned, on a month‑to‑month basis.

International Operations

We have international operations primarily in the U.K. through which we provide floral, gift, and related products and services to consumers and to floral network members and other companies in need of floral and gifting solutions in the U.K. and the Republic of Ireland.

In connection with our separation from United Online, we formed a new, wholly owned subsidiary in the Republic of India, FTD India Private Limited. Our operations in India are primarily responsible for technology development and support. We do not generate revenues directly from our operations in India. For information regarding risks associated with our international operations, see “Risk Factors,” which appears in Item 1A of this Form 10‑K. For information regarding international long‑lived assets, see Note 3—“Segment Information” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K.

11


 

Table of Contents

Geographic revenue information was as follows for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

    

2015

    

2014

    

2013

 

U.S.

 

$

1,051,618

 

$

462,724

 

$

465,954

 

U.K.

 

 

168,135

 

 

177,789

 

 

161,389

 

Consolidated revenues

 

$

1,219,753

 

$

640,513

 

$

627,343

 

Technology

Our floral network services use internally‑developed order processing, order transmission, message processing, and customer service systems which provide communication to our floral network members and third‑party suppliers. We also have developed reliable and secure e‑commerce, supply chain, customer relationship and transaction processing systems utilizing custom‑built and third‑party technologies, and have developed software to enhance the functionality of certain components of our services, including billing, email, customer support, logistics, and fulfillment for floral and gift products. With the acquisition, we have multiple systems and platforms currently in place related to many of these technologies.

For all systems, we maintain data centers in multiple locations in the U.S. and the U.K. In most cases, we have redundant systems to provide high levels of service availability and connectivity. We host some of our data center services in third‑party co‑location facilities.

In addition to our proprietary technology, we license from third parties a number of our software applications and components, including applications for our customer support, as well as some of our client and server applications. These licenses generally have terms ranging from several years to perpetual.

Government Regulations

We are subject to a number of international, federal, state, and local laws and regulations, including, without limitation, those relating to taxation, bulk email or “spam” advertising, user privacy and data protection, food production, safety, storage, marketing and distribution, consumer protection, supply chain operations, anti-bribery, labor, antitrust, and unclaimed property. In addition, proposed laws and regulations relating to some or all of the foregoing, as well as to other areas affecting our businesses, are continuously debated and considered for adoption in the U.S. and other countries, and such laws and regulations could be adopted in the future. For additional information regarding risks related to international, federal, state, and local laws and regulations, see “Risk Factors” which appears in Item 1A of this Form 10-K.

Proprietary Rights

Our trade names, trademarks, including the Mercury Man logo, service marks, patents, copyrights, domain names, trade secrets, and other intellectual property are important to the success of our business. In particular, we view our primary trademarks, including the Mercury Man logo, as critical to our success. We principally rely upon patent, trademark, copyright, trade secret, domain name laws, and contract laws to protect our intellectual property and proprietary rights. We also license rights to use some of our intellectual property, including the Mercury Man logo, to third parties. We continuously assess whether to seek patent and other intellectual property protections for those aspects of our business and technologies that we believe constitute innovations providing competitive advantages. We generally enter into confidentiality or license agreements with our employees, consultants, and corporate partners, and generally control access to, and distribution of, our technologies, documentation, and other proprietary information. We consider our trademarks, including our FTD, Interflora, Flying Flowers, Flowers Direct, ProFlowers, Shari’s Berries, Personal Creations, Cherry Moon Farms, Gifts.com, ProPlants, Sesame, Ink Cards, and Postagram to be very valuable assets, and most of these trademarks have been registered in the U.S., the U.K. and/or, in certain cases, in other countries. Additionally, we hold a patent relating to our Provide Commerce fulfillment operations. We also have pending patent applications relating to (i) order fulfillment and operations, (ii) products, and (iii) manufacturing techniques. Patents are generally valid for 14‑20 years as long as their registrations are properly maintained. If the patents for which applications have been pending for numerous years are issued, the length of their validity may be shortened.

12


 

Table of Contents

Employees

As of December 31, 2015, we had 1,618 employees, of which 1,249 were located in North America, 237 were located in the U.K., and 132 were located in India. In addition, we utilize part‑time and temporary employees to respond to fluctuating seasonal demand around holidays and peak periods. None of our employees are subject to collective bargaining agreements, and we consider our relationship with our employees to be good.

Available Information

FTD’s Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, changes in the stock ownership of our directors and executive officers, our code of ethics, and any other documents filed with, or furnished to, the SEC are available free of charge at FTD’s investor relations website at www.ftdcompanies.com. You can access our filings at our website as soon as reasonably practicable after such reports have been electronically filed with or furnished to the SEC. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Company that we file electronically with the SEC. The information on our website is not, and shall not be deemed to be, a part of this Form 10‑K or incorporated into any other filings we make with the SEC. Throughout this Form 10‑K, we incorporate by reference information from other documents filed with the SEC.

By referring to our websites, including, without limitation, www.ftdcompanies.com, www.ftd.com,  www.ftd.ca, www.interflora.co.uk,  www.interflora.ie, www.flyingflowers.co.uk, www.flowersdirect.co.uk,www.proflowers.com,  www.berries.com,  www.cherrymoonfarms.com,  www.personal creations.com,  www.roses.com, www.proplants.com, and www.gifts.com, we do not incorporate these websites or their contents into this Form 10‑K.

ITEM 1A.  RISK FACTORS

Our business and our common stock are subject to a number of risks and uncertainties. In addition, there are a number of risks and uncertainties associated with our 2014 acquisition of Provide Commerce in December and our 2013 separation from United Online in November. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10‑K. Based on information currently known, we believe that the following information identifies the most significant risk factors relating to our business and our common stock, including risks related to our acquisition of Provide Commerce and our separation from United Online.

If any of the following events occur, our business, financial condition, results of operations, and cash flows could be materially adversely affected, and the trading price of our common stock could materially decline.

Risks Relating to Our Business

Competition could materially and adversely affect our business, financial condition, results of operations, and cash flows.

The consumer market for flowers and gifts is highly competitive and fragmented, as consumers can purchase the products we offer from numerous sources, including traditional local retail florists, supermarkets, mass merchants, gift retailers, floral and gift mass marketers, specialty markets, and catalog companies. We believe the primary competitive factors in the consumer market are strength of brand, price, quality of products, selection, fulfillment capabilities, customer service, website performance, and ordering convenience. In both the U.S. and the U.K., our key competitors in the consumer market include online, specialty catalog, floral and gift retailers, and mass market retailers with floral departments. In addition, in the gourmet foods category we also compete with online and specialty companies.

We face intense competition in the consumer market. We expect that the sales volumes at supermarkets and mass merchants will continue to increase, and that other online floral mass marketers will continue to increase their competition with us. In particular, the nature of the internet as a marketplace facilitates competitive entry and comparative shopping, which further drives competition. Some of our competitors may have significant competitive advantages over us, may engage in more significant discounting, may devote significantly greater resources to marketing

13


 

Table of Contents

campaigns or other aspects of their business, or may respond more quickly and effectively than we can to new or changing opportunities or customer requirements.

The floral network services market is highly competitive as well, and retail florists and supermarkets may choose from a variety of providers that offer similar products and services. In addition, the number of retail florists has been declining over a number of years. As the number of retail florists decline, competition for the business of the remaining retail florists may intensify.We believe the primary competitive factors in this market are price, order volume, customer service, services offered, strength of brand, and fulfillment capabilities. Our key competitors in the U.S. floral network services market include providers of online or e‑commerce services, retailers and wholesalers of floral‑related products, and other floral network services. In the international market, our key competitors include other floral network service providers.

Increased competition in the consumer market or the floral network services market may result in lower revenues, reduced gross margins, loss of market share, and increased marketing expenditures. We cannot provide assurances that we will be able to compete successfully or that competitive pressures will not materially and adversely affect our business, financial condition, results of operations, and cash flows.

If we are unable to successfully complete the integration of the Provide Commerce business with our legacy business, the anticipated benefits of the Acquisition may not be realized. In addition, future results will suffer if we do not effectively manage our expanded operations.

The Acquisition involved the combination of two companies that formerly operated as independent companies. Integration has required and will continue to require substantial management attention and could detract attention from the day‑to‑day business of the combined company. Potential difficulties we may encounter as part of the integration process or consequences of the integration process, all of which could materially and adversely affect our business, financial condition, results of operations, and cash flows, include the following:

·

the potential inability to successfully combine the Provide Commerce business with our legacy business in a manner that permits us to achieve the cost synergies expected to be achieved and the inability to achieve other benefits anticipated from the Acquisition;

·

challenges implementing our diversification strategy, including challenges achieving revenue growth from sales of each company’s products and services to the customers of the other company;

·

the potential inability to complete the integration of Provide Commerce’s customer‑facing products and services, such as its centralized customer service centers, direct‑to‑consumer marketing programs, various web‑based applications, and enhanced technology applications;

·

challenges leveraging the customer information and technology of the two companies;

·

challenges offering products and services across our expanded brand portfolio;

·

the need to revisit assumptions about future revenues, operating costs, and capital expenditures, including expected synergies;

·

challenges faced by a potential diversion of the attention of our management as a result of the integration, which in turn could adversely affect each company’s ability to maintain relationships with customers, floral network members, employees, and other constituencies or our ability to achieve the anticipated benefits of the Acquisition;

·

the potential loss of key employees, customers, or strategic partners of FTD and/or Provide Commerce, or the ability to attract or retain key management and other key personnel, which could have an adverse effect on our ability to integrate and operate the Provide Commerce business;

·

complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate culture, management philosophies, inventory management, product delivery and distribution, and the challenge of integrating complex systems, technology, networks, and other assets of

14


 

Table of Contents

each of the companies in a seamless manner that minimizes any adverse impact on customers, florists, employees, and other constituencies; and

·

potential unknown liabilities.

Our future success depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the diversification strategy and revenue growth, management and monitoring of new operations and associated increased costs and complexity. In this regard, there can be no assurances that all of the goals and anticipated benefits of the Acquisition will be achievable.

If we cannot complete the integration of our legacy business and the Provide Commerce business successfully, we may fail to realize the expected benefits of the Acquisition, including the annual cost synergies of approximately $25 million, which are expected to be achieved by the end of 2017. We could also encounter additional transaction and integration-related costs, may fail to realize all of the benefits anticipated in the Acquisition, or be subject to other factors that affect our estimates of anticipated benefits.

Our business is subject to online security risks, and a security breach or inappropriate access to, or use of, our networks, computer systems, or services or those of third‑party vendors could expose us to liability, claims, and a loss of revenue.

The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our third‑party vendors. In connection with conducting our business in the ordinary course, we store and transmit customer and member information, including personally identifiable information. Unauthorized or inappropriate access to, or use of, our networks, computer systems, or services, whether intentional, unintentional or as a result of criminal activity, could potentially jeopardize the security of confidential information, including credit card information, of our customers and of third parties. A number of other websites have publicly disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose members, customers, or vendors. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our members or customers, cause interruption in our operations, or damage our computers or those of our members or customers.

A significant number of our members and customers authorize us to bill their payment card accounts (credit or debit) directly for all amounts charged by us. These members and customers provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. We rely on third‑party and internally‑developed encryption and authentication technology to provide the security and authentication to effectively secure transmission of confidential information, including payment card numbers. Advances in computer capabilities, new discoveries in the field of cryptography, or other developments may result in the technology used by us to protect transaction data being breached or compromised. Non‑technical means, for example, actions by an employee, can also result in a data breach. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our members and customers the option of using payment cards. If we were unable to accept payment cards or are limited in our acceptance of payment cards, our businesses could be materially and adversely affected.

We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach related to us or the parties with which we have commercial relationships, could damage our reputation and expose us to a risk of loss, litigation, and possible liability. We cannot assure you that the security measures we take will be effective in preventing these types of activities. We also cannot assure you that the security measures of our third‑party vendors, including network providers, providers of customer and billing support services, and other vendors, will be adequate. In addition to potential legal liability, these activities may adversely impact our reputation or our revenues and may interfere with our ability to provide our products and services,

15


 

Table of Contents

all of which could materially and adversely affect our business. In addition, the coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

Significant problems with our key systems or those of our third‑party vendors could materially and adversely affect our business, financial condition, results of operations, and cash flows.

The systems underlying the operations of our business are complex and diverse and must efficiently integrate with third‑party systems, such as credit card processors. Key systems include, without limitation, order transmission, distribution, fulfillment and processing, including the systems for transmitting orders through our floral networks and to third‑party suppliers; billing; website and database management; customer support; telecommunications network management; and internal financial systems. Some of these systems are outsourced to third parties, and other systems, such as Interflora’s order transmission, fulfillment and billing system and our customer service telephone system, are not redundant. All information technology and communication systems are subject to reliability issues, denial of service attacks, integration and compatibility concerns, and security threatening intrusions. The continued and uninterrupted performance of our key systems is critical to our success. Unanticipated problems affecting these systems could cause interruptions in our services. In addition, if our third‑party vendors face financial or other difficulties, our business could be adversely impacted. Any significant errors, damage, failures, interruptions, delays, or other problems with our systems or those of our third‑party vendors could adversely impact our ability to satisfy our customers and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our revenues, operating results, and cash flow fluctuate on a seasonal basis and may suffer if revenues during peak seasons do not meet our expectations. As a result of the acquisition of the Provide Commerce business, we will experience a greater level of seasonality than prior to the Acquisition, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our business is seasonal, and our quarterly revenues and operating results typically exhibit seasonality. Revenues, operating results, and cash flows tend to be lower for the quarter ending September 30 because none of the most popular floral and gift‑giving holidays, which include Mother’s Day, Valentine’s Day, Christmas, Easter, and Thanksgiving, falls within that quarter. In addition, depending on the year, Easter and the U.K. Mother’s Day sometimes fall within the quarter ending March 31 and sometimes fall within the quarter ending June 30. Furthermore, depending on the year, certain of the most popular floral and gift‑giving holidays, such as Valentine’s Day, may occur on a weekend or government holiday, which historically has negatively impacted orders.

The Provide Commerce business experiences a greater level of seasonality than our legacy business. The Provide Commerce business has historically generated an operating loss and used cash in operations during the third quarter. Almost two‑thirds of its revenue and almost all of its operating profit have been generated in the first half of the year. Within the Provide Commerce segment, the Personal Creations business is highly seasonal with approximately half of its revenues and substantially all of its operating profit is generated in the fourth quarter during the Christmas season. Any heightened seasonality of our business as a result of the Acquisition could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our operating results may suffer if revenues during our peak seasons do not meet expectations, as we may not generate sufficient revenues to offset increased costs incurred in preparation for peak seasons. Our working capital and level of indebtedness may also fluctuate during the year as a result of the factors set forth above. Moreover, the operational risks described elsewhere in these risk factors may be significantly exacerbated if those risks were to occur during a peak season. For example, severe weather prior to or on Valentine’s Day, Mother’s Day, or another popular floral or gift‑giving holiday could materially and adversely affect our business, financial condition, results of operations, and cash flows. Similarly, we could be materially and adversely affected if we do not accurately estimate customer demand and appropriately manage inventory levels in the Provide Commerce business.

We are dependent on third parties who fulfill orders and deliver goods and services to our customers and their failure to provide our customers with high‑quality products within the required timeframe and maintain a high level of customer service may harm our brands and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We believe that our success in promoting and enhancing our brands depends on our ability to provide our customers high‑quality products within the required timeframe and maintain a high level of customer service. Our business depends, in part, on the ability of our floral network members and third‑party suppliers who fulfill our orders to

16


 

Table of Contents

do so at high‑quality levels. We work with our floral network members and third‑party suppliers to develop best practices for quality assurance; however, we generally do not directly control or continuously monitor any floral network member or third‑party supplier. A failure to maintain our relationships with key floral network members and third‑party suppliers or the failure of our floral network members and third‑party suppliers to fulfill orders to our customers’ satisfaction, at an acceptable level of quality and within the required timeframe, could adversely impact our brands and cause us to lose customers, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Additionally, because we depend upon third parties for the delivery of our products, strikes, or other service interruptions affecting these shippers could have an adverse effect on our ability to deliver our products on a timely basis. If any of our shippers are unable or unwilling to deliver our products, we would have to engage alternative shippers, which could increase our costs. A disruption in any of our shippers’ delivery of our products could cause us to lose customers or could increase our costs, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

If the supply of flowers and/or strawberries becomes limited, the price of our floral and/or strawberry products could rise or our products may become unavailable, which could result in our not being able to meet consumer demand and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Many factors, such as weather conditions, agricultural limitations, restrictions relating to the management of pests and disease, and fair trade and other social or environmental issues, affect the supply of flowers and strawberries and the price of our floral and strawberry products. If the supply of flowers and/or strawberries available for sale is limited, the wholesale prices of flowers and strawberries could rise, which would cause us to increase our prices or could result in a reduction in our profits. An increase in our prices could result in a decline in consumer demand for our floral and strawberry products, which would decrease our revenues. Alternatively, we may not be able to obtain high‑quality flowers and/or strawberries in an amount sufficient to meet consumer demand. Even if available, flowers and strawberries from alternative sources may be of lesser quality or be more expensive than those currently offered by us. A large portion of our supply of flowers is sourced from Colombia, the U.S., Kenya, Holland, Ecuador, and Thailand. In addition, a large portion of our supply of strawberries is sourced from the U.S. and Mexico.

The availability and price of our products could be affected by a number of other factors affecting suppliers, including:

·

severe weather;

·

disease, infestation, and other biological problems;

·

import duties and quotas;

·

time‑consuming import regulations or controls at airports;

·

changes in trading status;

·

economic uncertainties and currency fluctuations;

·

foreign government laws and regulations;

·

political, social, and economic instability, terrorist attacks, and security concerns in general;

·

nationalization;

·

fair trade and other social or environmental certifications, requirements, or practices;

·

governmental bans or quarantines;

·

disruption in transportation and delivery;

·

trade restrictions, including U.S. retaliation against foreign trade practices; and

17


 

Table of Contents

·

transportation availability and costs.

Our consumer businesses rely heavily on email campaigns, and any disruptions or restrictions on the sending of emails or increase in the associated costs could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We generate a significant portion of our consumer orders from the emails we send to customers who have previously ordered products from us. We also engage in a number of third‑party email marketing campaigns in which such third parties include our marketing offers in the emails they send.

An increase in the number of customers to whom we are not able to send emails, or who elect to not receive or are unable to receive our emails could adversely affect our business, financial condition, results of operations, and cash flows. From time to time, internet service providers block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our customers. Third parties may also block, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Due to the importance of email to our businesses, any disruption or restriction on the distribution of emails or increase in the associated costs could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We rely on our own distribution facilities to fulfill our customers’ orders and to distribute our products into the carrier delivery system. A disruption in service at one or more of our distribution facilities or delivery failures or delays could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our Provide Commerce business fulfills many customer orders through company‑operated distribution facilities. We may be unable to fulfill our customers’ orders through one or more of our various distribution facilities in a timely manner, or at all, due to a number of factors that may affect one or more of such distribution facilities, including:

·

a failure to maintain or renew one or more of our existing lease agreements for any of our company‑operated distribution facilities;

·

a prolonged power or equipment failure;

·

an employee strike or other labor stoppage;

·

a disruption in the transportation infrastructure;

·

weather issues at our distribution facilities or along the delivery routes;

·

a refrigeration failure; or

·

a fire, flood, hurricane, tornado, or other disaster.

In the event we are unable to fulfill our customers’ orders through one or more of our distribution facilities, we will attempt to fulfill the orders via another source to ensure timely delivery. However, we cannot guarantee that our other distribution facilities or third‑party suppliers will have the capacity or the variety of flowers, strawberries, or gifts to fulfill all affected orders in a timely manner. In addition, if operations from one or more of our distribution facilities become permanently disrupted due to any of the factors noted above or other factors, we may not be able to secure a replacement distribution facility in a location on terms acceptable to us or at all. Our business, financial condition, results of operations, and cash flows could be materially and adversely affected if we experience temporary or permanent disruptions at one or more of our distribution facilities.

The success of our business is dependent on our floral network members and on the financial performance of the retail floral industry.

A significant portion of our profitability is dependent on our floral network members. Certain relationships with floral network members are non-exclusive and subject to their discretion in terms of network participation. The amount of revenues and profits we generate from individual floral network members can vary significantly. We have lost, and

18


 

Table of Contents

may continue to lose, floral network members as a result of declines in the number of local retail florists as a result of economic factors and competition, as well as our members choosing not to do business with us. There can be no assurance that the decline in the number of floral network members will not increase in the future, or that we will not lose floral network members that generate significant revenues for our business, either of which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

In addition, the operating and financial success of our business has been, and is expected to continue to be, dependent on the financial performance of the retail floral industry. There can be no assurance that the retail floral industry will not decline, that consumer preferences for, and purchases of, floral products will not decline, or that retail florist revenues or inter‑city floral delivery transactions will not decline in absolute terms. A sustained decline in the sales volume of the retail floral industry could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We are exposed to the credit risk of our floral network members.

When an FTD or Interflora floral network member fulfills an order from an originating member, we become liable to the fulfilling member for payment on the order, even if we do not receive payment from the originating member. Accordingly, we are exposed to the credit risk of our floral network members. We cannot provide assurances that the exposure will not be greater than the amounts we have reserved for this exposure. An increase in this exposure, coupled with material instances of defaults, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We are dependent on our strategic relationships to help promote our consumer websites. Failure to establish, maintain, or enhance such relationships could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We believe that our strategic relationships with leading online retailers and direct marketers are critical to attract customers, facilitate broad market acceptance of our products and brands, and enhance our sales and marketing capabilities. A failure to maintain existing strategic relationships or to establish additional relationships that generate a significant amount of traffic from other websites could limit the growth of our business. Establishing and maintaining relationships with leading online retailers and direct marketers is competitive and expensive. We may not successfully enter into additional strategic relationships. In addition, we may not be able to renew existing strategic relationships beyond their current terms or may be required to pay significant fees to maintain and expand these strategic relationships. Further, many online retailers and direct marketers that we may approach to establish an advertising presence or with whom we already have an existing relationship may also provide advertising services for our competitors. As a result, these companies may be reluctant to enter into, maintain, or expand a strategic relationship with us. Our business, financial condition, results of operations, and cash flows may suffer if we fail to enter into new strategic relationships, or maintain or expand existing strategic relationships, or if these strategic relationships do not result in traffic on our websites sufficient to justify costs.

In addition, we are subject to many risks beyond our control that influence the success or failure of our strategic relationships. For example, if any of the online retailers or direct marketers with which we have strategic relationships experience financial or operational difficulties that materially and adversely affect their ability to satisfy their obligations under their agreements with us, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.

Our marketing efforts may not be successful or may become more expensive, either of which could increase our costs and materially and adversely affect our business, financial condition, results of operations, and cash flows.

We spend significant resources marketing our brands, products, and services. We rely on relationships with a wide variety of third parties, including internet search providers such as Google, internet advertising networks, retailers, and direct marketers, to source new customers and to promote our products and services. In addition, from time to time, we may spend a significant amount on marketing, including through television advertising. With any of our brands, products, and services, if our marketing activities are inefficient or unsuccessful, if important third‑party relationships or marketing strategies, such as internet search engine marketing and search engine optimization, become more expensive or unavailable, or are suspended or terminated, for any reason, if there is an increase in the proportion of consumers visiting our websites or purchasing our products and services by way of marketing channels with higher marketing costs

19


 

Table of Contents

as compared to channels that have lower or no associated marketing costs, or if our marketing efforts do not result in our products and services being prominently ranked in internet search listings, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.

Current or future economic conditions could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Economic conditions in the U.S. and the European Union have been and may remain challenging for the foreseeable future. Our products and services are discretionary and dependent upon levels of consumer spending. Consumer spending patterns are difficult to predict and are sensitive to, among other factors, the general economic climate, consumers’ levels of disposable income, consumer debt, and overall consumer confidence. These challenging economic conditions have adversely impacted certain aspects of our businesses in a number of ways, including reduced demand, more aggressive pricing for similar products and services by our competitors, increased credit risks, increased credit card failures, a loss of customers, and increased use of discounted pricing for certain of our products and services. It is likely that these and other factors will continue to adversely impact our businesses, at least in the near term. Challenging economic conditions also may adversely impact our key vendors and customers. Such economic conditions and decreased consumer spending have, in certain cases, resulted in, and may in the future result in, a variety of negative effects such as a reduction in revenues, increased costs, lower gross margin and operating margin percentages, increased allowances for doubtful accounts and write‑offs of accounts receivable, increased provisions for excess and obsolete inventories and recognition of impairments of assets, including goodwill and other intangible and long‑lived assets. Any of the above factors could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Shifts in the mix of products versus services sold, and types of products and services sold, could materially and adversely affect our financial results.

The cost of revenues associated with our products revenues is generally higher than that associated with our services revenues. In addition, the cost of revenues associated with certain products and services may be higher than that associated with other products and services. As a result, changes in the proportion of revenues that is represented by products revenues versus services revenues, and certain types of products and services versus others, could materially and adversely affect our revenues, cost of revenues, cost of revenues as a percentage of revenues, and operating income.

Shifts in the mix of products and services sold at standard pricing as compared to discounted pricing or the failure to maintain our standard pricing for products and services could materially and adversely affect our financial results.

Due to economic conditions and for competitive and other reasons, we have been offering broader and greater discounts to the consumer, both on a promotional basis to consumers generally, as well as through strategic arrangements with third parties that have a fixed, and in certain cases greater, discount or other associated costs. We also offer discounts on our floral network service fees from time to time on a promotional basis. Shifts in the mix of products and services sold that have resulted in increases in the proportion of products and services sold at a discount, and at times at greater discounts, including through such strategic arrangements, have resulted, and may in the future result, in reduced revenues, an increase in cost of revenues as a percentage of revenues, and a decrease in operating income. We currently intend to continue selling a portion of our products and services at a discount, including through such strategic arrangements, and there are no assurances that the portion of products and services sold at a discount will not continue to increase. The continued use of discounts, including through such strategic arrangements, for our products and services may result in our becoming more reliant upon offering discounts in order to sell our products and services, which could result in our having to reduce our standard pricing, and could materially and adversely affect our financial results.

Fluctuations in foreign currency exchange rates could materially and adversely affect comparisons of our operating results.

We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, including the British Pound, the Euro, the Canadian Dollar, the Indian Rupee, and the Colombian Peso. Revenues and expenses in foreign currencies translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against such other currencies. Substantially all of the revenues of our international businesses are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar‑reported revenues and expenses depending on

20


 

Table of Contents

the fluctuations in foreign currency exchange rates. Certain of our key business metrics, such as average order value, are similarly affected by such foreign currency exchange rate fluctuations. Changes in global economic conditions, market factors, and governmental actions, among other factors, can affect the value of these currencies in relation to the U.S. Dollar. A strengthening of the U.S. Dollar compared to these currencies and, in particular, to the British Pound and the Euro, has had, and in future periods could have, an adverse effect on the comparisons of our revenues and operating income against prior periods. We cannot accurately predict the impact of future foreign currency exchange rate fluctuations on our operating results, and such fluctuations could materially and adversely affect the comparisons of such results against prior periods.

We face risks relating to operating and doing business internationally that could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our businesses operate in a number of countries outside the U.S., principally the U.K. and the Republic of Ireland for our Interflora subsidiary, and also India for our technology development and support operations. Conducting international operations involves risks and uncertainties, including:

·

adverse fluctuations in foreign currency exchange rates;

·

difficulties in managing and staffing international operations;

·

potentially adverse tax consequences, including the complexities of foreign value added taxes and restrictions on the repatriation of earnings;

·

increased financial accounting, tax and reporting burdens, and complexities;

·

compliance with U.S. laws affecting operations outside the U.S., such as the Foreign Corrupt Practices Act;

·

lack of familiarity with, and unexpected changes in, foreign regulatory requirements;

·

the burdens of complying with a wide variety of foreign laws, regulations, and legal and regulatory standards;

·

political, social, and economic instability abroad, terrorist attacks, and security concerns in general; and

·

reduced or varied protection for intellectual property and proprietary rights.

The occurrence of any one of these risks could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our success is dependent on the intellectual property (“IP”) that we use, and any infringement or misappropriation of our IP could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We regard the “FTD®”, “Interflora®”, “ProFlowers®”, “Shari’s Berries®”, “Personal Creations®”,  “RedEnvelope®”, “Cherry Moon Farms®”, “Flying Flowers®”, “Flowers DirectTM”, “Roses.com”™, “Gifts.com™”, “ProPlants®”, “Sincerely™”, “Sesame®”, “Ink Cards™”, and “Postagram™” trademarks, the “Mercury Man” logo®, the “www.ftd.com”, the “www.proflowers.com”, “www.berries.com”, “www.personalcreations.com”, “www.cherrymoonfarms.com”, “www.proplants.com”, and the “Interflora.co.uk” and other internet domain names and the other service marks, trademarks, and other intellectual property that we use in our business as being critical to our success. Our company and our subsidiaries have applied for the registration of, and have been issued, trademark registrations for trademarks and service marks used in our business in the U.S., the U.K., and various other foreign countries; however, in some other countries, there are certain pre‑existing and potentially conflicting trademark registrations held by third parties. We rely on a combination of copyright, trademark, and trade secret laws, confidentiality procedures, contractual provisions, and license and other agreements with employees, customers, and others to protect our intellectual property rights. In addition, we may also rely on the third‑party owners of the intellectual property rights we license to protect those rights. We license some of our intellectual property rights, including the Mercury Man logo, to third parties. The steps taken by us and those third parties to protect our intellectual property rights may not be adequate, and other third parties may infringe or misappropriate our intellectual property rights. This could materially and adversely affect our business, financial condition, results of operations, and cash flows.

21


 

Table of Contents

Furthermore, the validity, enforceability, and scope of protection of intellectual property in internet‑related industries are uncertain and still evolving.

We are also subject to the risk of claims alleging that our business practices infringe on the intellectual property rights of others. These claims could result in lengthy and costly litigation. Moreover, resolution of any such claim against us may require our company or one of our subsidiaries to obtain a license to use the intellectual property rights at issue or possibly to cease using those rights altogether. Any of those events could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We have a substantial amount of indebtedness, much of which was incurred in connection with the Acquisition. This level of indebtedness could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our business and our ability to react to changes in the economy or our industry.

At December 31, 2015, we had $300 million of indebtedness outstanding, on which quarterly payments of $5 million are due from 2015 through July 1, 2019, with the remaining balance due upon maturity in September 2019. Such indebtedness includes $180 million outstanding under a term loan and $120 million outstanding under revolving loans that were incurred to finance the Acquisition. Our substantial indebtedness could have significant consequences for our business and financial condition. For example:

·

If we fail to meet payment obligations or otherwise default under our debt, the lenders will have the right to accelerate the indebtedness and exercise other rights and remedies against us.

·

We will be required to dedicate a greater percentage of our cash flows to payments on our debt, thereby reducing the availability of cash flows to fund capital expenditures, pursue other acquisitions or investments in new technologies, make stock repurchases, and fund other general corporate requirements.

·

Our ability to obtain additional financing to fund future working capital needs, capital expenditures, acquisitions, and other general corporate requirements could be limited. If we are unable to raise additional capital when required, it could affect our liquidity, business, financial condition, results of operations, and cash flows. In addition, our ability to borrow additional amounts under our revolving credit facility, which is a significant source of liquidity, is subject to the absence of defaults and our ability to make representations contained in our revolving credit facility. Failure to meet our borrowing conditions under our revolving credit facility could materially and adversely impact our liquidity.

·

Our debt imposes operating and financial covenants and restrictions on us, including limitations on our ability to use cash flows for the benefit of our subsidiaries, and compliance with such covenants and restrictions may adversely affect our ability to adequately finance our operations or capital needs, pursue attractive business opportunities that may arise, redeem or repurchase capital stock, pay dividends, sell assets, and make capital expenditures.

·

Our failure to comply with the covenants in our debt, including failure as a result of events beyond our control, could result in an event of default on our debt. Upon an event of default, the lenders of that debt could elect to cause all amounts outstanding with respect to that debt to become immediately due and payable, and we would be unable to access our revolving credit facility. An event of default could materially and adversely affect our operating results, financial condition, and liquidity.

·

We may continue to experience increased vulnerability to, and limited flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry, creating competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.

·

We may continue to experience increased vulnerability to general adverse economic conditions, including increases in interest rates if our borrowings bear interest at variable rates or if such indebtedness is refinanced at a time when interest rates are higher.

We cannot assure you that our cash flows, combined with additional borrowings under the current and any future credit agreements, will be available in an amount sufficient to enable us to repay our indebtedness, or to fund other

22


 

Table of Contents

liquidity needs. For additional information regarding our credit agreement see Note 7 - “Financing Arrangements” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10 K.

In addition, we may incur substantial additional indebtedness in the future, which could cause the related risks to intensify. We may need to refinance all or a portion of our indebtedness on or before their respective maturities. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. The terms of any additional debt may give the holders rights, preferences, and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of any new debt may also impose additional and more stringent restrictions on our operations than are currently in place. If we are unable to refinance our debt, we may default under the terms of our indebtedness, which could lead to an acceleration of the debt. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated.

Incidents involving or allegations of food-borne illnesses, food tampering, food contamination, or mislabeling relating to our products, whether or not accurate, could harm our business.

As a result of the Acquisition, we have expanded our offerings of food products. These expanded offerings increase our exposure to risks posed by food spoilage and contamination, misbranding, product tampering or other adulteration, allergens, product recall, and consumer product liability claims. Issues related to quality and safety of our products, ingredients, or packaging could jeopardize our image and reputation. Instances or reports, whether true or not, of food-safety issues, such as food-borne illnesses, food tampering, food contamination or mislabeling, either during manufacturing, packaging, storing or preparation, have in the past severely injured the reputations of companies in the food processing, grocery and quick-service restaurant sectors and could affect us as well. Any report linking us to food-borne illnesses or food tampering, contamination, mislabeling or other food-safety issues could damage our brand value and severely hurt sales of our food products, and possibly lead to product liability claims, litigation (including class actions) or damages. If customers become ill from food-borne illnesses, tampering, contamination, mislabeling or other food-safety issues, we could be forced to temporarily close some supply chain facilities, as well as recall products. In addition, instances of food-safety issues, even those involving solely the products or stores of competitors or of suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), could, by resulting in negative publicity about us or the foodservice industry in general, adversely affect our sales. A decrease in customer orders as a result of food-safety concerns or negative publicity, the payment of fines or damages relating to product recalls or food-safety claims or litigation or government actions, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We may be unable to increase capacity or introduce enhancements to our consumer websites, mobile sites and applications, or our various telephone numbers in a timely manner or without service interruptions, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

A key element of our business strategy is to generate a high volume of traffic on our consumer websites, through our mobile sites and applications, and through our various telephone numbers. However, we may not be able to accommodate all of the growth in user demand on our consumer websites, mobile sites and applications, or through our various telephone numbers. Our inability to add additional hardware and software to upgrade our existing technology or network infrastructure to accommodate, in a timely manner, increased traffic to our consumer websites, our mobile sites and applications, or our various telephone numbers, may cause decreased levels of customer service and satisfaction. Failure to implement new systems effectively or within a reasonable period of time could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We also regularly introduce additional or enhanced features and services to retain current customers and attract new customers to our consumer websites and mobile sites and applications. If we introduce a feature or a service that is not favorably received, our current customers may not use our consumer websites or mobile sites and applications as frequently, or we may not be successful in attracting new customers. We may also experience difficulties that could delay or prevent us from introducing new services and features. Furthermore, these new services or features may contain errors that are discovered only after they are introduced. We may need to significantly modify the design of these services or features to correct errors. If customers encounter difficulty with or do not accept new services or features, this could materially and adversely affect our business, financial condition, results of operations, and cash flows.

23


 

Table of Contents

Our business could suffer as a result of significant credit card or debit card fraud.

Orders placed on our consumer websites, our mobile sites and applications, or through our various telephone numbers typically are paid for using a credit or debit card. Our revenues and gross margins could decrease if we experience significant credit or debit card fraud. Failure to adequately detect and avoid fraudulent credit or debit card transactions could cause us to lose our ability to accept credit or debit cards as forms of payment and result in charge‑backs of the fraudulently charged amounts. Furthermore, widespread credit or debit card fraud may lessen our customers’ willingness to purchase products on our consumer websites, through our mobile sites or applications, or via our various telephone numbers. As a result, such failure could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We utilize outsourced staff and temporary employees, who may not be as well‑trained or committed to our customers as our permanent employees, and their failure to provide our customers with high‑quality customer service may cause our customers not to return, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We utilize and rely on a significant number of outsourced staff and temporary employees, in addition to our permanent employees, to take orders, to respond to customer inquiries, and to work in our distribution facilities to process and fulfill orders. These outsourced staff and temporary employees may not have the same level of commitment to our customers or be as well‑trained as our permanent employees. In addition, we may not hire enough outsourced staff or temporary employees to adequately handle the increased volume of telephone calls we receive and orders we fulfill and ship during peak periods. We maintain only a limited number of permanent customer support and distribution center employees and rely on third‑party vendors for outsourced customer support. Our permanent employees may not be able to provide the necessary range or level of customer support services in the event that one or more of our third‑party vendors unexpectedly become unable or unwilling to provide some or all of these services to us. In addition, we may not be able to adequately staff our distribution centers during peak periods to enable us to fulfill and ship orders on a timely basis. If our customers are dissatisfied with the quality of the customer service they receive they may not place orders with us again, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our business could be shut down or could be materially and adversely affected by a catastrophic event.

Our business could be materially and adversely affected by a catastrophic event. A disaster such as a fire, earthquake, flood, power loss, terrorism, or other similar event, affecting any of our facilities, data centers, or computer systems, or those of our third‑party vendors, or a system interruption or delay that slows down the internet or makes the internet or our websites temporarily unavailable, could result in a significant and extended disruption of our operations and services. Any prolonged disruption of our services due to these or other events would severely impact our business. We do not carry flood insurance for our facilities, and the property, business interruption, and other insurance we do carry may not be sufficient to cover all losses, if any, that may occur as a result of any events which cause interruptions in our services.

We have incurred substantial expenses related to the Acquisition and expect to continue to incur substantial expenses related to the integration of the Provide Commerce business and the achievement of synergies.

We incurred $6.7 million and $12.4 million in transaction and integration‑related costs during the years ended December 31, 2015 and 2014, respectively. We expect to incur additional costs, which may be material, associated with integrating the Provide Commerce business and the achievement of synergies. There are many factors beyond our control that could affect the total amount or the timing of our integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent our integration expenses are higher than anticipated and are material, our business, financial condition, results of operations, and cash flows could be materially and adversely affected and our ability to meet the leverage ratio and fixed charged ratio mandated by our Amended and Restated Credit Agreement may be impaired.

24


 

Table of Contents

Legal actions or investigations could subject us to substantial liability, require us to change our business practices, and materially and adversely affect our business, financial condition, results of operations, and cash flows.

We are currently, and have been in the past, party to various legal actions and investigations. These actions may include, without limitation, claims by private parties in connection with consumer protection and other laws, claims that we infringe third‑party patents, trademarks, copyrights or other intellectual property or proprietary rights, securities laws claims, claims involving marketing practices or unfair competition, claims in connection with employment practices, breach of contract claims, and other business‑related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of other claims, including, without limitation, for privacy and security matters. The failure to successfully defend against these and other types of claims, including claims relating to our business practices, could result in our incurring significant liabilities related to judgments or settlements or require us to change our business practices. Infringement claims may also result in our being required to obtain licenses from third parties, which licenses may not be available on acceptable terms, if at all. Both the cost of defending claims, as well as the effect of settlements and judgments, could cause our results of operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial condition, results of operations, and cash flows. In addition, we also file actions against third parties from time to time for various reasons, including, without limitation, to protect our intellectual property rights, to enforce our contractual rights, or to make other business‑related claims. The legal fees, costs, and expenses associated with these actions may be significant, and if we were to lose these actions, we may be required to pay the other party’s legal fees, costs, and expenses, which also may be significant and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Various governmental agencies have in the past asserted claims, instituted legal actions, inquiries or investigations, or imposed obligations relating to our business practices, such as our marketing, billing, customer retention, renewal, cancellation, refund, and disclosure practices, and they may continue to do so in the future. For example, in 2015, we entered into settlements and made settlement payments relating to an inquiry by a multi-state group of Attorneys General. The primary focus of the underlying inquiry concerned the Company’s former post-transaction sales practices. We may not prevail in existing or future claims and any judgment against us or settlement or resolution of such claims may involve the payment of significant sums, including damages, fines, penalties, or assessments, or changes to our business practices. Defending against lawsuits, inquiries, and investigations also involves significant expense and diversion of management’s attention and resources from other matters.

Additional governmental investigations or other legal actions may be instituted in connection with prior sales practices or other current or former business practices. Enforcement actions or changes in enforcement policies and procedures could result in changes to our business practices, as well as significant damages, fines, penalties, or assessments, which could decrease our revenues or increase the costs of operating our business. To the extent that our services and business practices change as a result of claims or actions by governmental agencies or private parties, or we are required to pay significant sums, including damages, fines, penalties, or assessments, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.

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 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. In May 2015, FTD and United Online entered into an amendment to the Separation and Distribution Agreement providing for the parties to jointly coordinate the litigation and settlement of certain specified litigation matters which are asserted after the Separation. In addition, pursuant to such amendment, the foregoing obligations of the parties will terminate on May 20, 2017, provided that for certain matters that may be pending as of such date, such obligations will terminate no later than May 20, 2019. The Separation and Distribution Agreement also establishes procedures with respect to claims subject to indemnification, insurance claims, and related matters. The Company and United Online may not prevail in 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. See Note 15—“Commitments and Contingencies—Legal Matters” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K.

25


 

Table of Contents

We may be unsuccessful at acquiring future additional businesses, services, or technologies. Even if we make acquisitions in the future, it may not improve our results of operations and could also materially and adversely affect our business, financial condition, results of operations, and cash flows.

Acquisitions of businesses, services, or technologies may provide us with an opportunity to diversify the products and services we offer, leverage our assets and core competencies, complement our existing business, or expand our geographic reach. We may evaluate a wide variety of potential strategic transactions that we believe may complement our existing business. However, we may not realize the anticipated benefits and synergies of an acquisition, and our attempts at integrating an acquired business may not be successful. Acquiring businesses, services, or technologies involves many operational and financial risks, including risks relating to:

·

disruption of our ongoing business and significant diversion of resources and management time from day‑to‑day responsibilities;

·

acquisition financings that involve the issuance of potentially dilutive equity or the incurrence of debt;

·

reduction of cash and other resources available for operations and other uses;

·

exposure to risks specific to the acquired businesses, services, or technologies to which we are not currently exposed;

·

risks of entering markets in which we have little or no direct prior experience;

·

unforeseen obligations or liabilities;

·

difficulty assimilating the acquired customer bases, technologies, and operations;

·

difficulty assimilating and retaining management and employees of the acquired businesses;

·

potential impairment of relationships with customers or vendors as a result of changes in management of the acquired businesses or other factors;

·

large write‑offs either at the time of the acquisition or in the future, the incurrence of restructuring and other exit costs, the amortization of identifiable intangible assets, and the impairment of amounts capitalized as goodwill, intangible assets, and other long‑lived assets; and

·

lack of, or inadequate, controls, policies, and procedures appropriate for a public company, and the time, cost, and difficulties related to the implementation of such controls, policies, and procedures or the remediation of any deficiencies.

In addition to the risks set forth above, an acquisition of a foreign business involves risks associated with foreign currency exchange rates, potentially unfamiliar economic, political, and regulatory environments, and integration difficulties due to language, cultural, and geographic differences. Any of these risks, whether the acquired business is domestic or foreign, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Certain of our directors may have actual or potential conflicts of interest because of their employment with and possible stock ownership of Liberty.

We have employees of Liberty on our board of directors, which may lead to conflicting interests. Our board of directors includes Robin Pringle and Christopher Shean, who are employees of Liberty. These individuals may have actual or apparent conflicts of interest with respect to matters involving or affecting each company.

26


 

Table of Contents

Governmental regulation of the collection and use of personal information or our failure to comply with these regulations could materially and adversely affect our business.

The FTC has regulations regarding the collection and use of personal information obtained from individuals when accessing websites, with particular emphasis on access by minors. In addition, other governmental authorities have regulations to govern the collection and use of personal information that may be obtained from customers or visitors to websites. These regulations include requirements that procedures be established to disclose and notify users of our websites of our privacy and security policies, obtain consent from users for collection and use of personal information, and provide users with the ability to access, correct, or delete personal information stored by us. In addition, the FTC and other governmental authorities have made inquiries and investigations of companies’ practices with respect to their users’ personal information collection and dissemination practices to confirm these are consistent with stated privacy policies and to determine whether precautions are taken to secure consumers’ personal information. The FTC and certain state agencies also have made inquiries, and in a number of situations, brought actions against companies to enforce the privacy policies of these companies, including policies relating to security of consumers’ personal information.

Becoming subject to the regulatory and enforcement efforts of the FTC, a state agency, or other governmental authority could have a material adverse effect on our ability to collect demographic and personal information from users, which, in turn, could have a material adverse effect on our marketing efforts, business, financial condition, results of operations, and cash flows. In addition, the negative publicity regarding the existence or results of an investigation could have an adverse impact on customers’ willingness to use our websites and services and thus could adversely impact our future revenues.

Certain of our international businesses, such as our international consumer and floral network businesses, must also comply with data protection and privacy laws in the U.K., including the Data Protection Act 1998. If we or any of the third‑party service providers on which we rely fail to transmit customer information and payment details in a secure manner, or if they otherwise fail to protect customer privacy in online transactions, or if they transfer personal information outside the European Economic Area without complying with certain required conditions, then we risk being exposed to civil and criminal liability in the U.K., usually in the form of fines, as well as claims from individuals alleging damages as a result of the alleged non‑compliance. We may also be required to alter our data collection and use practices. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Changes in laws and regulations and new laws and regulations could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We are subject to a variety of international, federal, state, and local laws and regulations, including, without limitation, those relating to taxation, bulk email or “spam,” advertising, including, without limitation, targeted or behavioral advertising, user privacy and data protection, food production, safety, storage, marketing and distribution, consumer protection, supply chain operations, anti -bribery, labor, antitrust, and unclaimed property. Compliance with the various laws and regulations, which in many instances are either unclear or unsettled, is complex. New laws and regulations, such as those being considered or recently enacted by certain states or the federal government related to automatic renewal practices, user privacy, targeted or behavioral advertising, floral related fees and advertising, and taxation, could impact our revenues or certain of our business practices or those of our advertisers. Any changes in the laws and regulations applicable to us, the enactment of any additional laws or regulations, or the failure to comply with, or increased enforcement activity of, such laws and regulations, could significantly impact our products and services, our costs, or the manner in which we or our advertisers conduct business, all of which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Foreign, state, and local governments may attempt to impose additional sales and use taxes, value added taxes, or other taxes on our business activities, including our past sales, which could decrease our ability to compete, reduce our sales, and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

In accordance with current industry practice by domestic floral and gift order gatherers and our interpretation of applicable law, our consumer businesses collect and remit sales and use taxes on consumer orders that are delivered in a limited number of states where it has a physical presence or other form of jurisdictional nexus. If states successfully challenge this practice and impose sales and use taxes on orders delivered in states where we do not have physical

27


 

Table of Contents

presence or another form of jurisdictional nexus, we could incur substantial tax liabilities for past sales and lose future sales as a result of the increased tax cost that would be borne by the customer. Also, states may seek to reclassify the status of internet order gatherers, such as our consumer businesses, as persons that are deemed to fulfill the underlying order, in which case, a state may seek to impose taxes on the receipts generated from consumer orders fulfilled and delivered by florists or other third parties outside such state. In addition, future changes in the operation of our online, mobile, and telephonic sales channels could result in the imposition of additional sales and use tax or other tax obligations.

Additionally, in accordance with current industry practice by international floral and gift direct marketers and our interpretation of applicable law, we collect and remit value added taxes on certain consumer orders placed through Interflora. Future changes in the operation of our business could result in the imposition of additional tax obligations. Moreover, if a foreign taxing authority successfully challenges our current practice or implements new legislative initiatives, we could incur substantial tax liabilities for past sales and lose future sales as a result of the increased tax costs that would be borne by the customer. The imposition of additional tax liabilities for past or future sales could decrease our ability to compete with traditional retailers and reduce our sales, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We are subject to income and various other taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our consolidated provision for income taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income and other taxes against us. The final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and our historical recognition of other tax matters. The results of an audit or litigation could materially and adversely affect our business, financial condition, results of operations, and cash flows.

In connection with our internet‑based transactions, a number of states have been considering adopting legislation or instituting policy initiatives, including those that would facilitate a finding of nexus to exist between internet companies with the states, aimed at expanding the reach of sales and use taxes or imposing state income or other taxes on various innovative theories, including agency attribution from independent third‑party service providers. Such legislation or initiatives could result in the imposition of additional sales and use taxes, or the payment of state income or other taxes, on certain transactions conducted over the internet. In addition, advertisers and other third parties may choose to not do business with us in order to avoid nexus with certain states. If such legislation is enacted, or such initiatives are instituted, and unless overturned by the courts, the legislation or initiatives could subject us to substantially increased tax liabilities for past and future sales or state income or other taxes, require us to collect additional sales and use taxes, cause our future sales to decrease, or otherwise materially and adversely affect our business, financial condition, results of operations, and cash flows.

Risks Relating to Our Common Stock

The limited public float and trading volume for FTD common stock may have an adverse impact and cause significant fluctuation of market price.

Our common stock is held by a relatively small number of stockholders. Liberty holds approximately 37% of our outstanding shares and six institutional stockholders hold significant blocks of 3.5% to 6.6%. Our officers, directors, and members of management acquire stock or have the potential to own stock through previously granted equity awards. Consequently, our common stock has a relatively small float and low average daily trading volume, which could affect a stockholder’s ability to sell our stock or the price at which it can be sold. In addition, future sales of substantial amounts of FTD in the public market by those larger stockholders, or the perception that these sales could occur, may adversely impact the market price of the stock and our stock could be difficult for a stockholder to liquidate.

There can be no assurance that an active trading market for our common stock will be sustained in the future. The lack of an active trading market may make it more difficult for you to sell our shares and could lead to our share price being depressed or more volatile.

28


 

Table of Contents

The market price of our common stock may fluctuate significantly.

We cannot predict the prices at which our common stock may trade in the future. The market price of our common stock may fluctuate significantly, depending upon many factors, some of which may be beyond our control, including, but not limited to:

·

a shift in our investor base;

·

our quarterly or annual earnings, or those of other companies in our industry;

·

actual or anticipated fluctuations in our operating results;

·

success or failure of our business strategy;

·

our ability to obtain financing as needed;

·

changes in accounting standards, policies, guidance, interpretations, or principles;

·

changes in laws and regulations affecting our business, including tax legislation;

·

announcements by us or our competitors of significant acquisitions or dispositions;

·

the failure of securities analysts to cover our common stock;

·

changes in earnings estimates by securities analysts or our ability to meet our earnings guidance;

·

the operating and stock price performance of other comparable companies;

·

investor perception of us and the floral and gift retail industry;

·

overall market fluctuations; and

·

general economic conditions and other external factors.

Stock markets in general have also experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could materially and adversely affect the trading price of our common stock.

As a significant stockholder of us, Liberty has significant influence over us, its presence may affect the ability of a third party to acquire control of us and its interests may not coincide with yours.

As of December 31, 2015, Liberty beneficially owned approximately 37% of the outstanding shares of FTD common stock. In connection with the close of the Acquisition, Liberty selected four new directors for appointment to the FTD board and the FTD board of directors increased from seven to eleven directors. In addition, the Investor Rights Agreement contains certain rights in favor of Liberty with regard to the appointment and election of Liberty nominees to the FTD board. Although the Liberty directors do not constitute a majority of the FTD board, they may exercise influence over the decisions of the FTD board. This composition of the FTD board may affect our business strategy and operating decisions, as Liberty has significant influence over our affairs, policies, and operations, such as the appointment of management, and the strategic direction of the company, including decisions as to whether to enter into or otherwise pursue strategic transactions. Liberty’s interests may not in all cases be aligned with the interests of other FTD stockholders.

Furthermore, having Liberty as a significant stockholder may have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from seeking to acquire, a majority of the outstanding shares of FTD common stock or control of the FTD board of directors through a proxy solicitation. In that regard, the Investor Rights Agreement contains certain provisions that may magnify these risks, including Liberty’s right, in certain

29


 

Table of Contents

circumstances in response to a third-party tender offer for shares of FTD common stock, to commence its own tender offer, restrictions on Liberty’s ability to transfer shares of FTD common stock during the restricted period and thereafter, the waiver of Section 203 of the General Corporation Law of the State of Delaware (“DGCL”) with respect to Liberty and its affiliates and the prohibition upon FTD from implementing a stockholder rights plan, unless the plan exempts certain actions by Liberty in accordance with the terms of the Investor Rights Agreement.

Future sales of FTD common stock by Liberty, or the perception that such sales could occur, could cause our stock price to decline.

The Investor Rights Agreement imposes certain restrictions on Liberty’s ability to transfer its shares of FTD common stock, including, among other things, an 18‑month prohibition on the transfer of any shares of FTD common stock by Liberty, subject to certain limited exceptions. The Investor Rights Agreement also grants Liberty certain registration rights that, after the 18‑month restricted period, would permit Liberty to sell a large number of shares of FTD common stock in a short period of time. The 18-month restricted period will expire on June 30, 2016. The sale of a substantial number of shares of FTD common stock by Liberty or our other stockholders within a short period of time, or the perception that such sales could occur, could cause our stock price to decline, make it more difficult for us to raise funds through future offerings of our common stock or acquire other businesses using our common stock as consideration.

Your percentage ownership in our company may be diluted in the future.

We have established equity incentive plans that will provide for the grant of common stock‑based equity awards to our directors, officers, and employees. Your percentage ownership in our company may be diluted in the future because of equity awards that we expect to grant under these plans. In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments we may make in the future. If we issue additional common equity, either through public or private offerings or rights offerings, your percentage ownership in our company would decline if you do not participate on a ratable basis.

Provisions in our charter documents and the DGCL could discourage potential acquisition proposals, could delay, deter, or prevent a change in control, and could limit the price certain investors might be willing to pay for our common stock.

Certain provisions of the DGCL and our certificate of incorporation and bylaws may inhibit a change of control not approved by our board of directors or changes in the composition of our board of directors, which could result in the entrenchment of current management. These provisions include:

·

advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted on by stockholders at annual meetings of stockholders;

·

limitations on who may call special meetings of stockholders;

·

limitations on the ability of stockholders to amend, alter, or repeal our bylaws;

·

the division of our board of directors into three classes with staggered terms;

·

limitations on the removal of directors;

·

the inability of the stockholders to act by written consent; and

·

the authority of our board of directors to issue, without stockholder approval, “blank check” preferred stock with such terms as the board of directors may determine to increase the number of outstanding shares and thwart a takeover attempt.

We believe these provisions protect our stockholders from coercive or harmful takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with adequate time to assess any acquisition proposal, and are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our stockholders.

30


 

Table of Contents

We currently do not expect to pay any cash dividends and the price of our stock may not appreciate.

We presently intend to retain future earnings, if any, to reinvest in the growth of our businesses, to make interest payments on or pay down our debt, and to fund potential acquisitions. As a result, we do not currently expect to pay any cash dividends. If we do not pay dividends, the price of our common stock must appreciate for you to recognize a gain on your investment upon sale. This appreciation may not occur.

 

We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.

While we have no specific plan to issue preferred stock, our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, privileges, preferences, including preferences over our common stock with respect to dividends and distributions, terms of redemption and relative participation, or other rights, if any, of the shares of each such series of preferred stock and any qualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock.

Risks Relating to Our Relationship with Our Former Parent

If the Separation and related distribution of FTD common stock fails to qualify as a tax‑free transaction for U.S. federal income tax purposes, then the distribution could result in significant tax liabilities.

United Online received a private letter ruling from the Internal Revenue Service (“IRS”) and an opinion of tax counsel, each substantially to the effect that the Separation and the distribution of shares of FTD common stock qualifies as a transaction that is tax free for U.S. federal income tax purposes and will not result in the recognition, for U.S. federal income tax purposes, of income, gain, or loss by United Online or its stockholders. The IRS ruling and the tax opinion rely on certain facts, assumptions, and undertakings, and certain representations from United Online and us, regarding the past and future conduct of both respective businesses and other matters, and the tax opinion relies on the IRS ruling. Notwithstanding the IRS ruling and the tax opinion, the IRS could determine that the distribution should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations, or undertakings is not correct, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the tax opinion that are not covered by the IRS ruling.

If the distribution ultimately were to be determined to be taxable, then a stockholder of United Online that received shares of our common stock in the distribution would be treated as having received a distribution of property in an amount equal to the fair market value of such shares on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of United Online’s current and accumulated earnings and profits. Any amount that exceeded United Online’s earnings and profits would be treated first as a non‑taxable return of capital to the extent of such stockholder’s tax basis in its shares of United Online stock with any remaining amount being taxed as a capital gain. In addition, United Online would recognize a taxable gain in an amount equal to the excess, if any, of the fair market value of the shares of common stock of our company held by United Online on the distribution date over United Online’s tax basis in such shares.

In addition, under the terms of the Tax Sharing Agreement that we entered into with United Online, we are generally responsible for any taxes imposed on United Online that arise from the failure of the distribution to qualify as tax free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code (the “Code”) to the extent such failure to qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or any covenants made by us in the Tax Sharing Agreement, the materials submitted to the IRS in connection with the request for the IRS ruling or the representation letter provided to counsel in connection with the tax opinion. The amounts of such taxes could be significant.

We are bound by a number of agreements, including the Separation and Distribution Agreement and the Tax Sharing Agreement, that we entered into with United Online in connection with the Separation.

In connection with the Separation, we entered into a number of agreements with United Online that govern the ongoing relationships between United Online and its subsidiaries and us after the Separation. As described more fully

31


 

Table of Contents

above, the Separation and Distribution Agreement governs the rights and obligations of our company and United Online regarding the Separation and provides United Online with the right to control the litigation and settlement of certain litigation matters that relate to us, United Online, and our respective predecessors and consolidated subsidiaries, which were asserted before the Separation, as well as specified litigation matters which are asserted after the Separation.

The Tax Sharing Agreement governs the rights, responsibilities, and obligations of United Online and our company with regard to various tax matters, including the payment of taxes, the preparation of tax returns, and the administration of tax audits and disputes. The Tax Sharing Agreement allocates the responsibility for prior period taxes of the United Online consolidated tax reporting group between us and United Online. If however, United Online were unable to pay any prior period taxes for which it is responsible, we could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax‑qualified pension plans, as well as other contingent liabilities.

The agreements that we entered into with United Online in connection with the Separation may involve, or may appear to involve, conflicts of interest.

In connection with the Separation, we entered into certain agreements with United Online which provide for the allocation between the Company and United Online of certain assets, liabilities, and obligations of United Online and its subsidiaries, and govern the relationship between United Online and us following the Separation. We negotiated these agreements with United Online while we were still a wholly owned subsidiary of United Online. Accordingly, some of our executive officers and directors were employees or directors of United Online or its subsidiaries at the time of the negotiations and, as such, had an obligation to serve the interests of United Online and its subsidiaries. As a result, they could be viewed as having had a conflict of interest.

Certain of our directors may have actual or potential conflicts of interest because of their cross directorships and stock ownership with United Online.

We continue to have overlap in directors with United Online, which may lead to conflicting interests. Our board of directors includes Robert Berglass (the Chairman of our board of directors) and James T. Armstrong, who are members of the board of directors of United Online and have fiduciary duties to both United Online’s and our stockholders. These individuals may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. 

We are subject to continuing contingent liabilities of United Online following the Separation.

After the Separation, there continue to be several significant areas where the liabilities of United Online may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the United Online consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire United Online consolidated tax reporting group for such taxable period. In connection with the Separation, we entered into a Tax Sharing Agreement with United Online that allocates the responsibility for prior period taxes of the United Online consolidated tax reporting group between our company and United Online. For a more detailed description, see Note 5—“Transactions with Related Parties” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K. If United Online were unable to pay any prior period taxes for which it is responsible, however, we could be required to pay the entire amount of such taxes, and such amounts could be significant. Other provisions of federal, state, local, or foreign law may establish similar liability for other matters, including laws governing tax‑qualified pension plans, as well as other contingent liabilities.

We might have been able to receive better terms from unaffiliated third parties than the terms we received from United Online in our agreements in connection with the Separation.

The agreements related to the Separation, including the Separation and Distribution Agreement and the Tax Sharing Agreement, were negotiated in the context of our separation from United Online while we were still part of United Online. Although these agreements were intended to be on an arm’s‑length basis, they may not reflect terms that would have resulted from arm’s‑length negotiations among unaffiliated third parties. Conversely, certain agreements related to the Separation may include terms that are more favorable than those that would have resulted from

32


 

Table of Contents

arm’s‑length negotiations among unaffiliated third parties. Following expiration of these agreements, we will have to enter into new agreements with unaffiliated third parties, and such agreements may include terms that are less favorable to us. The terms of the agreements negotiated in the context of our Separation concerned, among other things, allocations of assets, liabilities, rights, indemnifications, and other obligations between United Online and us.

Potential indemnification liabilities to United Online pursuant to the Separation and Distribution Agreement could materially and adversely affect our company.

Among other things, the Separation and Distribution Agreement provides for indemnification obligations designed to make our company financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the Separation. If we are required to indemnify United Online under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities.

A court could require that we assume responsibility for obligations allocated to United Online under the Separation and Distribution Agreement.

Under the Separation and Distribution Agreement, from and after the Separation, we and United Online are responsible for the debts, liabilities, and other obligations related to the businesses which each company owns and operates following the consummation of the Separation. Although we do not expect to be liable for any obligations that are not allocated to us under the Separation and Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to United Online, particularly if United Online were to refuse or were unable to pay or perform the allocated obligations.

In connection with the Separation, United Online has indemnified us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that United Online’s ability to satisfy its indemnification obligations will not be impaired in the future.

Pursuant to the Separation and Distribution Agreement, United Online will indemnify us for substantially all liabilities that exist relating to United Online’s business activities, whether incurred prior to or after the Separation. However, third parties could seek to hold us responsible for any of the liabilities that United Online agrees to retain, and there can be no assurance that the indemnity from United Online will be sufficient to protect us against the full amount of such liabilities, or that United Online will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from United Online any amounts for which we are held liable, we may be temporarily required to bear these losses.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2.  PROPERTIES

We own our corporate headquarters located in Downers Grove, Illinois, which houses our executive offices and our Consumer and Florist segments. We also own the building that is occupied by Interflora in Sleaford, England.

We lease two facilities in the U.S. that serve as call centers for our Consumer and Provide Commerce segments. We also lease 11 facilities in the U.S. that serve as distribution centers for our Provide Commerce and Florist segments.

We lease office space in San Diego and San Francisco, California and Woodridge, Illinois, for our Provide Commerce segment, in Quebec, Canada, for our Florist segment, and in Hyderabad, India, for technology development and support related to our Consumer, Provide Commerce, Florist, and International segments. We believe that our existing facilities are in good condition and adequate to meet our current requirements, and that suitable additional or substitute space will be available, as needed, to accommodate any physical expansion of our corporate and operations facilities. Additionally, we continue to hold leases for two former distribution centers and one former call center at which we have ceased operations.

33


 

Table of Contents

The Amended and Restated Credit Agreement includes a security interest in substantially all of our assets, including a mortgage on the owned real property at our Downers Grove, Illinois location. For additional information regarding our obligations under leases, see Note 15—“Commitments and Contingencies” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K.

 

ITEM 3.  LEGAL PROCEEDINGS  

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”). Various 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”) offered and administered by EMI. Plaintiffs claim that their enrollment was allegedly deceptive and therefore the charges to their credit or debit card accounts for membership fees for the Membership Programs were unauthorized. 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 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. 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. After receiving the parties and objector’s memoranda, the district court ordered supplemental briefing on the issue of final settlement approval on May 21, 2015. The parties filed their respective opening supplemental briefs on June 18, 2015, the objector filed his opposition supplemental brief on July 2, 2015, and the parties filed their respective reply supplemental briefs on July 16, 2015. The district court has not yet set the hearing date for the pending final settlement approval motion.

 

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

34


 

Table of Contents

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. The part of the order lifting the injunction prohibiting Marks and Spencer from infringing the Interflora trademarks was lifted on December 2, 2014. At a case management conference on June 18, 2015, the High Court ordered that the parties take certain steps to allow it to determine the scope of the evidence at a resumed case management conference in November and ordered that the parties attend court to set a date for a six day retrial before the High Court. In October 2015, this matter was resolved pursuant to the terms of a confidential settlement agreed to by the parties.

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. 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. In May 2015, FTD and United Online entered into an amendment to the Separation and Distribution Agreement providing for the parties to jointly coordinate the litigation and settlement of certain specified litigation matters which are asserted after the Separation. In addition, pursuant to such amendment, the foregoing obligations of the parties will terminate on May 20, 2017, provided that for certain matters that may be pending as of such date, such obligations will terminate no later than May 20, 2019. The Separation and Distribution Agreement also establishes procedures with respect to claims subject to indemnification, insurance claims, and related matters. The Company and United Online may not prevail in 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.

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 assessment of the probability of loss or the amount of liability, 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. 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.

 

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

35


 

Table of Contents

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Principal Market

Our common stock is listed on the NASDAQ Global Select Market under the symbol “FTD”. Prior to the separation from United Online, FTD’s common stock began trading on the NASDAQ on a “when‑issued” basis on October 10, 2013, and on a “regular way” basis on November 1, 2013, the Separation date. There was no public market for FTD common stock prior to October 10, 2013. The following table sets forth, for the periods presented, the high and low sales prices of FTD common stock on the NASDAQ. The quotations are as reported in published financial sources.

 

 

 

 

 

 

 

 

 

 

Sales Price

 

 

    

High

    

Low

 

Fiscal 2015:

 

 

 

 

 

 

 

First Quarter

 

$

35.45

 

$

29.22

 

Second Quarter

 

$

30.56

 

$

26.63

 

Third Quarter

 

$

31.99

 

$

27.50

 

Fourth Quarter

 

$

30.34

 

$

23.18

 

 

 

 

 

 

 

 

 

Fiscal 2014:

 

 

 

 

 

 

 

First Quarter

 

$

34.82

 

$

29.02

 

Second Quarter

 

$

33.00

 

$

27.60

 

Third Quarter

 

$

36.00

 

$

29.43

 

Fourth Quarter

 

$

37.14

 

$

31.14

 

 

 

 

 

 

 

 

 

Shareholders

In connection with the Acquisition, we issued 10.2 million shares of FTD common stock to Liberty. Concurrent with the closing of the Acquisition, FTD and Liberty entered into an Investor Rights Agreement governing 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. As of December 31, 2015, Liberty holds approximately 37% of FTD’s outstanding shares of common stock.

As of March 7, 2016, there were approximately 406 shareholders of record of FTD common stock.

Dividends

We have not paid any cash dividends on our common stock since the Separation on November 1, 2013. We do not currently anticipate paying any future cash dividends.

Issuer Purchases of Equity Securities

On February 27, 2014, the FTD 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. 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. At December 31, 2015, we had repurchased 1.8 million shares under the Repurchase Program at an average cost per share of $27.31, fully utilizing the $50 million authorization. On March 8, 2016, the FTD board of directors authorized a new common stock repurchase program that allows us to repurchase up to $60 million of FTD common stock from time to time over a two‑year period in both open market and privately negotiated transactions.

 

36


 

Table of Contents

Upon vesting of restricted stock units (“RSUs”) or exercise of stock options, we do not collect the minimum statutory withholding taxes in cash from employees. Instead, we automatically withhold, 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 Program. We then pay the minimum statutory withholding taxes in cash.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

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

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except for share and per share amounts)

    

 

    

 

 

    

Number of Shares

 

Approximate Dollar

 

 

 

 

 

 

 

 

Purchased as Part

 

Value of Shares that

 

 

 

Total

 

Average

 

of Publicly

 

May Yet Be

 

 

 

Number of

 

Price Paid

 

Announced

 

Purchased Under

 

 

 

Shares

 

Per

 

Plans or

 

the Plans

 

Period

 

Purchased

 

Share

 

Programs(a)

 

or Programs(b)

 

October 1 - October 31

 

 —

 

$

 —

 

 —

 

$

30,002

 

November 1 - November 30

 

599,820

 

 

25.00

 

599,820

 

 

15,005

 

December 1 - December 31

 

558,035

 

 

26.89

 

558,035

 

 

 —

 

Total

 

1,157,855

 

$

25.91

 

1,157,855

 

$

 —

 


(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)

The Repurchase Program term would have ended February 27, 2016; however, during the three-month period ended December 31, 2015, FTD utilized the remainder of its $50 million authorization.

37


 

Table of Contents

Stock Performance Graph

The following graph compares the relative performance of our common stock, the Russell 2000 Index and the S&P SmallCap 600 Consumer Discretionary Index, our Peer Group Index. This graph covers the period from October 10, 2013 (the first day FTD common stock began “when‑issued” trading on the NASDAQ Global Select Market) through December 31, 2015. The graph assumes that $100 was invested on October 10, 2013 in the common stock of FTD, the Russell 2000 Index, and our Peer Group Index, and also assumes the reinvestment of dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance. 

Picture 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

10/10/2013

    

12/31/2013

    

12/31/2014

    

12/31/2015

 

FTD Companies, Inc

 

$

100.00

 

$

104.73

 

$

111.93

 

$

84.12

 

Russell 2000 Index

 

$

100.00

 

$

109.13

 

$

114.47

 

$

109.42

 

S&P SmallCap 600 Consumer Discretionary Index

 

$

100.00

 

$

111.94

 

$

114.30

 

$

101.78

 

 

38


 

Table of Contents

ITEM 6.  SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data, which should be read in conjunction with our consolidated financial statements and related notes and MD&A included elsewhere in this Form 10‑K. The table presents the consolidated statements of operations and cash flow data for the three years ended December 31, 2015, and the consolidated balance sheet data at December 31, 2015 and 2014, which are derived from our audited consolidated financial statements included elsewhere in this Form 10‑K. The table also presents the consolidated statements of operations and cash flow data for the years ended December 31, 2012 and 2011, and the consolidated balance sheet data at December 31, 2013 and 2012, which were derived from our audited consolidated financial statements that are not included in this Form 10‑K.

Our historical consolidated financial statements prior to November 1, 2013 included allocations of certain corporate costs from United Online, including costs related to senior management, legal, human resources, finance, information technology, and centrally‑managed employee benefit arrangements. We believe the allocations of corporate costs from United Online were reasonable and do not believe our costs would have been significantly different on a stand‑alone basis prior to the Separation. The historical financial information presented may not necessarily reflect our financial position, results of operations, and cash flows as if we had operated as a stand‑alone public company during the periods prior to November 1, 2013. Accordingly, our historical results should not be relied upon as an indicator of our future performance.

As the Acquisition was completed on December 31, 2014, the Company’s consolidated balance sheet included Provide Commerce as of December 31, 2014. No results of operations of Provide Commerce were included in the Company’s consolidated statements of operations and cash flow data for the year ended December 31, 2014.

The following amounts are in thousands, except per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

    

2015(a)(i)(j)

    

2014(a)(i)

    

2013(a)(b)(i)

    

2012(i)

    

2011(i)

 

Consolidated Statements of Operations and Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,219,753

 

$

640,513

 

$

627,343

 

$

613,514

 

$

587,249

 

Impairment of goodwill and intangible assets

 

$

(85,000)

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Operating income/(loss)

 

$

(71,252)

 

$

37,604

 

$

33,666

 

$

44,189

 

$

41,217

 

Net income/(loss)

 

$

(78,826)

 

$

22,830

 

$

12,502

 

$

21,174

 

$

15,721

 

Earnings/(loss) per common share(c):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.74)

 

$

1.18

 

$

0.67

 

$

1.14

 

$

0.85

 

Diluted

 

$

(2.74)

 

$

1.17

 

$

0.67

 

$

1.14

 

$

0.85

 

Net cash provided by operating activities

 

$

82,325

 

$

47,384

 

$

34,203

 

$

66,955

 

$

43,688

 

Cash dividends paid to United Online(d)

 

$

 —

 

$

 

$

18,201

 

$

19,299

 

$

15,000

 

Capital expenditures(e)

 

$

18,195

 

$

7,486

 

$

10,830

 

$

6,507

 

$

8,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

    

2015

    

2014(f)

    

2013

    

2012

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,892

 

$

95,595

 

$

48,162

 

$

67,347

 

Total assets(g)

 

$

1,126,782

 

$

1,335,380

 

$

649,905

 

$

678,747

 

Long-term debt(h)

 

$

280,000

 

$

320,000

 

$

220,000

 

$

233,144

 

Common shares outstanding(c)

 

 

29,427

 

 

29,193

 

 

18,829

 

 

18,584

 


(a)

During the year ended December 31, 2015, the Company incurred transaction and integration-related as well as restructuring and other exit costs associated with the Acquisition that negatively impacted both operating income and cash flow by $12.7 million, net income by $7.9 million, and earnings per common share by $0.27. During the year ended December 31, 2014, the Company incurred transaction‑related costs associated with the Acquisition that negatively impacted operating income and cash flow by $12.4 million, net income by $9.6 million and earnings per common share by $0.50. In addition, during the year ended December 31, 2013, the Company incurred transaction‑related costs associated with the Separation that negatively impacted operating income and cash flow by $13.4 million, net income by $12.3 million and earnings per common share by $0.66.

39


 

Table of Contents

(b)

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. The Company repaid its previously outstanding credit facility, entered into on June 10, 2011, in full, and in connection with such transaction the Company recorded a $2.3 million pre‑tax loss ($1.4 million after tax) on extinguishment of debt during the year ended December 31, 2013, which was recorded in interest expense.

(c)

As of December 31, 2015, the Company held 1.8 million shares of treasury stock. In connection with the Separation, the Company’s previously outstanding shares of common stock were automatically reclassified and became 18.6 million shares of common stock. The same number of shares was used to calculate basic and diluted earnings per share for the periods prior to the Separation. In addition, in connection with the Acquisition, the Company issued 10.2 million shares of its common stock to Liberty.

(d)

Prior to the Separation, FTD paid cash dividends to United Online in the amounts noted.

(e)

Capital expenditures for the year ended December 31, 2013 included $2.3 million of capital expenditures related to the Separation and $1.2 million of payments for capital expenditures that were accrued at December 31, 2012.

(f)

As the Acquisition closed on December 31, 2014, the Company’s consolidated balance sheet included Provide Commerce as of December 31, 2014, including acquired cash of $38.1 million.

(g)

As discussed in Note 1 – “Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements”, we have elected to adopt early and retrospectively apply the presentation requirements of ASU 2015-17. This update resulted in an adjustment which reduced both current assets and deferred tax liabilities, net by $14.8 million, $17.2 million, $5.4 million, and $5.9 million at December 31, 2015, 2014, 2013, and 2012, respectively.

(h)

On September 19, 2014, the Company amended and restated its 2013 Credit Agreement in its entirety (as amended and restated the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provided for a $200 million term loan, the proceeds of which were used to repay a portion of outstanding revolving loans under the Amended and Restated Credit Agreement. On December 31, 2014, the Company borrowed $120 million under the Amended and Restated Credit Agreement to finance the cash portion of the Acquisition purchase price.

(i)

During the year ended December 31, 2015, the Company recorded $61.2 million in amortization expense related to the intangibles recorded with the Acquisition. The Company incurred amortization expense of $11.8 million, $22.9 million, $25.5 million, and $25.2 million, in 2014, 2013, 2012 and 2011, respectively, related to intangibles recorded by the Company as a result of United Online’s acquisition of the Company.

(j)

During the year ended December 31, 2015, the Company recorded a goodwill impairment charge related to the Provide Commerce segment that negatively impacted operating income and net income by $85.0 million and earnings per share by $2.95.

 

 

40


 

Table of Contents

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This MD&A is a supplement to the accompanying consolidated financial statements and provides additional information on our business, recent developments, financial condition, liquidity and capital resources, cash flows, and results of operations. This MD&A should be read in conjunction with the consolidated financial statements and related notes included in Part II, Item 8 of this Form 10‑K, and the other sections of this Form 10‑K.

OVERVIEW

FTD Companies, Inc.  (together with its subsidiaries may be referred to herein as the “Company,” “FTD,” “we,” “us,” or “our”) is 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® and Interflora® brands, both supported by the iconic Mercury Man logo®. 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 diversified portfolio of brands also includes ProFlowers®, ProPlants®, Shari’s Berries®, Personal Creations®, RedEnvelope®, Cherry Moon Farms®, Flying Flowers®, Flowers Direct®, Sesame®, Ink CardsTM, PostagramTM, and Gifts.comTM.  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.

Separation from United Online

Prior to November 1, 2013, FTD was a wholly owned subsidiary of United Online. On November 1, 2013, United Online separated into two independent, publicly traded companies: FTD Companies, Inc. and United Online, Inc. The Separation was consummated through a tax‑free dividend involving the distribution of all shares of FTD Companies, Inc. common stock to United Online’s stockholders. In connection with the Separation, holders of United Online common stock received one share of FTD common stock for every five shares of United Online common stock held on the record date (prior to giving effect to the reverse stock split of United Online shares). Following completion of the Separation, FTD Companies, Inc. became an independent, publicly traded company on NASDAQ under the symbol “FTD.”

Following the Separation, United Online has no continuing ownership interest in FTD; however, as part of the Separation, FTD entered into various agreements with United Online, including The Separation and Distribution Agreement, The Transition Services Agreement, The Tax Sharing Agreement, and The Employee Matters Agreement. These agreements, which became effective on November 1, 2013, govern the relationship between United Online and the Company after the Separation, and set forth, among other things, the rights and obligations of FTD and United Online regarding the Separation including: the rights and obligations related to tax payments and the administration of tax matters post‑Separation; transitional services to be provided by United Online after the Separation; the rights and authority of United Online to control and settle certain litigation as disclosed in Note 15—“Commitments and Contingencies” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K; and the treatment of certain employee matters. The transition services were completed on April 15, 2014.

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) 10.2 million shares of FTD common stock (the “Acquisition”). These shares represented approximately 35% of the issued and outstanding shares of FTD common stock at the closing of 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.

41


 

Table of Contents

Reportable Segments

Prior to the Acquisition, we reported our business operations in three 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 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 Provide Commerce segment, we are a leading direct marketer 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 and applications, and various telephone numbers. 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, www.flyingflowers.co.uk, and www.interflora.ie websites, associated mobile sites and applications, 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.

For additional information about our reportable segments refer to Note 3—“Segment Information” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K.

 

SIGNIFICANT OPERATING AND FINANCIAL HIGHLIGHTS

Financial Highlights

·

Consolidated revenues increased $579.2 million to $1,219.8 million for the year ended December 31, 2015, compared to the year ended December 31, 2014, driven primarily by the addition of our Provide Commerce Segment. Foreign currency exchange rates unfavorably impacted revenues by $13.2 million during the year ended December 31, 2015.

·

All of the Company’s segments reported increases in segment operating income (defined below) compared with segment operating income for the year ended December 31, 2014.

·

Net cash provided by operating activities increased $34.9 million for the year ended December 31, 2015, driven primarily by the addition of our Provide Commerce segment.

·

During the year ended December 31, 2015, the Company recorded a non-cash goodwill impairment charge that negatively impacted operating income and net income by $85.0 million and earnings per share by $2.95 related to the Provide Commerce segment.

·

Included in our consolidated statement of operations for the year ended December 31, 2015, the Company incurred transaction and integration‑related as well as restructuring and other exit costs associated with the Acquisition that negatively impacted both operating income and cash flow by $12.7 million, net income by $7.9 million, and earnings per common share by $0.27. For the year ended December 31, 2014, the Company incurred pre‑tax transaction‑related costs of $12.4 million incurred in connection with the Acquisition. These costs impacted net income and earnings per common share by $9.6 million and $0.50, respectively, and negatively impacted cash flows for the year ended December 31, 2014. These costs relate primarily to investment banking, legal, accounting, tax, and other professional fees.

·

During the year ended December 31, 2015, the Company paid $20 million of the term loan as well as a net $20 million of the amounts outstanding under the revolving credit facility.

·

During the year ended December 31, 2015, the Company repurchased 1.8 million shares under the

42


 

Table of Contents

authorized common stock repurchase program, dated February 27, 2014, at an average cost per share of $27.31, fully utilizing the $50 million authorization.

Operating Highlights

·

Fiscal 2015 marked our first year with the Provide Commerce companies as part of FTD Companies. 

o

We accomplished a significant amount of our integration roadmap, including establishment of new financial and operational disciplines with the Provide Commerce segment that resulted in a 113% improvement in segment profitability compared to the prior year. 

o

Integration activities have resulted in $8 million in cost synergies realized in 2015 and progress towards the achievement of the Company’s goal of $25 million in annual cost synergies by the end of 2017.

·

Innovation to support future growth with new product launches such as the new FTD Luxe and Sympathy Collections; ProFlowers new site merchandising, improved product assortment and bundled floral and gift product offerings; Shari’s Berries moving ‘beyond the berry’ to feature other high demand products such as cheesecakes and cake truffles; Personal Creations’ new lines of everyday and holiday offerings; the relaunch of both RedEnvelope and Gifts.com; and Interflora’s new merchandising for floral and gift products.

·

We continue to support and drive added value for our member florists. Key highlights include increasing orders into the FTD network, increasing product revenue, including our grocery channel revenues, and increasing margin. Through our annual florist member customer survey process, we also have seen our leadership and satisfaction scores increase significantly.

·

Significant public relations efforts to improve brand awareness which exclusively featured FTD in two of the big cultural events in 2015 – New York Fashion Week with Kate Spade and the Grateful Dead Fare Thee Well Concerts; Interflora’s sponsorship of Surprise Surprise television programming and the Chelsea Flower Show.

Items Affecting Comparability of Financial Results

The historical consolidated financial statements for the periods prior to the Separation included direct costs of the Company incurred by United Online on the Company’s behalf and allocations of certain general corporate costs incurred by United Online. Direct costs include finance, legal, human resources, technology development, and other services and were determined based on the level of services expended by United Online for services provided to the Company. Allocations of certain general corporate costs included, without limitation, executive oversight, accounting, internal audit, treasury, tax, and legal. The allocations of general corporate costs were based primarily on estimated time incurred and/or activities associated with the Company. Management believes the allocations of corporate costs from United Online were reasonable and does not believe the Company’s costs would have been significantly different on a stand‑alone basis prior to the Separation. However, the allocated costs may not have included all of the costs that would have been incurred had the Company been a stand‑alone company during the periods prior to the Separation, and accordingly, the Company’s consolidated financial statements may not have reflected the financial position, results of operations and cash flows had the Company been a stand‑alone company during the periods prior to the Separation.

As a result of the Acquisition, our operating and reportable segments changed to include a fourth segment, Provide Commerce. Accordingly, as of December 31, 2014, our operating and reportable segments consist of Consumer, Provide Commerce, Florist, and International. However, as the Acquisition was completed on December 31, 2014, no results of operations of Provide Commerce were included in the Company’s consolidated statements of operations for the years ended December 31, 2014 and 2013, respectively. The financial information provided related to Provide Commerce for the year ended December 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. For additional information about our reportable segments refer to MD&A and Note 3—“Segment Information” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10‑K. The Company’s consolidated balance sheet at December 31, 2014 included the Provide Commerce assets acquired and liabilities assumed in the Acquisition.

43


 

Table of Contents

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 and gains, transaction and integration‑related costs, restructuring and other exit costs, and impairment of goodwill and intangible assets. 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 II, Item 8 of this Form 10‑K 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 individual units delivered during the period that originated in the U.S. and Canada, primarily from the www.ftd.com,  www.proflowers.com,  www.berries.com, and www.personalcreations.com websites, associated mobile sites and 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, www.flyingflowers.co.uk, and www.interflora.ie websites, associated mobile sites and applications, 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, Provide Commerce, and International segments is tracked in their local currency, the U.S. Dollar (“USD”) 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 USD 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).

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.

44


 

Table of Contents

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 year ended December 31, 2014, is set forth below and was 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.

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

    

2015

    

2014

    

2013

 

 

(in thousands, except for average

 

 

order values, average revenues per

 

 

member and average currency

 

 

exchange rates)

Consolidated:

 

 

 

 

 

 

 

 

 

Consolidated revenues

 

$

1,219,753

 

$

640,513

 

$

627,343

Consumer:

 

 

 

 

 

 

 

 

 

Segment revenues(a)

 

$

321,614

 

$

318,563

 

$

321,724

Segment operating income

 

$

36,975

 

$

31,481

 

$

35,151

Consumer orders

 

 

4,229

 

 

4,335

 

 

4,513

Average order value

 

$

70.88

 

$

69.30

 

$

67.15

Provide Commerce:

 

 

 

 

 

 

 

 

 

Segment revenues(a)

 

$

583,326

 

$

628,507

 

$

 —

Segment operating income

 

$

41,802

 

$

19,647

 

$

 —

Consumer orders

 

 

12,549

 

 

13,560

 

 

 —

Average order value

 

$

46.02

 

$

45.72

 

$

 —

Florist:

 

 

 

 

 

 

 

 

 

Segment revenues(a)

 

$

165,782

 

$

162,552

 

$

163,145

Segment operating income

 

$

47,162

 

$

47,077

 

$

47,078

Average revenues per member

 

$

13,493

 

$

12,504

 

$

11,827

International:

 

 

 

 

 

 

 

 

 

Segment revenues (in USD)

 

$

168,135

 

$

177,789

 

$

161,389

Segment revenues (in GBP)

 

£

110,243

 

£

108,053

 

£

103,215

Segment operating income

 

$

19,660

 

$

19,817

 

$

18,369

Consumer orders

 

 

2,694

 

 

2,718

 

 

2,662

Average order value (in USD)

 

$

51.39

 

$

54.48

 

$

50.83

Average order value (in GBP)

 

£

33.71

 

£

33.12

 

£

32.54

Average currency exchange rate: GBP to USD

 

 

1.53

 

 

1.64

 

 

1.56

(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 II, Item 8 of this Form 10‑K for a reconciliation of segment revenues to consolidated revenues.

45


 

Table of Contents

CONSOLIDATED OPERATING RESULTS

The following table sets forth, for the periods presented, selected historical consolidated statements of operations data. The information contained in the table below should be read in conjunction with “Critical Accounting Policies, Estimates and Assumptions,” “Liquidity and Capital Resources,” and “Contractual Obligations, Other Commitments and Off‑Balance Sheet Arrangements,” included in this Item 7, and “Quantitative and Qualitative Disclosures About Market Risk” and the consolidated financial statements and accompanying notes thereto included elsewhere in this Form 10‑K.

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

    

2015

    

2014

    

2013

    

 

 

(in thousands)

Revenues

 

$

1,219,753

 

$

640,513

 

$

627,343

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

767,593

 

 

404,609

 

 

395,007

 

Sales and marketing

 

 

248,627

 

 

111,368

 

 

106,149

 

General and administrative

 

 

122,239

 

 

74,943

 

 

69,439

 

Amortization of intangible assets

 

 

61,481

 

 

11,769

 

 

22,916

 

Restructuring and other exit costs

 

 

6,065

 

 

220

 

 

166

 

Impairment of goodwill and intangible assets

 

 

85,000

 

 

 —

 

 

 —

 

Total operating expenses

 

 

1,291,005

 

 

602,909

 

 

593,677

 

Operating income/(loss)

 

 

(71,252)

 

 

37,604

 

 

33,666

 

Interest expense, net

 

 

(9,243)

 

 

(5,474)

 

 

(11,224)

 

Other income, net

 

 

686

 

 

330

 

 

332

 

Income/(loss) before income taxes

 

 

(79,809)

 

 

32,460

 

 

22,774

 

Provision/(benefit) for income taxes

 

 

(983)

 

 

9,630

 

 

10,272

 

Net income/(loss)

 

$

(78,826)

 

$

22,830

 

$

12,502

 

Year Ended December 31, 2015 compared to Year Ended December 31, 2014

We present certain results from our International segment on a constant currency basis. Constant currency information compares results between periods as if foreign currency exchange rates had remained constant period‑over‑period. Our International segment operates principally in the U.K. We calculate constant currency by applying the foreign currency exchange rate for the prior period to the local currency results for the current period. In addition, we have excluded intersegment revenues and expenses in the discussion below.

 

Consolidated Revenues

 

Consolidated revenues increased $579.2 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increase in consolidated revenues was primarily due to $583.3 million of revenues associated with the addition of our Provide Commerce segment, a $3.1 million increase in revenues from our Consumer segment, and a $3.2 million increase in revenues from our Florist segment, partially offset by a $9.7 million decrease ($3.6 million increase in constant currency) in revenues from our International segment. Foreign currency exchange rates unfavorably impacted revenues by $13.2 million during the year ended December 31, 2015.

Consolidated Cost of Revenues

Consolidated cost of revenues increased $363.0 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increase in consolidated cost of revenues was primarily due to $368.4 million of costs associated with the addition of our Provide Commerce segment and a $0.2 million increase in costs associated with our Florist segment, offset by a $7.7 million decrease (increase $1.4 in constant currency) in costs associated with our International segment and a $2.1 million decrease in costs associated with our Consumer segment. Foreign currency exchange rates had a $9.1 million favorable impact on cost of revenues for the year ended December 31, 2015. In addition, depreciation expense increased $4.5 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. Consolidated cost of revenues, as a percentage of consolidated revenues, remained consistent at 63% for both the years ended December 31, 2015 and December 31, 2014.

46


 

Table of Contents

Consolidated Sales and Marketing

Consolidated sales and marketing expenses increased $137.3 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increase in consolidated sales and marketing expenses was primarily due to $136.0 million of sales and marketing expenses associated with the addition of our Provide Commerce segment and an increase of $3.0 million in sales and marketing expenses associated with our Florist segment. These increases were partially offset by decreases of $1.5 million (increase $0.1 million in constant currency) and $0.4 million in sales and marketing expenses associated with our International and Consumer segments, respectively. Foreign currency exchange rates had a $1.6 million favorable impact on sales and marketing expenses for the year ended December 31, 2015. Consolidated sales and marketing expenses, as a percentage of consolidated revenues, was 20% for the year ended December 31, 2015, compared to 17% for the year ended December 31, 2014.

Consolidated General and Administrative

Consolidated general and administrative expenses increased $47.3 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increase in consolidated general and administrative expenses was primarily due to $37.2 million of general and administrative expenses associated with the addition of our Provide Commerce segment, excluding depreciation and transaction and integration‑related costs. In addition, for the year ended December 31, 2015, depreciation expense increased $9.3 million primarily due to assets acquired in the Acquisition. Further, personnel‑related costs, excluding those directly related to the Provide Commerce segment, increased $7.9 million, primarily due to increased stock‑based compensation. Partially offsetting these increases was a decrease in transaction and integration‑related costs of $5.7 million due to a majority of the transaction costs related to the Acquisition being recognized in the year ended December 31, 2014. In addition, litigation and dispute settlement charges (net of insurance recoveries) were $3.1 million lower for the year ended December 31, 2015, than the year ended December 31, 2014. Consolidated general and administrative expenses, as a percentage of consolidated revenues, was 10% for the year ended December 31, 2015, compared to 12% for the year ended December 31, 2014.

Amortization of Intangible Assets

Amortization of intangible assets increased $49.7 million for the year ended December 31, 2015, compared to the year ended December 31, 2014, primarily due to the intangible assets acquired in the Acquisition.

Restructuring and Other Exit Costs

During the year ended December 31, 2015, the Company incurred restructuring and other exit costs of $6.1 million, primarily related to the closure of the Provide Commerce developing businesses certain distribution and call center locations. During the year ended December 31, 2014, we incurred restructuring and other exit costs of $0.2 million, primarily related to the closure of various U.K. garden center concession stands.

Impairment of Goodwill and Intangible Assets

During the year ended December 31, 2015, the Company recognized a goodwill impairment charge of $85.0 million related to the Provide Commerce segment.

Interest Expense, Net

Interest expense increased $3.8 million for the year ended December 31, 2015, compared to the year ended December 31, 2014. The increases were due to higher debt principal balances outstanding, associated with the incremental borrowing for the Acquisition, as well as higher interest rates and increased amortization of both the interest rate cap and deferred financing fees.

Provision for Income Taxes

During the year ended December 31, 2015, we recorded a tax benefit of $1.0 million on pre‑tax loss of $79.8 million, compared to a tax provision of $9.6 million on pre‑tax income of $32.5 million for the year ended December 31, 2014. During the year ended December 31, 2015, the impairment of goodwill is not tax deductible, and therefore, there is no tax benefit recorded on the charge. The decrease in the effective tax rate is primarily due to book

47


 

Table of Contents

losses in the U.S. resulting from the goodwill impairment and the amortization of the intangibles acquired in the Acquisition.

Year Ended December 31, 2014 compared to Year Ended December 31, 2013

Consolidated Revenues

Consolidated revenues increased $13.2 million, or 2%, for the year ended December 31, 2014, compared to the year ended December 31, 2013. Foreign currency exchange rates favorably impacted revenues by $8.9 million during the year ended December 31, 2014. The increase in consolidated revenues was primarily due to a $16.4 million increase ($7.5 million in constant currency) in revenues from our International segment, partially offset by a $3.2 million decrease in revenues from our Consumer segment (prior to intersegment eliminations), and a $0.6 million decrease in revenues from our Florist segment.

Consolidated Cost of Revenues

Consolidated cost of revenues increased $9.6 million, or 2%, for the year ended December 31, 2014, compared to the year ended December 31, 2013. Foreign currency exchange rates had a $6.2 million unfavorable impact on cost of revenues for the year ended December 31, 2014. The increase in consolidated cost of revenues was primarily due to a $12.5 million increase ($6.3 million in constant currency) in cost of revenues associated with our International segment, partially offset by a $2.6 million decrease in cost of revenues associated with our Consumer segment, and a $1.0 million decrease in cost of revenues associated with our Florist segment. Consolidated cost of revenues, as a percentage of consolidated revenues, remained consistent at 63% for the year ended December 31, 2014, compared to the year ended December 31, 2013.

Consolidated Sales and Marketing

Consolidated sales and marketing expenses increased $5.2 million for the year ended December 31, 2014, compared to the year ended December 31, 2013. Foreign currency exchange rates had a $1.1 million unfavorable impact on consolidated sales and marketing expenses for the year ended December 31, 2014. The increase was due to a $2.9 million increase in sales and marketing expenses in our Consumer segment, a $1.2 million increase ($0.1 million in constant currency) in sales and marketing expenses in our International segment, and a $0.6 million increase in stock‑based compensation expense, partially offset by a $0.1 million decrease ($0.5 million increase excluding intersegment transactions) in sales and marketing expenses in our Florist segment. Consolidated sales and marketing expenses, as a percentage of consolidated revenues, remained consistent at 17% for the year ended December 31, 2014, compared to December 31, 2013.

Consolidated General and Administrative

Consolidated general and administrative expenses increased $5.5 million for the year ended December 31, 2014, compared to the year ended December 31, 2013. We incurred $12.4 million in transaction‑related costs associated with the Acquisition during the year ended December 31, 2014. Personnel‑related costs increased $5.0 million primarily due to increased headcount, stock‑based compensation, and other compensation costs. Costs related to professional services fees, insurance, technology‑related expenses, and facilities increased $3.5 million, and depreciation expense increased $0.8 million. Much of these increased costs are associated with the operations of the Company as a stand‑alone public company. In addition, litigation and dispute settlement charges increased $1.3 million, and legal expenses increased $1.2 million due to the repayment of previously awarded legal fees in the Marks and Spencer litigation. During the year ended December 31, 2013, legal expenses were reduced by $1.7 million related to such interim award for reimbursement of legal fees. Partially offsetting these increases was a decrease related to $13.4 million of costs incurred during the year ended December 31, 2013 associated with the Separation, including such costs that were allocated from United Online, and a further decrease of $5.3 million related to United Online direct and general corporate cost allocations incurred during the year ended December 31, 2013, while we were a wholly owned subsidiary of United Online. Consolidated general and administrative expenses, as a percentage of consolidated revenues, were 12% for the year ended December 31, 2014, compared to 11% for the year ended December 31, 2013.

48


 

Table of Contents

Amortization of Intangible Assets

Amortization of intangible assets decreased $11.1 million for the year ended December 31, 2014, compared to the year ended December 31, 2013, primarily due to certain complete technology intangible assets becoming fully amortized during the third quarter of 2013.

Interest Expense, Net

Net interest expense decreased $5.8 million for the year ended December 31, 2014, compared to the year ended December 31, 2013, primarily due to lower interest rates as a result of the refinancing of our credit facility in July 2013 and lower debt principal balances outstanding. In addition, a $2.3 million loss on extinguishment of debt incurred in connection with the refinancing was recorded in interest expense in the year ended December 31, 2013.

Provision for Income Taxes

Our effective income tax rate was 30% for the year ended December 31, 2014, compared to 45% for the year ended December 31, 2013. The effective income tax rates were impacted by the reduction in the valuation allowance related to foreign tax credits during 2014 and the reduction in the U.K. statutory corporation tax rate during 2013, which were partially offset by the impact of non‑deductible costs related to the Acquisition in 2014 and the Separation in 2013.

BUSINESS SEGMENT OPERATING RESULTS

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, Provide Commerce, Florist, and International. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction and integration‑related costs, restructuring and other exit costs, and impairment of goodwill and intangible assets. 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, net.

The segment results included in MD&A are presented on a basis consistent with our internal management reporting. Segment information appearing in Note 3 – Segment Information to the Notes to Financial Statements in Part 8 of this Form 10-K is also presented on this basis.

CONSUMER SEGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

% Change

 

 

    

2015

    

2014

    

2013

    

2015 to 2014

    

2014 to 2013

 

 

 

(in thousands, except for percentages and average order values)

 

Segment revenues

 

$

321,614

 

$

318,563

 

$

321,724

 

1

%  

(1)

%

Segment operating income

 

$

36,975

 

$

31,481

 

$

35,151

 

17

%  

(10)

%

Key metrics and other financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer orders

 

 

4,229

 

 

4,335

 

 

4,513

 

(2)

%  

(4)

%

Average order value

 

$

70.88

 

$

69.30

 

$

67.15

 

2

%  

3

%

Segment operating margin

 

 

11

%  

 

10

%  

 

11

%  

 

 

 

 

 

Year Ended December 31, 2015 compared to Year Ended December 31, 2014

Consumer Segment Revenues

Consumer segment revenues slightly increased $3.1 million, or 1%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. During the year ended December 31, 2015, the Company determined, based on a change in circumstances, that there is no longer a requirement to remit to relevant jurisdictions, under unclaimed property laws, the value of certain gift cards and vouchers which are not expected to be redeemed (“breakage”), and as a result, the Consumer segment recognized breakage revenue of $4.1 million during the third quarter of 2015. Breakage revenue recognized during the fourth quarter of 2015 was not significant. Segment revenues improved as average order value increased 2% primarily driven by consumers selecting higher value offerings, our

49


 

Table of Contents

sympathy business, which typically carries higher average order values, and other merchandising improvements. Revenue increases were partially offset by the consumer order volume decrease of 2%, primarily related to declines during the Valentine’s Day, Mother’s Day, and Christmas holiday periods. During the year ended December 31, 2015, as expected, the Saturday placement of the Valentine’s Day holiday had a negative impact on revenues.

Consumer Segment Operating Income

Consumer segment operating income increased $5.5 million for the year ended December 31, 2015, compared to the year ended December 31, 2014, as revenue increased $3.1 million, as previously described, coupled with a $2.4 million decrease in operating expenses. Operating expenses were lower primarily due to decreases in cost of revenues of $2.1 million. The decrease in costs of revenues was driven by lower consumer orders as well as product and shipping cost savings. Further, segment operating income for the year ended December 31, 2015 improved due to the breakage adjustment recorded in the third quarter of 2015. The consumer segment operating margin increased to 11% for the year ended December 31, 2015, compared to 10% for the year ended December 31, 2014.

Year Ended December 31, 2014 compared to Year Ended December 31, 2013

Consumer Segment Revenues

Consumer segment revenues decreased $3.2 million, or 1%, for the year ended December 31, 2014, compared to the year ended December 31, 2013, primarily driven by a 4% decrease in consumer order volume partially offset by a 3% increase in average order value. Consumer segment revenues declined year‑over‑year in the first two quarters of the year, which included the Valentine’s Day and Mother’s Day holidays. During these holiday periods consumer segment performance was impacted by heightened levels of competitive spending on media, online, and certain partner programs across the broader industry, which negatively impacted our business and caused these programs to become more expensive to secure and maintain. Consumer order volume was also negatively impacted by the Friday timing of the Valentine’s Day holiday.

Consumer Segment Operating Income

Consumer segment operating income decreased $3.7 million, or 10%, for the year ended December 31, 2014, compared to the year ended December 31, 2013, as revenues decreased $3.2 million and operating expenses increased $0.5 million. Cost of revenues decreased $2.6 million primarily driven by a decrease in product and shipping costs associated with the lower revenues. More than offsetting this decrease was an increase of $2.9 million in sales and marketing expenses, primarily due to higher cost marketing programs. Consumer segment operating margin was 10% for the year ended December 31, 2014, compared to 11% for the year ended December 31, 2013.

PROVIDE COMMERCE SEGMENT 

The results of operations for Provide Commerce for the years ended December 31, 2015 and 2014 are set forth below. The results from the year ended December 31, 2014 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.

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

% Change

 

 

    

2015

    

2014

    

2015 to 2014

    

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

(Pre-Acquisition)

 

 

 

 

 

(in thousands, except for percentages and average revenues per member)

Segment revenues

 

$

583,326

 

$

628,507

 

(7)

%

Segment operating income

 

$

41,802

 

$

19,647

 

113

%

Key metrics and other financial data:

 

 

 

 

 

 

 

 

 

Consumer orders

 

 

12,549

 

 

13,560

 

(7)

%  

Average order value

 

$

46.02

 

$

45.72

 

1

%  

Segment operating margin

 

 

7

%  

 

3

%  

 

 

50


 

Table of Contents

Provide Commerce Segment Revenues

Provide Commerce segment revenues decreased $45.2 million, or 7%, for the year ended December 31, 2015, compared to the year ended December 31, 2014, primarily driven by a 7% decrease in consumer order volume partially offset by a 1% increase in average order value. The revenue decline primarily resulted from the ProFlowers business, which represented $50.0 million of the total decline. The Personal Creations business reported 10% growth for the year ended December 31, 2015, while the Gourmet Foods business reported fairly flat revenue in 2015 compared to 2014. The revenue declines for ProFlowers were primarily related to declines during the Valentine’s Day, Mother’s Day, and Christmas holiday periods. During the year ended December 31, 2015, the Saturday placement of the Valentine’s Day holiday had a negative impact on revenues.

Provide Commerce Segment Operating Income

Provide Commerce segment operating income increased $22.2 million, or 113%, for the year ended December 31, 2015, compared to the year ended December 31, 2014. Revenues decreased $45.2 million which was more than offset by decreases in operating expenses of $67.3 million. The decrease in operating expenses was due primarily to reductions in product and shipping costs associated with the lower order volume, as well as planned reductions in marketing expenditures and personnel‑related costs, during the year ended December 31, 2015. Further, segment operating income benefitted significantly from decisions made during the first quarter of 2015 to close or restructure certain of the developing businesses, including Kalla and Gifts.com. Provide Commerce segment operating margin increased to 7% for the year ended December 31, 2015, compared to 3% for the year ended December 31, 2014.

FLORIST SEGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

% Change

 

 

    

2015

    

2014

    

2013

    

2015 to 2014

    

2014 to 2013

 

 

 

(in thousands, except for percentages and average revenues per member)

 

Segment revenues

 

$

165,782

 

$

162,552

 

$

163,145

 

2

%

 —

%

Segment operating income

 

$

47,162

 

$

47,077

 

$

47,078

 

 —

%

 —

%

Key metrics and other financial data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average revenues per member

 

$

13,493