Document
Table of Contents    

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                      to             
Commission file number 001-35901
 
FTD Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
32-0255852
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
3113 Woodcreek Drive, Downers Grove, Illinois
(Address of principal executive offices)
60515
(Zip Code)
(630) 719-7800
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
Large accelerated filer
o
 
Accelerated filer
x
Non-accelerated filer
¨
 
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x
There were 28,224,335 shares of the Registrant’s common stock outstanding as of November 2, 2018.
 


Table of Contents    

FTD COMPANIES, INC.
INDEX TO FORM 10-Q
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
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.

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Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “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 regarding the exploration of strategic alternatives; the strategic and financial evaluation of our business; our corporate restructuring and cost savings plan and other strategies; our future financial performance, including our 2018 financial outlook; our ability to continue as a going concern, repay or refinance indebtedness and invest in initiatives; 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; impairment charges; tax payments; foreign currency exchange rates; hedging arrangements; 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, uncertainties associated with being able to identify, evaluate or complete any strategic alternative or strategic transaction; the impact of the announcement of our review of strategic alternatives, as well as any strategic alternative or strategic transaction that may be pursued, on our business, including our financial and operating results and our employees, suppliers and customers; our ability to implement and realize anticipated benefits from our corporate restructuring and cost savings plan and other initiatives; our ability to repay, refinance or restructure our outstanding debt, and the other 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”), and in this Quarterly Report on Form 10-Q, 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. 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,
2018
 
December 31,
2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
23,124

 
$
29,496

Accounts receivable, net of allowances of $6,731 and $4,957 as of September 30, 2018 and December 31, 2017, respectively
 
23,829

 
26,028

Inventories
 
30,148

 
25,356

Prepaid expenses and other current assets
 
11,684

 
14,911

Total current assets
 
88,785

 
95,791

Property and equipment, net
 
47,598

 
33,880

Intangible assets, net
 
104,149

 
181,965

Goodwill
 
210,935

 
277,041

Other assets
 
10,028

 
21,648

Total assets
 
$
461,495

 
$
610,325

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
43,088

 
$
70,480

Accrued liabilities
 
45,702

 
77,058

Accrued compensation
 
21,467

 
14,261

Deferred revenue
 
6,644

 
5,280

Income taxes payable
 
2,600

 
872

Current portion of long-term debt
 
255,904

 
189,666

Total current liabilities
 
375,405

 
357,617

Deferred tax liabilities, net
 
9,659

 
30,854

Other liabilities
 
8,468

 
7,330

Total liabilities
 
393,532

 
395,801

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; 30,655,232 and 30,073,087 shares issued as of September 30, 2018 and December 31, 2017, respectively
 
3

 
3

Treasury stock, 2,430,897 shares as of September 30, 2018 and December 31, 2017
 
(65,221
)
 
(65,221
)
Additional paid-in capital
 
718,211

 
705,388

Accumulated deficit
 
(540,123
)
 
(384,232
)
Accumulated other comprehensive loss
 
(44,907
)
 
(41,414
)
Total stockholders’ equity
 
67,963

 
214,524

Total liabilities and stockholders’ equity
 
$
461,495

 
$
610,325

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)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Products
 
$
121,822

 
$
131,361

 
$
672,831

 
$
705,553

Services
 
26,799

 
29,943

 
93,881

 
100,390

Total revenues
 
148,621

 
161,304

 
766,712

 
805,943

Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenues—products
 
92,621

 
98,895

 
488,838

 
489,704

Cost of revenues—services
 
4,180

 
4,280

 
13,192

 
13,024

Sales and marketing
 
36,202

 
36,450

 
189,551

 
181,570

General and administrative
 
25,249

 
27,656

 
74,083

 
83,450

Amortization of intangible assets
 
314

 
3,820

 
3,311

 
11,459

Restructuring and other exit costs
 
18,097

 
1,113

 
18,097

 
2,057

Impairment of goodwill, intangible assets, and other long-lived assets
 
411

 
105,735

 
139,627

 
105,735

Total operating expenses
 
177,074

 
277,949

 
926,699

 
886,999

Operating loss
 
(28,453
)
 
(116,645
)
 
(159,987
)
 
(81,056
)
Interest income
 
113

 
122

 
354

 
359

Interest expense
 
(5,804
)
 
(2,721
)
 
(12,920
)
 
(7,671
)
Other income, net
 
706

 
126

 
842

 
324

Loss before income taxes
 
(33,438
)
 
(119,118
)
 
(171,711
)
 
(88,044
)
Benefit from income taxes
 
(2,228
)
 
(19,799
)
 
(15,820
)
 
(7,464
)
Net loss
 
$
(31,210
)
 
$
(99,319
)
 
$
(155,891
)
 
$
(80,580
)
Loss per common share:
 
 
 
 
 
 
 
 
Basic loss per share
 
$
(1.11
)
 
$
(3.61
)
 
$
(5.59
)
 
$
(2.93
)
Diluted loss per share
 
$
(1.11
)
 
$
(3.61
)
 
$
(5.59
)
 
$
(2.93
)
 
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 LOSS
(Unaudited, in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net loss
 
$
(31,210
)
 
$
(99,319
)
 
$
(155,891
)
 
$
(80,580
)
Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
Foreign currency translation
 
(1,252
)
 
3,089

 
(3,713
)
 
8,935

Cash flow hedges:
 
 
 
 
 
 
 
 
Changes in net gains on derivatives, net of tax of $0 and $55 for the three months ended September 30, 2018 and 2017, respectively, and $59 and $162 for the nine months ended September 30, 2018 and 2017, respectively.
 

 
85

 
220

 
257

Other comprehensive income/(loss)
 
(1,252
)
 
3,174

 
(3,493
)
 
9,192

Total comprehensive loss
 
$
(32,462
)
 
$
(96,145
)
 
$
(159,384
)
 
$
(71,388
)
 
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)
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of December 31, 2017
 
30,073

 
$
3

 
(2,431
)
 
$
(65,221
)
 
$
705,388

 
$
(41,414
)
 
$
(384,232
)
 
$
214,524

Net loss
 

 

 

 

 

 

 
(155,891
)
 
(155,891
)
Other comprehensive loss
 

 

 

 

 

 
(3,493
)
 

 
(3,493
)
Stock-based compensation
 

 

 

 

 
12,904

 

 

 
12,904

Vesting of restricted stock units and related repurchases of common stock
 
477

 

 

 

 
(494
)
 

 

 
(494
)
Issuance of common stock through employee stock purchase plan
 
105

 

 

 

 
413

 

 

 
413

Balance as of September 30, 2018
 
30,655

 
$
3

 
(2,431
)
 
$
(65,221
)
 
$
718,211

 
$
(44,907
)
 
$
(540,123
)
 
$
67,963

 
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,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(155,891
)
 
$
(80,580
)
Adjustments to reconcile net loss to net cash used for operating activities:
 
 

 
 

Depreciation and amortization
 
11,562

 
27,778

Impairment of goodwill, intangible assets, and other long-lived assets
 
139,627

 
105,735

Stock-based compensation
 
12,904

 
8,221

Provision for doubtful accounts receivable
 
1,926

 
1,515

Amortization of deferred financing fees
 
2,154

 
1,020

Deferred taxes, net
 
(21,149
)
 
(17,314
)
Gain on sale of business
 
(426
)
 

Other, net
 
(138
)
 
(95
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
329

 
923

Inventories
 
(4,801
)
 
(5,770
)
Prepaid expenses and other assets
 
4,751

 
4,139

Accounts payable and accrued liabilities
 
(50,168
)
 
(62,235
)
Deferred revenue
 
1,432

 
750

Income taxes receivable or payable
 
572

 
(1,033
)
Other liabilities
 
1,225

 
(1,198
)
Net cash used for operating activities
 
(56,091
)
 
(18,144
)
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(26,354
)
 
(10,677
)
Proceeds from life insurance
 
10,003

 

Proceeds from sale of business
 
2,186

 

Net cash used for investing activities
 
(14,165
)
 
(10,677
)
Cash flows from financing activities:
 
 
 
 
Proceeds from revolving lines of credit
 
272,000

 
90,000

Payments on term debt and revolving lines of credit
 
(203,346
)
 
(115,000
)
Purchases from employee stock plan
 
412

 
1,042

Payments for debt financing fees
 
(4,569
)
 

Repurchases of common stock withheld for taxes
 
(494
)
 
(1,983
)
Net cash provided by/(used for) financing activities
 
64,003

 
(25,941
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
 
(119
)
 
1,605

Change in cash and cash equivalents
 
(6,372
)
 
(53,157
)
Cash and cash equivalents, beginning of period
 
29,496

 
81,002

Cash and cash equivalents, end of period
 
$
23,124

 
$
27,845

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


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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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 world’s floral innovator and leader, creating products, brands, and technology-driven services its customers love. The Company provides 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. The business uses the highly recognized FTD® and Interflora® brands, both supported by the iconic Mercury Man® logo. While the Company operates primarily in the United States (“U.S.”) and the United Kingdom (“U.K.”), it has worldwide presence as its Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. The Company’s diversified portfolio of brands also includes ProFlowers®, ProPlants®, Shari’s Berries®, Personal Creations®, RedEnvelope®, Flying Flowers®, and Gifts.com. While floral arrangements and plants are its primary offerings, the Company also markets and sells gift items, including gourmet-dipped berries and other sweets, personalized gifts, gift baskets, wine and champagne, and jewelry.
The principal operating subsidiaries of FTD Companies, Inc. are Florists’ Transworld Delivery, Inc., FTD.COM Inc. (“FTD.com”), Interflora British Unit (“Interflora”), and Provide Commerce, Inc. (“Provide Commerce”). The operations of the Company include those of its subsidiary, Interflora, Inc., of which one-third is owned by a third party. The Company’s corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego, California; Woodridge, Illinois; Centerbrook, Connecticut; Sleaford, England; and Hyderabad, India; and distribution centers in various locations throughout the U.S.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of 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 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.
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, 2017.
Going Concern
The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The ability to continue as a going concern is dependent on the Company generating profitable operating results, having sufficient liquidity, maintaining compliance with the revised financial covenants and other requirements under the Amended Credit Agreement (as defined below), and refinancing or repaying the indebtedness outstanding under the Amended Credit Agreement, including in connection with a sale or merger of the Company or other strategic transaction.
    As described in more detail in Note 6—“Financing Arrangements,” on May 31, 2018, the Company entered into the Third Amendment to Credit Agreement (the Credit Agreement, as defined in Note 6—“Financing Arrangements,” as previously amended and as further amended by the Third Amendment, is referred to in this Form 10-Q as the “Third Amendment”) with its lenders, which included an agreement by the lenders to waive existing defaults caused by (1) the inclusion of a going concern uncertainty explanatory paragraph in the audit opinion on the Company’s financial statements for the year ended December 31, 2017 and (2) the breach of the consolidated net leverage ratio covenant for the three months ended March 31, 2018. Among other modifications to the Credit Agreement, the Third Amendment revised the consolidated net leverage ratio and fixed charge coverage ratio covenants for each quarterly period through the September 19, 2019 maturity date, as well as the interest rates applicable to the borrowings.    

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Also as described in more detail in Note 6—“Financing Arrangements,” on September 28, 2018, the Company entered into the Fourth Amendment to Credit Agreement (the Third Amendment, as further amended by the Fourth Amendment, is referred to in this Form 10-Q as the “Fourth Amendment”) with its lenders. Among other modifications to the Credit Agreement, the Fourth Amendment modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenant tests such that the next measurement date was revised to the twelve month period ended October 31, 2018, from the four fiscal quarter period ended September 30, 2018, with the specific required ratio levels otherwise unchanged from the Third Amendment.
As discussed in Note 6—“Financing Arrangements” and disclosed in Note 16—“Subsequent Events,” the Company entered into the Fifth Amendment to Credit Agreement (the Fourth Amendment, as further amended by the Fifth Amendment, is referred to in this Form 10-Q as the “Fifth Amendment”) and the Sixth Amendment to Credit Agreement (the Fifth Amendment, as further amended by the Sixth Amendment, is referred to in this Form 10-Q as the “Sixth Amendment” or the “Amended Credit Agreement”) with its lenders on October 31, 2018 and November 5, 2018, respectively. Among other modifications to the Fourth Amendment, the Fifth Amendment further restricted the Company’s combined usage of the revolving credit facility portion of the Credit Agreement. The Fifth Amendment also modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenant tests from the dates set forth in the Fourth Amendment such that the next measurement date was revised to the twelve month period ending November 30, 2018 from the twelve month period ended October 31, 2018. The Fifth Amendment also established the consolidated net leverage and fixed charge coverage ratios for the twelve month period ending November 30, 2018 with the required ratio levels for the remaining periods otherwise unchanged from the Third Amendment. In addition, the Fifth Amendment subjects the Company to certain additional restrictions on capital expenditures and certain additional events of default. The Sixth Amendment, or Amended Credit Agreement, further restricts the Company’s combined usage of the revolving credit facility portion of the Credit Agreement to amounts ranging from $90 million to $170 million based on the Company’s expected borrowing needs at various points in its business cycle. The Sixth Amendment, or Amended Credit Agreement, also revises the consolidated net leverage ratio and fixed charge coverage ratio covenants set forth in the Fifth Amendment for each period through the September 19, 2019 maturity date of the Amended Credit Agreement.
Based on the Company’s 2018 year-to-date results of operations and outlook for the remainder of the term of the Amended Credit Agreement, the Company currently anticipates that it will be in compliance with the revised financial covenants under the Amended Credit Agreement. However, the Company also will need to make sufficient progress in addressing the need to refinance or repay the indebtedness outstanding under the Amended Credit Agreement such that the Company is able to obtain an audit opinion with no modifications on the Company’s financial statements for the year ending December 31, 2018. If the Company is unable to meet the revised financial covenants or other requirements of the Amended Credit Agreement and is unable to obtain waivers or amendments from its lenders, the lenders could exercise remedies under the Amended Credit Agreement and repayment of the debt owed under the Amended Credit Agreement could be accelerated. The Company does not expect that it could repay all of its outstanding indebtedness if the repayment of such indebtedness was accelerated.

As part of the Company’s efforts to address these issues, as previously announced, the Company’s board of directors has initiated a review of strategic alternatives. The strategic alternatives under consideration include, but are not limited to, a sale or merger of the Company, the Company continuing to pursue value-enhancing initiatives as a standalone company, and potential financings or other equity transactions. The Company also announced a corporate restructuring and cost savings plan, under which opportunities to optimize operations, drive efficiency, and reduce costs have been identified.
As noted above, the Company will need to refinance or repay the indebtedness outstanding under the Amended Credit Agreement no later than the September 2019 maturity date of the Amended Credit Agreement. There can be no assurance that the Company will be able to effect a refinancing on acceptable terms or repay the indebtedness outstanding, when required or if at all, including as a result of the strategic alternatives review noted above. In this regard, there can be no assurance that the strategic alternatives review will result in any particular strategic alternative or strategic transaction. If the Company is not successful in its initiatives or does not have sufficient liquidity to fund its business activities, the Company may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition. The uncertainties identified above raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements included in this Form 10-Q do not include any adjustments that might result from the outcome of the Company’s efforts to address these uncertainties.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Accounting Policies
With the exception of the Company’s revenue recognition and income tax policies as noted below, refer to the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2017 for a discussion of the Company’s accounting policies, as updated below for recently adopted accounting standards.
Revenue Recognition
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with Customers effective January 1, 2018, using the modified retrospective method. This method requires that the cumulative effect of the initial application is recognized as an adjustment to the opening balance of the Company’s retained earnings at January 1, 2018. However, the adoption did not have a material impact on the Company’s revenue recognition. As such, the Company did not record an adjustment to its beginning balance of retained earnings as of January 1, 2018.
The Company recognizes revenue from short-term contracts for the sale of various products and services to its customers, which include consumers, floral network members, and wholesale customers. Sales to consumers are generated via the Company’s websites, mobile sites, or over the telephone with payment made either at the time the order is placed or upon shipment. Product revenues from these short-term contracts are single performance obligations and are considered complete upon delivery to the recipient. Amounts collected from customers upon placement of an order are recorded as deferred revenue and recognized upon delivery of the product. Products revenues, less discounts and refunds, and the related cost of revenues are recognized when control of the goods is transferred to the recipient, which is generally upon delivery. Product sales are not refundable other than as related to customer service issues. Shipping and service fees charged to customers are recognized at the time the related products revenues are recognized and are included in products revenues. Shipping and delivery costs are included in cost of revenues. Sales taxes are collected from customers and remitted to the appropriate taxing authorities and are not reflected in the Company’s condensed consolidated statements of operations as revenues.
The Company generally recognizes revenues for sales to consumers on a gross basis because the Company controls the goods before they are transferred to the recipient as the Company (i) bears primary responsibility for fulfilling the promise to the customer; (ii) bears inventory risk before and/or after the good or service is transferred to the customer; and (iii) has discretion in establishing the price for the sale of the good or service to the customer.
Services revenues related to orders sent through the floral network are variable based on either the number of orders or the value of orders and are recognized in the period in which the orders are delivered. Membership and other subscription-based fees are recognized monthly as earned, on a month-to-month basis. Each service offered by the Company is separate and distinct from other services and represents an individual performance obligation.
The Company also sells point-of-sale systems and related technology services to its floral network members and recognizes revenue in accordance with ASC 606. For hardware sales that include software, revenues are recognized when delivery, installation and customer acceptance have all occurred. The transaction price for point-of-sale systems is based on the equipment and the software modules ordered by the customer and include installation and training for the system. The sale of the system is considered a single performance obligation since the installation and training are a significant part of the sale in order for the floral network member to send and receive floral orders through the point-of-sale systems. The Company recognizes revenues on hardware which is sold without software at the time of delivery.    
Probability of collection for both products and services revenue is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If it is determined that collectability is not reasonably assured, revenues are not recognized until collectability becomes reasonably assured.
The Company incurs contract costs that are incremental costs incurred for obtaining a contract. These contract costs are short-term (less than a year) and are expensed as incurred based on the practical expedient provided in ASC 606. As such, the Company does not capitalize costs incurred for obtaining a contract.    

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Income Taxes
We apply the provisions of ASC 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more-likely-than-not to be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In accordance with ASC 740, we recognize, in our consolidated financial statements, the impact of our tax positions that are more-likely-than-not to be sustained upon examination based on the technical merits of the positions. We recognize interest and penalties for uncertain tax positions in income tax expense.
Our U.S. businesses were in a cumulative three year net loss position, adjusted for permanent items, at the end of the three months ended September 30, 2018. Given the cumulative losses, which are negative evidence that was considered in assessing the realizability of the U.S. deferred tax assets, we did not consider future taxable income exclusive of reversing temporary differences and carryforwards nor did we consider tax planning strategies related to those businesses. We did consider the future reversal of existing taxable temporary differences as positive evidence that was considered in assessing the need for a valuation allowance. At September 30, 2018, the U.S. businesses were in a net deferred tax liability position. Based on a scheduling analysis, the deferred tax liabilities will be reversed over future periods and create taxable income that will exceed the deductions created by the reversal of the deferred tax assets. We believe that this presents sufficient positive evidence to overcome the negative evidence presented by the cumulative net losses.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In March 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-05, Income Taxes (Topic 740)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which provides guidance from the SEC allowing for the recognition of provisional amounts in the financial statements for the year ended December 31, 2017 as a result of the U.S. Tax Cuts and Jobs Act (“TCJA”) that was signed into law in December 2017. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA. The Company has applied the guidance in this update in its financial statements for the nine months ended September 30, 2018 and will finalize and record any adjustments related to the TCJA within the one year measurement period. The Company does not currently anticipate any material adjustments related to the TCJA.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, respectively (collectively, “Topic 606”). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company adopted the guidance under this topic as of January 1, 2018 with no material impact to its consolidated financial statements. See Accounting Policies—Revenue Recognition above. The disclosures required by ASC 606 have been included in Note 2—Segment Information.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The updated guidance enhances the reporting model for financial instruments, and includes amendments to address aspects of recognition, measurement, presentation and disclosure. The Company adopted the guidance under this topic as of January 1, 2018 with no impact to its consolidated financial statements. 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification 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 Company adopted the guidance under this topic as of January 1, 2018 with no impact to its consolidated financial statements.     

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This update was issued to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of terms or conditions of a share-based payment award. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards would require an entity to apply modification accounting under Topic 718. The Company adopted the guidance under this topic as of January 1, 2018 with no impact to its consolidated financial statements. 
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). 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. ASU 2016-02 includes a number of optional practical expedients which may be elected by the Company. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Targeted Improvements to Topic 842 (Leases), which provides an additional, optional transition method that allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. An entity that adopts this method must report comparative periods in accordance with current guidance (Topic 840). The amendments will be effective for the Company for fiscal years, and the interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company anticipates adopting this ASU effective January 1, 2019 using the new transition method. The Company expects to recognize a liability and corresponding asset associated with in-scope operating leases but is still in the process of determining those amounts and the processes required to account for leasing activity on an ongoing basis. The Company is currently assessing the impact of this update on its consolidated statements of income. The impact of this topic is non-cash in nature and, as such, it will not affect the Company’s cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). 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 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 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update seeks to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. For cash flow and net investment hedges as of the adoption date, this ASU requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The amendments in this ASU are effective for the Company’s fiscal year beginning after December 31, 2018, with early adoption permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. This update also requires certain disclosures about stranded tax effects. 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, 2018, with early adoption permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update allows existing employee guidance to apply to non-employee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. 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, 2018, with early adoption permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. This update facilitates technical corrections, clarifications and other minor improvements and should eliminate the need for periodic agenda requests for narrow and incremental items. The FASB does not expect these changes to have a significant administrative cost to most entities. Some of the amendments in this ASU do not require transition guidance and were effective upon issuance. However, many of the amendments do have transition guidance effective for the Company for annual periods beginning after December 15, 2018. The Company is currently assessing the impact of this update on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This update eliminates, amends and adds disclosure requirements for fair value measurement. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and the weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact of this update on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact of this update on its consolidated financial statements.
2. SEGMENT INFORMATION
The Company reports its business in three reportable segments: U.S. Consumer, Florist, and International. Prior to January 1, 2018, the Company reported its business in four reportable segments. As a result of a change in the information provided to and utilized by the Company’s then-current Chief Executive Officer (who was also the Company’s Chief Operating Decision Maker (“CODM”)) to assess the performance of the business, the Company combined the previous Provide Commerce and Consumer segments into one reportable segment. There have been no changes to the Company’s reporting units, which remain FTD.com (previously referred to as Consumer), Florist, International, ProFlowers/Gourmet Foods, and Personal Creations.
The Company follows the reporting requirements of ASC 280, Segment Reporting. Management measures and reviews the Company’s operating results by segment in accordance with the “management approach” defined in ASC 280. The reportable segments identified below were the segments of the Company for which separate financial information was available and for which segment results were regularly reviewed by the Company’s CODM to make decisions about the allocation of resources and to assess performance. The CODM uses segment operating income to evaluate the performance of the business segments and make decisions about allocating resources among segments. Segment operating income is operating income excluding depreciation, amortization, impairment of goodwill, intangible assets and other long-lived assets, litigation and dispute settlement charges or gains, transaction-related costs, restructuring and other exit costs and corporate reorganization costs. Stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other expense, net.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Below is a reconciliation of segment revenues to consolidated revenues (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Products revenues:
 
 
 
 
 
 
 
 
U.S. Consumer
 
$
91,160

 
$
98,264

 
$
547,603

 
$
586,739

Florist
 
8,160

 
8,630

 
34,634

 
37,612

International
 
25,101

 
27,497

 
101,512

 
93,385

Segment products revenues
 
124,421

 
134,391

 
683,749

 
717,736

Services revenues:
 
 
 
 
 
 
 
 
Florist
 
23,024

 
26,035

 
80,682

 
87,649

International
 
3,835

 
3,980

 
13,453

 
13,031

Segment services revenues
 
26,859

 
30,015

 
94,135

 
100,680

Intersegment eliminations
 
(2,659
)
 
(3,102
)
 
(11,172
)
 
(12,473
)
Consolidated revenues
 
$
148,621

 
$
161,304

 
$
766,712

 
$
805,943

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):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Intersegment revenues:
 
 
 
 
 
 
 
 
U.S. Consumer
 
$
(2,599
)
 
$
(3,030
)
 
$
(10,918
)
 
$
(12,183
)
Florist
 
(60
)
 
(72
)
 
(254
)
 
(290
)
Total intersegment revenues
 
$
(2,659
)
 
$
(3,102
)
 
$
(11,172
)
 
$
(12,473
)
The U.S. Consumer segment is comprised of the FTD.com, ProFlowers, Gourmet Foods, and Personal Creations business units. The revenues for the business units were as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
U.S. Consumer segment revenues:
 
 
 
 
 
 
 
 
FTD.com
 
$
36,444

 
$
43,631

 
$
174,043

 
$
196,548

ProFlowers
 
28,372

 
30,639

 
205,158

 
227,864

Gourmet Foods
 
11,116

 
11,087

 
107,733

 
112,285

Personal Creations
 
15,228

 
12,907

 
60,669

 
50,042

Total U.S. Consumer segment revenues
 
$
91,160

 
$
98,264

 
$
547,603

 
$
586,739

Geographic revenues from sales to external customers were as follows for the periods presented (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
U.S.
 
$
119,685

 
$
129,827

 
$
651,747

 
$
699,527

U.K.
 
28,936

 
31,477

 
114,965

 
106,416

Consolidated revenues
 
$
148,621

 
$
161,304

 
$
766,712

 
$
805,943


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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Below is a reconciliation of segment operating income/(loss) to consolidated operating loss and loss before income taxes (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Segment operating income/(loss)(a)
 
 
 
 
 
 
 
 
U.S. Consumer
 
$
(8,234
)
 
$
(3,079
)
 
$
(9,994
)
 
$
37,146

Florist
 
8,837

 
9,552

 
31,951

 
35,757

International
 
1,963

 
3,384

 
11,728

 
11,982

Total segment operating income
 
2,566

 
9,857

 
33,685

 
84,885

Unallocated expenses(b)
 
(27,266
)
 
(11,573
)
 
(42,483
)
 
(32,428
)
Impairment of goodwill, intangible assets, and other long-lived assets
 
(411
)
 
(105,735
)
 
(139,627
)
 
(105,735
)
Depreciation expense and amortization of intangible assets
 
(3,342
)
 
(9,194
)
 
(11,562
)
 
(27,778
)
Operating loss
 
(28,453
)
 
(116,645
)
 
(159,987
)
 
(81,056
)
Interest expense, net
 
(5,691
)
 
(2,599
)
 
(12,566
)
 
(7,312
)
Other income, net
 
706

 
126

 
842

 
324

Loss before income taxes
 
$
(33,438
)
 
$
(119,118
)
 
$
(171,711
)
 
$
(88,044
)
 
(a)
Segment operating income/(loss) is operating income/(loss) excluding depreciation, amortization, impairment of goodwill, intangible assets, and other long-lived assets, litigation and dispute settlement charges and gains, transaction-related costs, restructuring and other exit costs, and corporate reorganization costs. In addition, stock-based and incentive 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, and legal costs. In addition, unallocated expenses include stock-based and incentive compensation, litigation and dispute settlement charges and gains, transaction-related costs, restructuring and other exit costs, and corporate reorganization costs.
3. 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.
The credit quality and the aging of financing receivables was as follows (in thousands):
 
 
September 30,
2018
 
December 31,
2017
Current
 
$
8,956

 
$
10,571

Past due:
 
 
 
 
1 - 150 days past due
 
268

 
167

151 - 364 days past due
 
179

 
213

365 - 730 days past due
 
277

 
184

731 or more days past due
 
404

 
357

Total
 
$
10,084

 
$
11,492

 
Financing receivables on nonaccrual status totaled $1.2 million and $1.0 million at September 30, 2018 and December 31, 2017, respectively.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The allowance for credit losses and the recorded investment in financing receivables were as follows (in thousands):
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
Allowance for credit losses:
 
 
 
 
Balance as of January 1
 
$
912

 
$
846

Provision
 
279

 
280

Write-offs charged against allowance
 
(113
)
 
(276
)
Balance at September 30
 
$
1,078

 
$
850

Ending balance collectively evaluated for impairment
 
$
1,028

 
$
806

Ending balance individually evaluated for impairment
 
$
50

 
$
44

Recorded investments in financing receivables:
 
 
 
 
Balance collectively evaluated for impairment
 
$
1,165

 
$
943

Balance individually evaluated for impairment
 
$
8,919

 
$
10,710

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 as of both September 30, 2018 and December 31, 2017. The average recorded investment in such loans was less than $0.1 million for both the nine months ended September 30, 2018 and 2017. Interest income recognized on impaired loans was less than $0.1 million for both the nine months ended September 30, 2018 and 2017.
4. TRANSACTIONS WITH RELATED PARTIES
Transactions with Qurate
As of September 30, 2018, Qurate Retail, Inc. (“Qurate”), formerly Liberty Interactive Corporation, owned 36.1% of the issued and outstanding shares of FTD common stock. An Investor Rights Agreement governs certain rights of and restrictions on Qurate in connection with the shares of FTD common stock that Qurate owns.
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 $1.7 million as of both September 30, 2018 and December 31, 2017, and is included in other assets in the condensed consolidated balance sheets. Until September 2018, I.S. Group supplied 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. In September 2018, Interflora began sourcing floral-related products directly to its floral network members in the U.K. and the Republic of Ireland. I.S. Group continues to supply floral-related products to its other customers. Under the previous arrangement that ended in September 2018, Interflora derived revenues from I.S. Group from (i) the sale of products (sourced from third-party suppliers) to I.S. Group for which revenue was 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 $0.4 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and $1.7 million and $1.6 million for the nine months ended September 30, 2018 and 2017, respectively. In addition, Interflora purchased products from I.S. Group for sale to consumers. The cost of revenues related to products purchased from I.S. Group was $1.9 million and $0.1 million for the three months ended September 30, 2018 and 2017, respectively, and $2.1 million and $0.2 million for the nine months ended September 30, 2018 and 2017, respectively. Amounts due from I.S. Group were $0.2 million and $0.3 million at September 30, 2018 and December 31, 2017, respectively, and amounts payable to the I.S. Group were $0.4 million and $1.0 million at September 30, 2018 and December 31, 2017, respectively.    

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5. GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS
Goodwill is tested for impairment at the reporting unit level. A reporting unit is a business or a group of businesses for which discrete financial information is available and is regularly reviewed by management. An operating segment is made up of one or more reporting units. The Company reports its business operations in three operating and reportable segments: U.S. Consumer, Florist, and International. Each of the Florist and International segments is a reporting unit. The U.S Consumer segment is comprised of three reporting units: FTD.com, ProFlowers/Gourmet Foods, and Personal Creations.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year at the reporting unit level and on an interim basis if events or substantive changes in circumstances indicate that the carrying amount of a reporting unit or an indefinite-lived asset may exceed its fair value (i.e. that a triggering event has occurred). Additionally, the Company evaluates finite-lived intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset groupings may not be recoverable.
During the three months ended June 30, 2018, due to continued declines in financial results and reductions in the projected results for the remainder of 2018, the Company determined that a triggering event had occurred that required an interim impairment assessment for all of its reporting units other than the International reporting unit, as that reporting unit’s year-to-date and projected results were relatively in line with expectations. The intangible assets and other long-lived assets associated with the reporting units assessed were also reviewed for impairment. Impairment charges are included in operating expenses in the condensed consolidated statement of operations under the caption impairment of goodwill, intangible assets, and other long-lived assets. The Company performed a quantitative interim test. In calculating the fair value of the reporting units, the Company used a combination of the income approach and the market approach valuation methodologies. For all reporting units other than the ProFlowers/Gourmet Foods reporting unit, the income approach was used primarily, as management believes that a discounted cash flow approach is the most reliable indicator of the fair values of the businesses. Under the market approach, the guideline company method was used, which focuses on comparing the Company’s risk profile and growth prospects to select reasonably similar companies based on business description, revenue size, markets served, and profitability. For the ProFlowers/Gourmet Foods reporting unit, the cost approach was used. The interim test resulted in the Company’s determination that the fair value of the Florist reporting unit exceeded its carrying value and, therefore, its goodwill was not impaired. The reporting unit’s fair value exceeded its carrying value by approximately 6%. The fair values of the FTD.com, ProFlowers/Gourmet Foods, and Personal Creations reporting units were less than their carrying values and, as such, goodwill impairment charges of $35.2 million, $14.8 million, and $12.5 million, respectively, were recorded during the three months ended June 30, 2018 related to these reporting units. The ProFlowers/Gourmet Foods reporting unit’s goodwill was fully impaired as of June 30, 2018. Such goodwill impairment charges are not deductible for tax purposes.
As of September 30, 2018, the remaining goodwill balances for the U.S Consumer, Florist, and International segments are as noted in the table below. Within the U.S. Consumer segment, the remaining goodwill balances for the FTD.com and Personal Creations reporting units were $29.3 million and $13.8 million, respectively, as of September 30, 2018.
Goodwill
The changes in the net carrying amount of goodwill for the nine months ended September 30, 2018 were as follows (in thousands):
 
 
U.S. Consumer
 
Florist
 
International
 
Total
Goodwill as of December 31, 2017
 
$
106,356

 
$
90,651

 
$
80,034

 
$
277,041

Purchase accounting adjustment - BloomThat acquisition
 
(792
)
 

 

 
(792
)
Foreign currency translation
 

 

 
(2,855
)
 
(2,855
)
Impairment of goodwill
 
(62,459
)
 

 

 
(62,459
)
Goodwill as of September 30, 2018
 
$
43,105

 
$
90,651

 
$
77,179

 
$
210,935

 
    

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In 2017, 2016, 2015, and 2008, the Company recorded goodwill impairment charges of $196.7 million, $84.0 million, $85.0 million, and $116.3 million, respectively. The table above reflects the Company’s September 30, 2018 goodwill balances, net of the previously recorded impairment charges. The total accumulated goodwill impairment was $544.5 million as of September 30, 2018.

Intangible Assets

Intangible assets are primarily related to the acquisition of the Company by United Online, Inc. in August 2008 and the acquisition of Provide Commerce in December 2014, and consist of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Gross Value (a)
 
Accumulated Amortization
 
Net
 
Gross Value (a)
 
Accumulated Amortization
 
Net
Complete technology
 
$
60,510

 
$
(60,510
)
 
$

 
$
61,274

 
$
(60,653
)
 
$
621

Customer contracts and relationships
 
193,076

 
(193,076
)
 

 
193,775

 
(193,667
)
 
108

Trademarks and trade names:
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
 
41,455

 
(28,078
)
 
13,377

 
93,593

 
(24,875
)
 
68,718

Indefinite-lived (b)
 
90,772

 

 
90,772

 
112,518

 

 
112,518

Total
 
$
385,813

 
$
(281,664
)
 
$
104,149

 
$
461,160

 
$
(279,195
)
 
$
181,965


(a)
Gross value has been reduced by the impairments recorded as follows (in thousands):
        
 
 
Nine Months Ended
September 30, 2018
 
Year Ended
December 31, 2017
Complete technology
 
$
561

 
$
16,335

Customer contracts and relationships
 
90

 

Trademarks and trade names:
 
 
 
 
Finite-lived
 
52,108

 
27,000

Indefinite-lived (b)
 
20,400

 
38,300


(b)
As indefinite-lived assets are not amortized, the indefinite-lived trademarks and trade names have no associated amortization expense or accumulated amortization.
As of September 30, 2018, 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
2018 (remainder of the year)
$
314

2019
1,254

2020
1,246

2021
1,242

2022
1,189

Thereafter
8,132

Total
$
13,377


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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Other Long-Lived Assets
Property and equipment consisted of the following (in thousands):
 
 
September 30,
2018
 
December 31,
2017
Land and improvements
 
$
1,575

 
$
1,583

Buildings and improvements
 
17,129

 
16,375

Leasehold improvements
 
10,976

 
10,883

Equipment
 
13,871

 
13,122

Computer equipment
 
26,050

 
25,208

Computer software
 
76,515

 
58,991

Furniture and fixtures
 
4,525

 
3,215

Property and equipment, gross (a)
 
150,641

 
129,377

Accumulated depreciation
 
(103,043
)
 
(95,497
)
Property and equipment, net
 
$
47,598

 
$
33,880

 
(a)
Impairment charges of $4.0 million recorded during the nine months ended September 30, 2018 and $22.0 million recorded during the year ended December 31, 2017 are reflected as reductions in the gross balances as of September 30, 2018.
During the year ended December 31, 2017, the other long-lived assets related to the ProFlowers/Gourmet Foods reporting unit were fully impaired as the projected undiscounted cash flows of that reporting unit were less than the carrying amount of such assets. Additional impairment charges of $0.4 million and $4.0 million were recorded during the three and nine months ended September 30, 2018, respectively, related to capital additions for that reporting unit as the undiscounted cash flows continue to be less than the carrying amount of the assets of that asset group.
Depreciation expense, including the amortization of leasehold improvements, was $3.0 million and $5.4 million for the three months ended September 30, 2018 and 2017, respectively, and $8.3 million and $16.3 million for the nine months ended September 30, 2018 and 2017, respectively.
6. FINANCING ARRANGEMENTS
Credit Agreement
On September 19, 2014, the Company entered into a credit agreement (the “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 for the lenders. The Credit Agreement provided for a term loan in an aggregate principal amount of $200 million, the proceeds of which were used to repay a portion of outstanding revolving loans, and also provided for a $350 million revolving credit facility. On December 31, 2014, the Company borrowed $120 million under the revolving credit facility to fund the cash portion of the acquisition purchase price of Provide Commerce.
The obligations under the 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 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 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 consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, asset sales, and the Company’s ability to incur additional debt and additional liens.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


On May 31, 2018, the Company entered into the Third Amendment with its lenders, which included an agreement by the lenders to waive existing defaults caused by (1) the inclusion of a going concern uncertainty explanatory paragraph in the audit opinion of the Company’s financial statements for the year ended December 31, 2017 and (2) the breach of the consolidated net leverage ratio covenant for the three months ended March 31, 2018. The Third Amendment also restricted the Company’s combined usage of the revolving credit facility portion of the Credit Agreement, which usage was further restricted by the Fourth Amendment, the Fifth Amendment, and the Sixth Amendment, as discussed below. In addition, under the Third Amendment, the consolidated net leverage ratio and fixed charge coverage ratio covenants were revised for each quarterly period through the September 19, 2019 maturity date, as were the interest rates. The Third Amendment also required the Company to pay a quarterly fee of 0.125% times the actual daily amount of the revolver commitments and outstanding loans beginning October 1, 2018 through December 31, 2018, which fee increases to 0.25% beginning January 1, 2019 through the maturity date. The Company paid an amendment fee of 0.625% times the revolver commitments and outstanding term loan ($1.9 million) in addition to a $0.5 million work fee related to the structuring and arranging of the amendment.

On September 28, 2018, the Company entered into the Fourth Amendment with its lenders. The Fourth Amendment further restricted the Company’s combined usage of the revolving credit facility portion of the Credit Agreement, which usage was further restricted by the Fifth Amendment and the Sixth Amendment, as discussed below. In addition, the Fourth Amendment modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenants set forth in the Third Amendment such that the next measurement date was revised to the twelve month period ended October 31, 2018, from the four fiscal quarter period ended September 30, 2018, with the specific required ratio levels otherwise unchanged from the Third Amendment. The Fourth Amendment also required the Company to pay a monthly fee equal to 2.50% per annum times the actual daily amount of the Aggregate Revolving B Loans (as defined in the Credit Agreement) and subjects the Company to certain additional restrictions on capital expenditures. In addition, the Fourth Amendment also required that on October 1, 2018 all Eurocurrency loans be converted to Base Rate Loans and during the period from and after the effective date of the Fourth Amendment through October 31, 2018, which was further extended for the remaining term of the debt in the Fifth Amendment, none of the Borrowers were entitled to borrow or continue any Eurocurrency Loans nor convert any Base Rate Loans to Eurocurrency Loans without the consent of the lenders. The Company paid fees of $0.5 million related the Fourth Amendment.
As disclosed in Note 16—“Subsequent Events”, the Company entered into the Fifth Amendment and the Sixth Amendment with its lenders on October 31, 2018 and November 5, 2018, respectively. Among other modifications to the Fourth Amendment, the Fifth Amendment further restricted the Company’s combined usage of the revolving credit facility portion of the Credit Agreement, which usage was further restricted by the Sixth Amendment as discussed below. The Fifth Amendment also modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenant tests from the dates set forth in the Fourth Amendment such that the next measurement date was revised to the twelve month period ending November 30, 2018 from the twelve month period ended October 31, 2018. The Fifth Amendment also established consolidated net leverage and fixed charge coverage ratios for the twelve month period ending November 30, 2018 with the required ratio levels for the remaining periods otherwise unchanged from the Third Amendment. In addition, the Fifth Amendment subjects the Company to certain additional restrictions on capital expenditures and certain additional events of default.
The Sixth Amendment, or Amended Credit Agreement, further restricts the Company’s combined usage of the revolving credit facility portion of the Credit Agreement to amounts ranging from $90 million to $170 million based on the Company’s expected borrowing needs at various points in its business cycle, with all borrowings in excess of $150 million from and after July 6, 2019 subject to the Company’s 13-week cash forecast supporting any borrowing above such level. The Amended Credit Agreement also revises the consolidated net leverage ratio and fixed charge coverage ratio covenants set forth in the Fifth Amendment for each period through the September 19, 2019 maturity date of the Amended Credit Agreement. In connection with entry into the Amended Credit Agreement, the Company incurred an amendment fee in an amount equal to 5.50% of the outstanding term loan as of the execution date of the Amended Credit Agreement, payable in two installments, (a) 0.50% on November 6, 2018 and (b) 5.0% upon the earliest to occur of, (x) the acceleration of the loans, (y) the maturity date and (z) the date upon which all obligations under the credit facility are satisfied, provided that if (z) occurs prior to the events in (x) or (y), the deferred portion of the fee will be prorated based on the number of days remaining until the maturity date, in addition to other fees of $0.5 million.

    

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Based on the Company’s 2018 year-to-date results of operations and outlook for the remainder of the term of the Amended Credit Agreement, the Company currently anticipates that it will be in compliance with the revised financial covenants under the Amended Credit Agreement. The ability to continue as a going concern is dependent on the Company generating profitable operating results, having sufficient liquidity, maintaining compliance with the revised financial covenants and other requirements under the Amended Credit Agreement, and refinancing or repaying the indebtedness outstanding under the Amended Credit Agreement, including in connection with a sale or merger of the Company or other strategic transaction, as discussed in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements.”     
At September 30, 2018, the interest rates applicable to borrowings under the Credit Agreement, as amended through the Fourth Amendment, are based on either LIBOR plus a margin ranging from 2.50% per annum to 7.50% per annum, or a base rate plus a margin ranging from 1.50% per annum to 6.50% per annum, calculated according to the Company’s net leverage ratio. In addition, the Company pays a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility and a letters of credit fee ranging between 2.50% per annum to 7.50% per annum. The Company is also required to pay a quarterly fee of 0.125% times the actual daily amount of the revolver commitments and outstanding loans beginning October 1, 2018 through December 31, 2018, which increases to 0.25% beginning January 1, 2019 through the maturity date, and a monthly fee equal to 2.50% per annum times the actual daily amount of the Aggregate Revolving B Loans (as defined in the Credit Agreement).

The stated interest rates as of September 30, 2018 under the term loan and the revolving credit facility were 8.75% and 8.30%, respectively. The effective interest rates as of September 30, 2018 under the term loan and the revolving credit facility portions of the Fourth Amendment were 10.60% and 10.00%, respectively. The effective interest rates include interest calculated at the stated rates, the fees noted above which commenced with each of the Third Amendment and Fourth Amendment, the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees.

As of September 30, 2018, the remaining borrowing capacity under the Fourth Amendment, which was reduced by $1.8 million in outstanding letters of credit, was $11.2 million.
The changes in the Company’s debt balances for the nine months ended September 30, 2018 were as follows (in thousands):
 
 
December 31, 2017
 
Draw Down of Debt
 
Repayments of Debt
 
September 30, 2018
 Credit Agreement:
 
 

 
 
 
 

 
 

Revolving Credit Facility
 
$
52,000

 
$
272,000

 
$
(187,000
)
 
$
137,000

Term Loan
 
140,000

 

 
(16,346
)
 
123,654

Total Principal Outstanding
 
192,000

 
$
272,000

 
$
(203,346
)
 
260,654

Deferred Financing Fees
 
(2,334
)
 
 
 
 

 
(4,750
)
Total Debt, Net of Deferred Financing Fees
 
$
189,666

 
 
 
 

 
$
255,904

 
The term loan is subject to amortization payments of $5 million per quarter and customary mandatory prepayments under certain conditions.

22

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7. DERIVATIVE INSTRUMENTS
In March 2012, the Company purchased, for $1.9 million, forward starting interest rate cap instruments based on 3-month LIBOR, effective January 2015 through June 2018. The forward starting interest rate cap instruments had aggregated notional values totaling $130 million. The interest rate cap instruments were designated as cash flow hedges against expected future cash flows attributable to future 3-month LIBOR interest payments on a portion of the outstanding borrowings under the Credit Agreement. The gains or losses on the instruments were reported in other comprehensive income/(loss) to the extent that they were effective and were reclassified into earnings when the cash flows attributable to 3-month LIBOR interest payments were recognized in earnings.
The estimated fair values and notional values of outstanding derivative instruments as of September 30, 2018 and December 31, 2017 were as follows (in thousands):
 
 
 
 
Estimated Fair Value of Derivative Instruments
 
Notional Value of Derivative Instruments
 
 
Balance Sheet Location
 
September 30,
2018
 
December 31,
2017
 
September 30,
2018
 
December 31,
2017
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
Other assets
 
$

 
$

 
$

 
$
130,000

 
The Company recognized the following losses from derivatives, before tax, in other comprehensive income/(loss) (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Derivatives Designated as Cash Flow Hedging Instruments:
 
 
 
 
 
 
 
 
Interest rate caps
 
$

 
$

 
$

 
$
(1
)
As of June 30, 2018, the interest rate caps had matured. As of December 31, 2017, the effective portion, before tax effect, of the Company’s interest rate caps designated as cash flow hedging instruments was $0.3 million. During the three months ended September 30, 2017, $0.1 million was reclassified from accumulated other comprehensive loss to interest expense in the condensed consolidated statements of operations. During the nine months ended September 30, 2018 and 2017, $0.3 million and $0.4 million, respectively, was reclassified from accumulated other comprehensive loss to interest expense in the condensed consolidated statement of operations.
8. FAIR VALUE MEASUREMENTS
The following table presents estimated fair values of financial assets and liabilities and derivative instruments that were required to be measured at fair value on a recurring basis (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
4,535

 
$
4,535

 
$

 
$
2,705

 
$
2,705

 
$

Total
 
$
4,535

 
$
4,535

 
$

 
$
2,705

 
$
2,705

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Non-qualified deferred compensation plan
 
$
966

 
$

 
$
966

 
$
1,228

 
$

 
$
1,228

Total
 
$
966

 
$

 
$
966

 
$
1,228

 
$

 
$
1,228

    

23

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Provide Commerce, Inc. has an executive deferred compensation plan for key management level employees under which such employees could elect to defer receipt of current compensation. This plan is intended to be an unfunded, non-qualified deferred compensation plan that complies with the provisions of section 409A of the Internal Revenue Code. At the time of the acquisition of Provide Commerce, contributions to the plan were suspended except those relating to any compensation earned but not yet paid as of the same date. The plan assets consist primarily of life insurance contracts recorded at their cash surrender value. During the three months ended June 30, 2018, the Company cancelled certain of the life insurance contracts and received proceeds totaling $10.0 million from the cash surrender value. At September 30, 2018 and December 31, 2017, the life insurance policies had cash surrender values of $1.8 million and $11.7 million, respectively, and are included in other assets in the accompanying condensed consolidated balance sheets.
As a result of triggering events within the periods, the Company performed impairment tests of its intangible and other long-lived assets during the three months ended June 30, 2018 and the year ended December 31, 2017. Based on these tests, the Company determined that the carrying value of certain intangible assets and other long-lived assets exceeded their fair values as determined using the income approach as of June 30, 2018 and December 31, 2017. As such, non-cash, pre-tax impairment charges of $77.1 million (excluding goodwill impairment charges of $62.5 million) were recorded during the nine months ended September 30, 2018 and $103.6 million (excluding goodwill impairment charges of $196.7 million) were recorded during the year ended December 31, 2017. The determination of fair value is subjective in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs, including projected cash flows over the estimated projection period and the discount rate. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets” for additional information.
The Company estimated the fair value of its outstanding debt using a discounted cash flow approach that incorporates a market interest yield curve with adjustments for duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimated credit spread. As of September 30, 2018, the Company estimated its credit spread as 9.1% and 10.1% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 11.7% and 12.7%, respectively. As of December 31, 2017, the Company estimated its credit spread as 1.0% and 1.6% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 2.9% and 3.4%, respectively. The table below summarizes the carrying amounts and estimated fair values for the Company’s debt (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
 
 
Level 2
 
 
 
Level 2
 
 
Carrying Amount
 
Estimated Fair Value
 
Carrying Amount
 
Estimated Fair Value
Debt outstanding
 
$
260,654

 
$
260,654

 
$
192,000

 
$
192,000

Fair value approximates the carrying amount of financing receivables because such receivables are discounted at a rate comparable to market. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts because of their short-term nature.
9. STOCKHOLDERS’ EQUITY
Common Stock Repurchases
Upon the exercise of stock options or the vesting of restricted stock units (“RSUs”) or other equity compensation awards, the Company does not collect withholding taxes in cash from employees. Instead, the Company automatically withholds, from the awards that vest or stock options that are 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 counted against the limits under a repurchase program. The Company then pays the minimum statutory withholding taxes in cash. During the nine months ended September 30, 2018, 0.6 million RSUs vested for which 0.1 million shares were withheld to cover the minimum statutory withholding taxes of $0.5 million.

24

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


10. INCENTIVE COMPENSATION PLANS
In June 2018, stockholders approved the amendment to the FTD Companies, Inc. Third Amended and Restated 2013 Incentive Compensation Plan (as so amended, the “Amended Plan”), which provides for the granting of awards to employees and non-employee directors, including stock options, stock appreciation rights, RSUs, and other stock based awards. As of September 30, 2018, the Company had 6.4 million shares available for issuance under the Amended Plan.
During the nine months ended September 30, 2018, the Company granted RSUs, performance stock units (“PSUs”), and stock options to certain employees totaling 0.9 million shares, 1.3 million shares, and 0.8 million shares, respectively. The RSUs and stock options granted will generally vest in four equal annual installments. The per share weighted average fair market value of the underlying stock on the grant date of the RSUs and PSUs was $6.37 and $6.63, respectively. The options were granted with a weighted average exercise price of $6.63 per share. The following weighted average assumptions were used to estimate the fair value of the stock options at the grant date:
Risk-free interest rate
2.5%
Expected term (in years)
6.21
Dividend yield
0.0%
Expected volatility
37.8%
Vesting of the PSUs is based on the achievement of certain performance criteria, as specified in the plan, at the end of a three-year performance period ending on December 31, 2020. The actual number of shares that will ultimately vest is dependent upon the level of achievement of the performance conditions. If the minimum targets are not achieved, none of the shares will vest and any compensation expense previously recognized will be reversed. The Company recognizes stock-based compensation expense related to performance awards based upon the Company’s estimate of the likelihood of achievement of the performance targets at each reporting date. As of September 30, 2018, the Company does not expect the PSUs to vest. As such, no expense was recorded during the nine months ended September 30, 2018 related to these awards.
In addition to the equity awards noted above, eligible employees of the Company are able to participate in the FTD Companies, Inc. 2015 Employee Stock Purchase Plan (“ESPP Plan”) through which employees may purchase shares of FTD common stock at a purchase price equal to 85% of the lower of (i) the closing market price per share of FTD common stock on the first day of the offering period or (ii) the closing market price per share of FTD common stock on the purchase date. Each offering period has a six-month duration and purchase interval. The purchase dates are January 1 and July 1. As of September 30, 2018, the Company had 0.2 million shares available for grant under the ESPP Plan.
The stock-based compensation expense incurred for all equity plans in the three months ended September 30, 2018 and 2017 and the nine months ended September 30, 2018 and 2017 have been included in the condensed consolidated statements of operations as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Cost of revenues
 
$
18

 
$
62

 
$
123

 
$
196

Sales and marketing
 
514

 
848

 
2,379

 
3,178

General and administrative
 
1,439

 
1,441

 
4,879

 
4,847

Restructuring costs
 
5,523

 

 
5,523

 

Total stock-based compensation expense
 
$
7,494

 
$
2,351

 
$
12,904

 
$
8,221

 
See Note 13—“Restructuring and Other Exit Costs” for further information regarding the non-cash restructuring costs incurred related to stock-based compensation.

25

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


11. INCOME TAXES
During the three months ended September 30, 2018, the Company recorded a tax benefit of $2.2 million on a pre-tax loss of $33.4 million, compared to a tax benefit of $19.8 million on a pre-tax loss of $119.1 million for the three months ended September 30, 2017. The effective tax rate for the three months ended September 30, 2018 was lower compared to the three months ended September 30, 2017 as a significant portion of the restructuring costs recorded during the three months ended September 30, 2018 are not tax deductible due to Internal Revenue Service (“IRS”) Section 162(m) limitations.
During the nine months ended September 30, 2018, the Company recorded a tax benefit of $15.8 million on a pre-tax loss of $171.7 million, compared to a tax benefit of $7.5 million on a pre-tax loss of $88.0 million for the nine months ended September 30, 2017. As noted above, a significant portion of the restructuring charges recorded by the Company during the three months ended September 30, 2018 are not tax deductible due to IRS Section 162(m) limitations. In addition, the placement of a valuation allowance on the state net operating loss carryforwards and shortfalls related to vesting of equity awards increased tax expense by $1.0 million and $2.7 million, respectively, for the nine months ended September 30, 2018. For the nine months ended September 30, 2017, shortfalls related to vesting of equity awards were $1.5 million. In addition, the goodwill impairment charges recorded during both the nine months ended September 30, 2018 and 2017 are not tax deductible and, therefore, no tax benefit was recorded on such charges.

12. LOSS PER SHARE
Certain of the Company’s RSUs and PSUs are considered participating securities because they contain a non-forfeitable right to dividends irrespective of whether dividends are actually declared or paid or whether the awards ultimately vest. Accordingly, the Company computes earnings/(loss) per share pursuant to the two-class method in accordance with ASC 260, Earnings Per Share.
The following table sets forth the computation of basic and diluted loss per common share (in thousands, except per share amounts):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
 
Net loss
 
$
(31,210
)
 
$
(99,319
)
 
$
(155,891
)
 
$
(80,580
)
Income allocated to participating securities
 

 

 

 

Net loss attributable to common stockholders
 
$
(31,210
)
 
$
(99,319
)
 
$
(155,891
)
 
$
(80,580
)
Denominator:
 
 
 
 
 
 
 
 
Basic average common shares outstanding
 
28,154

 
27,546

 
27,886

 
27,459

Add: Dilutive effect of securities
 

 

 

 

Diluted average common shares outstanding
 
28,154

 
27,546

 
27,886

 
27,459

Basic loss per common share
 
$
(1.11
)
 
$
(3.61
)
 
$
(5.59
)
 
$
(2.93
)
Diluted loss per common share
 
$
(1.11
)
 
$
(3.61
)
 
$
(5.59
)
 
$
(2.93
)
The diluted loss per common share computations exclude stock options and RSUs which are antidilutive. Weighted-average antidilutive shares for both the three months ended September 30, 2018 and 2017 were 4.2 million and for the nine months ended September 30, 2018 and 2017, were 4.0 million and 3.7 million, respectively.

26

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


13. RESTRUCTURING AND OTHER EXIT COSTS
Restructuring and other exit costs were as follows (in thousands):
 
 
Employee Termination Costs
 
Facility Closure Costs
 
Total
Accrued as of December 31, 2017
 
$
184

 
$
193

 
$
377

Charges
 
18,115

 
(18
)
 
18,097

Cash paid
 
(2,284
)
 
(175
)
 
(2,459
)
Other – non-cash
 
(5,535
)
 

 
(5,535
)
Accrued as of September 30, 2018
 
$
10,480

 
$

 
$
10,480

On July 18, 2018, the Company announced that our former President and Chief Executive Officer, John C. Walden, had stepped down from such positions. Under the terms of Mr. Walden’s employment agreement, he is entitled to the severance and other benefits described in such agreement, including cash severance payments, as well as accelerated vesting of a portion of his outstanding nonvested RSUs and unvested stock options. On the same day, the Company also announced a corporate restructuring plan. During the three months ended September 30, 2018, the Company recorded $18.1 million in restructuring charges, which included employee severance costs to be paid in cash of $12.6 million and non-cash stock-based compensation related to the acceleration of certain equity awards of $5.5 million.

14. CONTINGENCIES—LEGAL MATTERS
 Commencing on August 19, 2009, the first of a series of putative consumer class action lawsuits was brought against Provide Commerce, Inc. and co-defendant Regent Group, Inc. d/b/a Encore Marketing International (“EMI”). These cases were ultimately consolidated during the next three years into Case No. 09 CV 2094 in the United States District Court for the Southern District of California under the title In re EasySaver Rewards Litigation. Plaintiffs’ claims arise from their online enrollment in subscription based membership programs known as EasySaver Rewards, RedEnvelope Rewards, and Preferred Buyers Pass (collectively, the “Membership Programs”). Plaintiffs claim that after they ordered items from certain of Provide Commerce’s websites, they were presented with an offer to enroll in one of the Membership Programs, each of which is offered and administered by EMI. Plaintiffs purport to represent a nationwide class of consumers allegedly damaged by Provide Commerce’s purported unauthorized or otherwise allegedly improper transferring of billing information to EMI, who then posted allegedly unauthorized charges to their credit or debit card accounts for membership fees for the Membership Programs. In the operative fourth amended complaint, plaintiffs asserted ten claims against Provide Commerce and EMI: (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 seek damages, attorneys’ fees, and costs. After motion practice regarding the claims asserted and numerous settlement conferences and mediations in an effort to informally resolve the matter, the parties reached an agreement on the high level terms of a settlement on April 9, 2012, 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 (the “Settlement”), which the court preliminarily approved on June 13, 2012. After notice to the purported class and briefing by the parties, the court conducted a final approval hearing (also known as a fairness hearing) on January 28, 2013, but did not rule. On February 4, 2013, the court entered its final order approving the Settlement, granting plaintiffs’ motion for attorneys’ fees, costs, and incentive awards, and overruling objections filed by a single objector. 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 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 vNetflix, No. 12 15705+. 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 its opinion in Frank v. Netflix issued on February 27, 2015. The district court ordered supplemental briefing on the issue of final Settlement approval May 21, 2015. After briefing, the district court conducted a hearing on July 27, 2016 and took the matter under submission. On August 9, 2016, the district court entered an order reapproving the Settlement without any changes, and accordingly entered judgment and dismissed the case with prejudice. On September 6, 2016, the objector filed a notice of appeal. On November 22, 2016, plaintiffs filed a motion for summary affirmance of the district court’s judgment, to which the objector responded and filed a cross-motion for sanctions. Plaintiffs’ motion for summary affirmance temporarily stayed briefing on the appeal. On March 2,

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2017, the Ninth Circuit denied plaintiffs’ motion for summary affirmance and objector’s cross-motion for sanctions, and reset the briefing schedule. The objector filed his opening brief on May 1, 2017. Thirteen state Attorneys General filed an amicus brief in support of the objector on May 8, 2017. The parties filed their answering briefs on June 30, 2017. Various legal aid organizations filed an amicus brief in support of no party regarding cy pres relief also on June 30, 2017. The objector’s optional reply brief was filed on August 14, 2017 and the Ninth Circuit heard oral arguments on May 17, 2018. On October 3, 2018, the Ninth Circuit issued an opinion vacating the district court’s award of attorney’s fees, but otherwise affirmed the district court’s approval of the class action settlement. On October 10, 2018, the objector filed a motion to stay the issuance of mandate, which would return jurisdiction to the district court, and for an extension of time to file a petition for panel rehearing. The objector’s last day to seek Supreme Court review is presently January 2, 2019. The expected settlement has been fully reserved.
There are no assurances that other legal actions or governmental investigations will not be instituted in connection with the Company’s current or former business practices. The Company cannot predict the outcome of governmental investigations or other legal actions or their potential implications for its business.
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. As of September 30, 2018 and December 31, 2017, the Company had reserves totaling $2.8 million and $2.5 million for estimated losses related to certain legal matters. With respect to other legal matters, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.
15. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow disclosures (in thousands):
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
Cash paid for interest
 
$
10,010

 
$
6,261

Cash paid for income taxes, net
 
4,293

 
11,132

At September 30, 2018, non-cash investing items included $2.6 million of property and equipment purchases that were included in accounts payable and other liabilities in the Company’s consolidated balance sheet. These purchases will be reflected in investing activities in the consolidated statement of cash flows in the periods in which they are paid.
16. SUBSEQUENT EVENTS
The Company entered into the Fifth Amendment and the Sixth Amendment with its lenders on October 31, 2018 and November 5, 2018, respectively. For further information on the these amendments, see Note 6—“Financing Arrangements.”

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FTD Companies, Inc. (which 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 world’s floral innovator and leader, creating products, brands, and technology-driven services our customers love. 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.”) and the United Kingdom (“U.K.”), we have worldwide presence as our Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. Our diversified portfolio of brands also includes ProFlowers®, ProPlants®, Shari’s Berries®, Personal Creations®, RedEnvelope®, Flying Flowers®, and Gifts.com™. 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, and jewelry.
Reportable Segments
We report our business operations in three reportable segments: U.S. Consumer, Florist, and International. Prior to January 1, 2018, we reported our business in four reportable segments. As a result of a change in the information provided to and utilized by the Company’s then-current Chief Executive Officer (who was also the Company’s Chief Operating Decision Maker) to assess the performance of the business, the Company combined the previous Provide Commerce and Consumer segments into one reportable segment.
Through our U.S. Consumer segment, we are a leading direct marketer of floral and gift products for consumers, including food gifts, personalized gifts, and other gifting products, primarily in the U.S. Our U.S. Consumer segment operates primarily through our www.ftd.com, www.proflowers.com, www.berries.com, www.personalcreations.com, www.proplants.com, and www.gifts.com websites, associated mobile sites and applications, and the 1-800-SEND-FTD and various other telephone numbers. Through our Florist segment, we are a leading provider of products and services to our floral network members, 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 non-florist retail locations, primarily in the U.S. Our Florist segment also provides 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. Interflora is a leading direct marketer of floral and gift products, and operates 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. Interflora also provides products and services to floral network members and to other companies in need of floral and gifting solutions.
Recent Events
On July 18, 2018, we announced that our board of directors initiated a review of strategic alternatives focused on maximizing stockholder value, including but not limited to, a sale or merger of the Company, pursuing value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of our businesses or assets.

In addition, our board of directors appointed Scott D. Levin, our then-current Executive Vice President, General Counsel and Secretary, as interim President and Chief Executive Officer. Mr. Levin succeeded John C. Walden, who stepped down from these positions and from FTD’s board of directors. On November 2, 2018, our board of directors appointed Mr. Levin President and Chief Executive Officer.

Under the terms of Mr. Walden’s employment agreement, he is entitled to the severance and other benefits described in such agreement, including cash severance payments, as well as accelerated vesting of a portion of his outstanding nonvested restricted stock units and unvested stock options, subject in each case to his compliance with certain covenants in his employment agreement. In addition, in the event of a change in control involving the Company during 2018, Mr. Walden will be entitled to receive a pro-rated target bonus calculated under the terms of his employment agreement. The foregoing description of Mr. Walden’s employment agreement is qualified in its entirety by reference to (1) the Employment Agreement between FTD Companies, Inc. and John C. Walden (the “Walden Employment Agreement”), filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and (2) the First Amendment to the Walden Employment Agreement, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

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We also announced a corporate restructuring and cost savings plan, under which we have identified opportunities to optimize our operations, drive efficiency, and reduce costs. Under this plan, we expect to generate approximately $32.0 million to $37.0 million in annualized run-rate cost savings in 2019, with approximately $4.0 million to $5.0 million in savings expected in the second half of 2018. In conjunction with the corporate restructuring and cost savings plan, we expect to incur restructuring and corporate reorganization costs ranging between approximately $26.0 million and approximately $30.0 million. During the three months ended September 30, 2018, we incurred restructuring costs of $18.1 million, which included employee severance costs to be paid in cash of $12.6 million and non-cash stock-based compensation related to the acceleration of certain equity awards of $5.5 million. Other costs associated with the corporate reorganization and cost savings plan, such as costs to retain key employees, are expected to range from approximately $8.0 million to approximately $10.0 million, of which $2.7 million was incurred during the three months ended September 30, 2018.

On September 28, 2018, we entered into the Fourth Amendment to Credit Agreement (the Credit Agreement, as defined in “—Liquidity and Capital Resources” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as previously amended and as further amended by the Fourth Amendment, is referred to in this Form 10-Q as the “Fourth Amendment”) with our lenders. Among other things, the Fourth Amendment further restricted our combined usage of the revolving credit facility portion of the Credit Agreement, which usage was further restricted by the Fifth Amendment and the Sixth Amendment, or Amended Credit Agreement, as defined and discussed below. In addition, the Fourth Amendment modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenants set forth in the Third Amendment such that the next measurement date was revised to the twelve month period ended October 31, 2018, from the four fiscal quarter period ended September 30, 2018, with the specific required ratio levels otherwise unchanged from the Third Amendment.
We entered into the Fifth Amendment to Credit Agreement (the Fourth Amendment, as further amended by the Fifth Amendment, is referred to in this Form 10-Q as the “Fifth Amendment”) and the Sixth Amendment to Credit Agreement (the Fifth Amendment, as further amended by the Sixth Amendment, is referred to in this Form 10-Q as the “Sixth Amendment” or “Amended Credit Amendment”) with our lenders on October 31, 2018 and November 5, 2018, respectively. Among other modifications to the Fourth Amendment, the Fifth Amendment further restricted our combined usage of the revolving credit facility portion of the Credit Agreement, which usage was further restricted by the Sixth Amendment, as discussed below. The Fifth Amendment also modified the measurement dates for the consolidated net leverage ratio and fixed charge coverage ratio covenant tests from the dates in the Fourth Amendment such that the next measurement date was revised to the twelve month period ending November 30, 2018 from the twelve month period ended October 31, 2018. The Fifth Amendment also established the consolidated net leverage and fixed charge coverage ratios as to the twelve month period ending November 30, 2018 with the required ratio levels for the remaining periods otherwise unchanged from the Third Amendment.
The Sixth Amendment, or Amended Credit Agreement, further restricts the Company’s combined usage of the revolving credit facility portion of the Credit Agreement to amounts ranging from $90 million to $170 million based on our expected borrowing needs at various points in our business cycle. The Amended Credit Agreement also revises the consolidated net leverage ratio and fixed charge coverage ratio covenants set in the Fifth Amendment for each period through the September 19, 2019 maturity date of the Amended Credit Agreement. We incurred an amendment fee in an amount equal to 5.50% of the outstanding term loan, payable in two installments, in addition to other fees of $0.5 million, as of the execution date of the Amended Credit Agreement. For further information on the Fifth Amendment and the Amended Credit Agreement, see “—Liquidity and Capital Resources” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


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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, impairment of goodwill, intangible assets, and other long-lived assets, litigation and dispute settlement charges and gains, transaction-related costs, restructuring and other exit costs, and corporate reorganization costs. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net. See Note 2—“Segment Information” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment operating income to consolidated operating income and consolidated income before income taxes.
Consumer orders.  We monitor the number of consumer orders for floral, gift, and related products during a given period. Consumer orders are individual units delivered during the period that were originated through our consumer 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 U.S. Consumer and International segments is tracked in their local currency, which is the U.S. Dollar (“USD”) for the U.S. Consumer segment 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.

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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.
 
Three Months Ended
September 30,
 
Favorable/(Unfavorable)
Change
 
Nine Months Ended
September 30,
 
Favorable/(Unfavorable)
Change
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
(in thousands, except for percentages, average order values, average revenues per member,
and average currency exchange rates)
Consolidated:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Consolidated revenues
$
148,621

 
$
161,304

 
$
(12,683
)
 
(8
)%
 
$
766,712

 
$
805,943

 
$
(39,231
)
 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Consumer:
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Segment revenues(a)
$
91,160

 
$
98,264

 
$
(7,104
)
 
(7
)%
 
$
547,603

 
$
586,739

 
$
(39,136
)
 
(7
)%
Segment operating
income/(loss)
$
(8,234
)
 
$
(3,079
)
 
$
(5,155
)
 
(167
)%
 
$
(9,994
)
 
$
37,146

 
$
(47,140
)
 
(127
)%
Consumer orders
1,580

 
1,636

 
(56
)
 
(3
)%
 
9,672

 
10,137

 
(465
)
 
(5
)%
Average order value
$
55.43

 
$
57.51

 
$
(2.08
)
 
(4
)%
 
$
55.01

 
$
56.22

 
$
(1.21
)
 
(2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Florist:
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Segment revenues(a)
$
31,184

 
$
34,665

 
$
(3,481
)
 
(10
)%
 
$
115,316

 
$
125,261

 
$
(9,945
)
 
(8
)%
Segment operating income
$
8,837

 
$
9,552

 
$
(715
)
 
(7
)%
 
$
31,951

 
$
35,757

 
$
(3,806
)
 
(11
)%
Average revenues per member
$
3,180

 
$
3,263

 
$
(83
)
 
(3
)%
 
$
11,257

 
$
11,397

 
$
(140
)
 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International:
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

In USD:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment revenues
$
28,936

 
$
31,477

 
$
(2,541
)
 
(8
)%
 
$
114,965

 
$
106,416

 
$
8,549

 
8
 %
Segment operating income
$
1,963

 
$
3,384

 
$
(1,421
)