ftd_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q

 

 

(Mark One)

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

For the Quarterly Period Ended September 30, 2016

Or

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

 

For the transition period from                                      to            

Commission file number 001‑35901


FTD Companies, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

32‑0255852

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

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

60515
(Zip Code)

 

(630) 719‑7800

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

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

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

 

 

 

 

Large accelerated filer ☐

Accelerated filer  ☒

Non‑accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a smaller
reporting company)

 

 

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

There were 27,221,555 shares of the Registrant’s common stock outstanding at November 1, 2016.

 

 

 


 

Table of Contents

FTD COMPANIES, INC.

INDEX TO FORM 10‑Q

 

 

 

 

 

 

Page

PART I. 

 

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets at September 30, 2016 and
December 31, 2015

 

 

Condensed Consolidated Statements of Operations for the Quarters and Nine Months  Ended September 30, 2016 and 2015

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2016 and 2015

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2016

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

 

 

Notes to Condensed Consolidated Financial Statements

 

Item 2.

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

25 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38 

 

Item 4.

Controls and Procedures

39 

PART II. 

 

OTHER INFORMATION

40 

 

Item 1.

Legal Proceedings

40 

 

Item 1A.

Risk Factors

40 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41 

 

Item 6.

Exhibits

41 

SIGNATURES 

42 

 

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

2


 

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Forward‑Looking Statements

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

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PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

September 30,

    

December 31,

 

    

2016

    

2015

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,192

 

$

57,892

Accounts receivable, net of allowances of $6,929 and $4,802 at September 30, 2016 and December 31, 2015, respectively

 

 

26,696

 

 

28,177

Inventories

 

 

27,517

 

 

25,611

Income taxes receivable

 

 

2,843

 

 

5,450

Prepaid expenses and other current assets

 

 

10,662

 

 

15,767

Total current assets

 

 

83,910

 

 

132,897

Property and equipment, net

 

 

58,078

 

 

64,753

Intangible assets, net

 

 

289,727

 

 

340,559

Goodwill

 

 

551,208

 

 

561,656

Other assets

 

 

22,197

 

 

21,863

Total assets

 

$

1,005,120

 

$

1,121,728

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

40,444

 

$

82,448

Accrued liabilities

 

 

30,632

 

 

54,087

Accrued compensation

 

 

13,763

 

 

21,193

Deferred revenue

 

 

6,305

 

 

5,421

Income taxes payable

 

 

875

 

 

840

Current portion of long-term debt

 

 

20,000

 

 

20,000

Total current liabilities

 

 

112,019

 

 

183,989

Long-term debt

 

 

260,966

 

 

274,946

Deferred tax liabilities, net

 

 

97,489

 

 

112,769

Other liabilities

 

 

6,490

 

 

8,798

Total liabilities

 

 

476,964

 

 

580,502

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

Common stock, 60,000,000 shares, par value $0.0001, authorized; 29,652,452 and 29,427,365 shares issued at September 30, 2016 and December 31, 2015, respectively

 

 

3

 

 

3

Treasury stock, 2,280,897 and 1,830,897 shares at September 30, 2016 and December 31, 2015, respectively

 

 

(62,035)

 

 

(50,000)

Additional paid-in capital

 

 

687,576

 

 

678,558

Accumulated deficit

 

 

(47,898)

 

 

(52,119)

Accumulated other comprehensive loss

 

 

(49,490)

 

 

(35,216)

Total stockholders’ equity

 

 

528,156

 

 

541,226

Total liabilities and stockholders’ equity

 

$

1,005,120

 

$

1,121,728

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

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

    

2016

    

2015

    

2016

    

2015

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

142,726

 

$

157,745

 

$

738,986

    

$

820,020

 

 

Services

 

 

30,428

 

 

30,774

 

 

103,341

 

 

102,081

 

 

Total revenues

 

 

173,154

 

 

188,519

 

 

842,327

 

 

922,101

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues—products

 

 

103,838

 

 

113,504

 

 

518,477

 

 

568,106

 

 

Cost of revenues—services

 

 

4,405

 

 

4,763

 

 

13,757

 

 

14,613

 

 

Sales and marketing

 

 

35,012

 

 

38,249

 

 

168,885

 

 

185,299

 

 

General and administrative

 

 

25,745

 

 

30,252

 

 

83,378

 

 

92,750

 

 

Amortization of intangible assets

 

 

15,240

 

 

15,317

 

 

45,873

 

 

46,054

 

 

Restructuring and other exit costs

 

 

612

 

 

1,495

 

 

2,230

 

 

5,907

 

 

Total operating expenses

 

 

184,852

 

 

203,580

 

 

832,600

 

 

912,729

 

 

Operating income/(loss)

 

 

(11,698)

 

 

(15,061)

 

 

9,727

 

 

9,372

 

 

Interest income

 

 

135

 

 

122

 

 

410

 

 

371

 

 

Interest expense

 

 

(2,429)

 

 

(2,450)

 

 

(7,273)

 

 

(7,366)

 

 

Other income/(expense), net

 

 

(9)

 

 

131

 

 

1,804

 

 

557

 

 

Income/(loss) before income taxes

 

 

(14,001)

 

 

(17,258)

 

 

4,668

 

 

2,934

 

 

Provision/(benefit) for income taxes

 

 

(4,028)

 

 

(779)

 

 

447

 

 

(440)

 

 

Net income/(loss)

 

$

(9,973)

 

$

(16,479)

 

$

4,221

 

$

3,374

 

 

Earnings/(loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings/(loss) per share

 

$

(0.36)

 

$

(0.57)

 

$

0.15

 

$

0.12

 

 

Diluted earnings/(loss) per share

 

$

(0.36)

 

$

(0.57)

 

$

0.15

 

$

0.11

 

 

 

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

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2016

    

2015

    

2016

    

2015

Net income/(loss)

 

$

(9,973)

 

$

(16,479)

 

$

4,221

 

$

3,374

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(2,902)

 

 

(5,020)

 

 

(14,510)

 

 

(4,227)

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in net gains on derivatives, net of tax of $54 and $37 for the quarters ended September 30, 2016 and 2015, respectively and $147 and $31 for the nine months ended September 30, 2016 and 2015, respectively

 

 

86

 

 

57

 

 

236

 

 

49

Other comprehensive loss

 

 

(2,816)

 

 

(4,963)

 

 

(14,274)

 

 

(4,178)

Total comprehensive loss

 

$

(12,789)

 

$

(21,442)

 

$

(10,053)

 

$

(804)

 

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

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balance at December 31, 2015

 

29,427

 

$

3

 

(1,831)

 

$

(50,000)

 

$

678,558

 

$

(35,216)

 

$

(52,119)

 

$

541,226

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,221

 

 

4,221

Other comprehensive loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(14,274)

 

 

 —

 

 

(14,274)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

9,767

 

 

 —

 

 

 —

 

 

9,767

Tax shortfalls from equity awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(408)

 

 

 —

 

 

 —

 

 

(408)

Vesting of restricted stock units and related repurchases of common stock

 

163

 

 

 —

 

 —

 

 

 —

 

 

(1,645)

 

 

 —

 

 

 —

 

 

(1,645)

Repurchases of common stock

 

 —

 

 

 —

 

(450)

 

 

(12,035)

 

 

 —

 

 

 —

 

 

 —

 

 

(12,035)

Issuance of common stock through employee stock purchase plan

 

62

 

 

 —

 

 —

 

 

 —

 

 

1,304

 

 

 —

 

 

 —

 

 

1,304

Balance at September 30, 2016

 

29,652

 

$

3

 

(2,281)

 

$

(62,035)

 

$

687,576

 

$

(49,490)

 

$

(47,898)

 

$

528,156

 

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

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FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

    

2016

    

2015

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

4,221

 

$

3,374

Adjustments to reconcile net income to net cash used for operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

63,502

 

 

63,265

Stock-based compensation

 

 

10,803

 

 

8,204

Provision for doubtful accounts receivable

 

 

2,936

 

 

1,315

Amortization of debt issuance costs

 

 

1,020

 

 

1,020

Impairment of fixed assets

 

 

398

 

 

1,282

Deferred taxes, net

 

 

(14,519)

 

 

(9,108)

Excess tax (benefits) shortfalls from equity awards

 

 

408

 

 

(311)

Gains on life insurance

 

 

(1,583)

 

 

 —

Other, net

 

 

76

 

 

44

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

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,791)

 

 

2,592

Inventories

 

 

(2,025)

 

 

(2,922)

Prepaid expenses and other assets

 

 

5,623

 

 

8,828

Accounts payable and accrued liabilities

 

 

(72,996)

 

 

(59,951)

Deferred revenue

 

 

1,037

 

 

(2,022)

Income taxes receivable or payable

 

 

1,982

 

 

(11,462)

Other liabilities

 

 

(2,284)

 

 

(6,852)

Net cash used for operating activities

 

 

(3,192)

 

 

(2,704)

Cash flows from investing activities:

 

 

 

 

 

 

Cash paid for acquisitions, net of cash acquired

 

 

 —

 

 

(9,935)

Purchases of property and equipment

 

 

(12,018)

 

 

(10,700)

Proceeds from life insurance

 

 

1,946

 

 

 —

Purchases of intangible assets

 

 

 —

 

 

(60)

Net cash used for investing activities

 

 

(10,072)

 

 

(20,695)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on long-term debt

 

 

(15,000)

 

 

(35,000)

Exercise of stock options and purchases from employee stock plans

 

 

1,304

 

 

485

Repurchases of common stock

 

 

(13,680)

 

 

(22,021)

Excess tax benefits (shortfalls) from equity awards

 

 

(408)

 

 

311

Net cash used for financing activities

 

 

(27,784)

 

 

(56,225)

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

 

 

(652)

 

 

(872)

Change in cash and cash equivalents

 

 

(41,700)

 

 

(80,496)

Cash and cash equivalents, beginning of period

 

 

57,892

 

 

95,595

Cash and cash equivalents, end of period

 

$

16,192

 

$

15,099

 

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

 

 

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

Description of Business

FTD Companies, Inc. (together with its subsidiaries, “FTD” or the “Company”), 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 approximately 40,000 floral shops in nearly 150 countries. Our diversified portfolio of brands also includes ProFlowers®, ProPlants®, Shari’s Berries®, Personal Creations®, RedEnvelope®, Flying Flowers®, Flowers Direct®,  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, gift baskets, wine and champagne, jewelry, and spa products.

The principal operating subsidiaries of FTD Companies, Inc. are Florists’ Transworld Delivery, Inc., FTD.COM Inc. (“FTD.COM”), Provide Commerce, Inc. (“Provide Commerce”), and Interflora British Unit (“Interflora”). The operations of the Company include those of its subsidiary, Interflora, Inc., of which one‑third is owned by a third party. The Company’s corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego and San Francisco, California; Woodridge, Illinois; Centerbrook, Connecticut; Sleaford, England; Quebec, Canada; and Hyderabad, India. The Company has distribution centers in various locations throughout the U.S.

Basis of Presentation

These condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including those for interim financial information, and with the instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial position and operating results for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The condensed consolidated balance sheet information at December 31, 2015, was derived from the Company’s audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2015, but does not include all of the disclosures required by GAAP.

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

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10‑K for the year ended December 31, 2015.

Accounting Policies

Refer to the Company’s audited consolidated financial statements included in the Company’s Form 10‑K for the year ended December 31, 2015, for a discussion of the Company’s accounting policies.

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Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest, became effective as of January 1, 2016. This update requires that debt issuance costs related to a debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, also became effective as of January 1, 2016. This update clarifies that an entity may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether or not there are any outstanding borrowings on the line-of-credit arrangement. The Company elected to present all debt issuance costs, including those associated with the Company’s revolving credit facility, consistently as a direct deduction from the carrying amount of the liability. The Company has applied the provisions of ASU 2015-03 retrospectively to all periods presented, as required by the update. This resulted in a reclassification which reduced both other assets and the related outstanding debt by $4.0 million and $5.1 million at September 30, 2016 and December 31, 2015, respectively.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-04, Liabilities—Extinguishment of Liabilities—Recognition of Breakage for Certain Prepaid Stored-Value Products. The amendments in this ASU specify how a company should derecognize amounts related to expected breakage of prepaid store-value products. Breakage should be recognized in proportion to the pattern of rights expected to be exercised by the product holder to the extent that it is probable a significant reversal of the recognized breakage amount will not subsequently occur. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively or using a modified retrospective approach. The Company’s accounting for breakage already follows the guidance in this ASU. Therefore, the Company considered this ASU to have been adopted upon issuance.

Recently Issued Accounting Standards

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The amendments in this ASU affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The amendments in this ASU require an entity to recognize revenue related to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) to clarify the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. Further, in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing to clarify identifying performance obligations and the licensing implementation guidance. This guidance includes indicators to assist an entity in evaluating whether promised goods and services are distinct along with guidance to determine whether an entity promises to grant a license to a customer with either a right to use the entity’s intellectual property at a point in time or a right to access the entity’s intellectual property over a period of time. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The guidance also clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria.  The guidance under this topic was deferred by ASU 2015-14, issued by the FASB in August 2015, and is now effective for fiscal years and interim periods beginning on or after December 15, 2017 with early adoption permitted as of the original effective date for periods beginning after December 15, 2016. The Company is currently assessing the impact of these updates on its consolidated financial statements.

In July 2015, FASB issued ASU 2015-11, Inventory—Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The update does not apply to inventory that is measured using last-in, first-out or the retail inventory method. The update applies to all other inventory, which includes

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inventory that is measured using first-in, first-out or average cost methods. The amendments in this ASU will be effective for the Company for fiscal years, and the interim periods within those years, beginning after December 15, 2016. The amendments must be applied prospectively and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In January 2016, FASB issued ASU 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendments in this ASU will be effective for the Company for fiscal years and interim periods within those years, beginning after December 15, 2017. The amendments must be applied prospectively and early adoption is permitted for certain measurement enhancements within this amendment. Early adoption is not permitted for other aspects updated in this amendment. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases. This update requires the recognition of certain lease assets and lease liabilities on the balance sheet as well as the disclosure of key information about leasing arrangements. The amendments in this ASU require the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients which may be elected by the Company. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation. The amendments in this ASU simplify several aspects of the accounting for stock-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. These amendments are to be applied on a retrospective, modified retrospective, or prospective basis, depending on the related items. The Company is currently assessing the impact of this update on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which guidance is effective, which is a modified-retrospective approach. The Company is currently assessing the impact of this update on its consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. This update was issued to address the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

 

 

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2. SEGMENT INFORMATION

The Company reports its business in four reportable segments: Consumer, Provide Commerce, Florist, and International.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2016

    

2015

    

2016

    

2015

    

Products revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

51,298

 

$

59,573

 

$

220,887

 

$

245,295

 

Provide Commerce

 

 

57,112

 

 

60,465

 

 

390,751

 

 

440,249

 

Florist

 

 

10,328

 

 

10,692

 

 

38,417

 

 

39,510

 

International

 

 

27,379

 

 

30,765

 

 

102,660

 

 

108,809

 

Segment products revenues

 

 

146,117

 

 

161,495

 

 

752,715

 

 

833,863

 

Services revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Florist

 

 

26,277

 

 

26,061

 

 

88,538

 

 

86,412

 

International

 

 

4,222

 

 

4,773

 

 

15,037

 

 

15,891

 

Segment services revenues

 

 

30,499

 

 

30,834

 

 

103,575

 

 

102,303

 

Intersegment eliminations

 

 

(3,462)

 

 

(3,810)

 

 

(13,963)

 

 

(14,065)

 

Consolidated revenues

 

$

173,154

 

$

188,519

 

$

842,327

 

$

922,101

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2016

    

2015

    

2016

    

2015

    

Intersegment revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

(2,951)

 

$

(3,160)

 

$

(12,022)

 

$

(13,182)

 

Provide Commerce

 

 

(440)

 

 

(590)

 

 

(1,707)

 

 

(661)

 

Florist

 

 

(71)

 

 

(60)

 

 

(234)

 

 

(222)

 

Total intersegment revenues

 

$

(3,462)

 

$

(3,810)

 

$

(13,963)

 

$

(14,065)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2016

    

2015

    

2016

    

2015

    

Segment operating income/(loss)(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

5,059

 

$

9,641

 

$

22,457

 

$

27,995

 

Provide Commerce

 

 

(1,847)

 

 

(5,679)

 

 

27,406

 

 

29,307

 

Florist

 

 

11,362

 

 

10,067

 

 

36,722

 

 

36,327

 

International

 

 

4,130

 

 

3,460

 

 

16,158

 

 

15,260

 

Total segment operating income

 

 

18,704

 

 

17,489

 

 

102,743

 

 

108,889

 

Unallocated expenses(b)

 

 

(9,416)

 

 

(11,198)

 

 

(29,514)

 

 

(36,252)

 

Depreciation expense and amortization of intangible assets

 

 

(20,986)

 

 

(21,352)

 

 

(63,502)

 

 

(63,265)

 

Operating income/(loss)

 

 

(11,698)

 

 

(15,061)

 

 

9,727

 

 

9,372

 

Interest expense, net

 

 

(2,294)

 

 

(2,328)

 

 

(6,863)

 

 

(6,995)

 

Other income/(expense), net

 

 

(9)

 

 

131

 

 

1,804

 

 

557

 

Income/(loss) before income taxes

 

$

(14,001)

 

$

(17,258)

 

$

4,668

 

$

2,934

 


(a)

Segment operating income/(loss) is operating income/(loss) excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction-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/(loss) is prior to intersegment eliminations and excludes other income/(expense), net.

(b)

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2016

    

2015

    

2016

    

2015

    

U.S.

 

$

141,553

 

$

152,981

 

$

724,630

 

$

797,401

 

U.K.

 

 

31,601

 

 

35,538

 

 

117,697

 

 

124,700

 

Consolidated revenues

 

$

173,154

 

$

188,519

 

$

842,327

 

$

922,101

 

 

 

 

 

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3. BALANCE SHEET COMPONENTS

Financing Receivables

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

Current

 

$

11,594

 

$

11,102

Past due

 

 

838

 

 

746

Total

 

$

12,432

 

$

11,848

 

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

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

Current

 

$

11,594

 

$

11,102

Past due:

 

 

 

 

 

 

1 - 150 days past due

 

 

110

 

 

152

151 - 364 days past due

 

 

155

 

 

175

365 - 730 days past due

 

 

236

 

 

242

731 or more days past due

 

 

337

 

 

177

Total

 

$

12,432

 

$

11,848

 

Financing receivables on nonaccrual status at September 30, 2016 and December 31, 2015, totaled $0.9 million and $0.8 million, respectively.

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

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

    

2016

    

2015

Allowance for credit losses:

 

 

 

 

 

 

Balance at January 1

 

$

706

 

$

3,200

Provision

 

 

131

 

 

233

Write-offs charged against allowance

 

 

(66)

 

 

(2,799)

Balance at September 30

 

$

771

 

$

634

Ending balance collectively evaluated for impairment

 

$

767

 

$

588

Ending balance individually evaluated for impairment

 

$

4

 

$

46

Recorded investments in financing receivables:

 

 

 

 

 

 

Balance collectively evaluated for impairment

 

$

861

 

$

693

Balance individually evaluated for impairment

 

$

11,571

 

$

11,044

Individually evaluated impaired loans, including the recorded investment in such loans, the unpaid principal balance, and the allowance related to such loans, each totaled less than $0.1 million at both September 30, 2016 and December 31, 2015. The average recorded investment in such loans was less than $0.1 million in each of the nine months ended September 30, 2016 and 2015. Interest income recognized on impaired loans was less than $0.1 million in each of the nine months ended September 30, 2016 and 2015.

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Property and Equipment

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

Land and improvements

 

$

1,575

 

$

1,601

Buildings and improvements

 

 

16,195

 

 

16,303

Leasehold improvements

 

 

16,691

 

 

16,691

Equipment

 

 

13,996

 

 

13,711

Computer equipment

 

 

27,556

 

 

27,067

Computer software

 

 

58,504

 

 

50,897

Furniture and fixtures

 

 

3,406

 

 

3,564

 

 

 

137,923

 

 

129,834

Accumulated depreciation

 

 

(79,845)

 

 

(65,081)

Total

 

$

58,078

 

$

64,753

Depreciation expense, including the amortization of leasehold improvements, was $5.7 million and $6.0 million for the quarters ended September 30, 2016 and 2015, respectively and $17.6 million and $17.2 million for the nine months ended September 30, 2016 and 2015, respectively.

 

 

4. TRANSACTIONS WITH RELATED PARTIES

Transactions with Liberty

As of September 30, 2016, Liberty Interactive Corporation (“Liberty”) owned approximately 37% of the issued and outstanding shares of FTD common stock. An Investor Rights Agreement governs certain rights of and restrictions on Liberty in connection with the shares of FTD common stock that Liberty owns. On December 31, 2014, in conjunction with the acquisition of Provide Commerce, Provide Commerce and Liberty entered into a services agreement (the “Services Agreement”), under which Provide Commerce, on a short-term transitional basis, provided Liberty with certain support service and other assistance after the acquisition in respect of the RedEnvelope business, an online e-commerce business that was not acquired by FTD as part of the acquisition. Fees of $0.3 million were earned in 2015 during the term of the Services Agreement. On April 1, 2015, Provide Commerce and Liberty entered into an amendment to the Services Agreement to extend the term of the Services Agreement to June 30, 2015. The Services Agreement terminated on June 30, 2015.

The acquisition purchase price was subject to adjustment based upon the final closing working capital, which adjustment was determined to be $9.9 million. In April 2015, FTD made a payment to Liberty in full satisfaction of this adjustment.

On April 30, 2015, the Company, through a wholly owned subsidiary, entered into a Purchase and Sale Agreement with an indirect wholly owned subsidiary of Liberty, pursuant to which the Company acquired certain residual assets previously used by Liberty in the RedEnvelope business for a cash purchase price of $0.3 million. The purchase price was allocated to the assets acquired based on their relative fair values, resulting in allocated values of $0.1 million to fixed assets, $0.1 million to inventory, and $0.1 million to the trademark and trade name.

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The I.S. Group Limited

Interflora holds an equity investment of 20.4% in The I.S. Group Limited (“I.S. Group”). The investment was $1.5 million and $1.6 million at September 30, 2016 and December 31, 2015, respectively, and is included in other assets in the condensed consolidated balance sheets. I.S. Group supplies floral-related products to Interflora’s floral network members in both the U.K. and the Republic of Ireland as well as to other customers. Interflora derives revenues from I.S. Group from (i) the sale of products (sourced from third-party suppliers) to I.S. Group for which revenue is recognized on a gross basis, (ii) commissions on products sold by I.S. Group (sourced from third-party suppliers) to floral network members, and (iii) commissions for acting as a collection agent on behalf of I.S. Group. Revenues related to products sold to and commissions earned from I.S. Group were $0.5 million and $0.6 million in the quarters ended September 30, 2016 and 2015, and $1.8 million and $2.0 million for the nine months ended September 30, 2016 and 2015. In addition, Interflora purchases products from I.S. Group for sale to consumers. The cost of revenues related to products purchased from I.S. Group was $0.1 million and less than $0.1 million in the quarters ended September 30, 2016 and 2015, respectively, and $0.4 million and $0.3 million for the nine months ended September 30, 2016 and 2015, respectively. Amounts due from I.S. Group were $0.2 million and $0.3 million at September 30, 2016 and December 31, 2015, respectively, and amounts payable to I.S. Group were $0.9 million and $1.4 million at September 30, 2016 and December 31, 2015, respectively.

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

Goodwill

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2016 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provide

 

 

 

 

 

 

 

 

 

 

    

Consumer

 

Commerce

    

Florist

    

International

    

Total

Goodwill at December 31, 2015

 

$

133,226

 

$

231,501

 

$

109,651

 

$

87,278

 

$

561,656

Foreign currency translation

 

 

 —

 

 

 —

 

 

 —

 

 

(10,448)

 

 

(10,448)

Goodwill at September 30, 2016

 

$

133,226

 

$

231,501

 

$

109,651

 

$

76,830

 

$

551,208

 

In 2015 and 2008, the Company recorded impairment charges of $85.0 million and $116.3 million, respectively. The table above reflects the Company’s goodwill balances net of the accumulated impairment charges. The gross goodwill balance was $752.5 million at September 30, 2016.

 

Intangible Assets

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

 

Gross

 

Accumulated

 

 

 

 

Gross

 

Accumulated

 

 

 

 

    

Value

    

Amortization

    

Net

    

Value

    

Amortization

    

Net

Complete technology

 

$

76,752

 

$

(53,153)

 

$

23,599

 

$

77,494

 

$

(48,438)

 

$

29,056

Customer contracts and relationships

 

 

192,982

 

 

(181,594)

 

 

11,388

 

 

195,209

 

 

(149,636)

 

 

45,573

Trademarks and trade names

 

 

269,572

 

 

(14,832)

 

 

254,740

 

 

274,606

 

 

(8,676)

 

 

265,930

Total

 

$

539,306

 

$

(249,579)

 

$

289,727

 

$

547,309

 

$

(206,750)

 

$

340,559

Some of the Company’s trademarks and trade names are indefinite‑lived assets for which there is no associated amortization expense or accumulated amortization. At September 30, 2016 and December 31, 2015, such indefinite‑lived assets, after impairment and foreign currency translation adjustments, totaled $149.3 million and $154.2 million, respectively.

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As of September 30, 2016, estimated future intangible assets amortization expense for each of the next five years and thereafter, was as follows (in thousands):

 

 

 

 

For the Year Ended

    

Future Amortization Expense

2016 (remainder of year)

    

$

15,209

2017

 

 

15,273

2018

 

 

15,273

2019

 

 

15,273

2020

 

 

8,004

Thereafter

 

 

71,387

Total

 

$

140,419

 

 

6. FINANCING ARRANGEMENTS

Credit Agreement

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

On September 19, 2014, the Company entered into an amendment to the 2013 Credit Agreement which amended and restated the 2013 Credit Agreement in its entirety (as amended and restated, the “Amended Credit Agreement”). Among other things, the Amended Credit Agreement provided for a term loan in an aggregate principal amount of $200 million and provided for a revolving loan advance (the “Acquisition Advance”) to finance the cash portion of the Provide Commerce acquisition purchase price.

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

The interest rates applicable to borrowings under the Amended Credit Agreement are based on either LIBOR plus a margin ranging from 1.50% per annum to 2.50% per annum, or a base rate plus a margin ranging from 0.50% per annum to 1.50% per annum, calculated according to the Company’s net leverage ratio. At September 30, 2016, the base rate margin was 0.75% per annum and the LIBOR margin was 1.75% per annum. In addition, the Company pays a commitment fee ranging from 0.20% per annum to 0.40% per annum on the unused portion of the revolving credit facility. The stated interest rates (based on LIBOR) at September 30, 2016, under the term loan and the revolving credit facility were 2.59% and 2.27%, respectively. The effective interest rates at September 30, 2016, under the term loan and the revolving credit facility were 3.39% and 3.06%, respectively. The commitment fee rate at September 30, 2016, was 0.25%. The Amended Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, and asset sales, and the Company’s ability to incur additional debt and additional liens.

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The term loan is subject to amortization payments of $5.0 million per quarter and customary mandatory prepayments under certain conditions. The outstanding balance of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019. At September 30, 2016, the future minimum principal payments through the maturity date of the Amended Credit Agreement were as follows for each of the next five years (in thousands):

 

 

 

 

For the Year Ended

    

Future Minimum Principal Payments

2016 (remainder of year)