UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,
D. C. 20549 FORM 10-K þANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the fiscal year ended June 30, 2003 oTRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from           
to Commission
file number 000-21277 FTD, Inc. (Exact name of registrant
as specified in its charter) Delaware
  
  13-3711271(State or other
  jurisdiction of
  
  (I.R.S. EmployerIncorporation or
  organization)
  
  Identification
  No.)
  3113 Woodcreek Drive
Downers Grove, IL 60515(Address of principal executive offices) Registrants telephone
number, including area code: (630) 719-7800 Securities registered pursuant to Section 12(b) of
the Act: None Securities registered pursuant to Section 12(g) of
the Act: Class A Common Stock, par
value $0.01 per share 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. YESþ   NO o Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the Registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.o Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2). YESþ   NO o The aggregate market value
of the Registrants Class A common stock, par value $0.01 per share (Class A
Common Stock) held by non-affiliates of the Registrant as of September 8,
2003 was $72,360,493. As of September 8, 2003, there were 15,080,804
outstanding shares of the Registrants Class A Common Stock, and 1,311,252
outstanding shares of the Registrants Class B convertible common stock,
par value $0.0005 per share (Class B Convertible Common Stock and,
together with Class A Common Stock, Common Stock). DOCUMENTS INCORPORATED BY
REFERENCE. Portions
of the Registrants proxy statement (to be filed pursuant to Regulation 14A)
for the 2003 Annual Meeting of Stockholders (the Proxy Statement) are
incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III
hereof.


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PART I Item 1.   BUSINESS Overview FTD, Inc. (the Registrant or the Company) is
a Delaware corporation that commenced operations in 1994. As used in this Form 10-K,
the terms the Registrant or the Company refer to FTD, Inc., including
its wholly-owned subsidiary, Florists Transworld Delivery, Inc., a
Michigan corporation (FTD or the Operating Company). The operations of FTD,
the Companys principal operating subsidiary, include those of its wholly-owned
subsidiaries, FTD.COM INC. (FTD.COM) and FTD Canada, Inc., and its
indirect wholly-owned subsidiary, Renaissance Greeting Cards, Inc. (Renaissance).
Substantially all of the Companys operations are conducted through FTD and its
subsidiaries. The Company, supported by its worldwide FTD brand which
utilizes the FTD Mercury Man logo, is a leading provider of floral services and
products. Through its florist business, the Company provides products and
services, such as clearinghouse services, technology products and services and
floral shop supplies, to approximately 20,000 member florists and other retail
locations offering floral products in the U.S. and Canada, and connects
approximately 29,000 additional florists through affiliated or related
organizations in 150 countries outside of North America. The consumer business
segment is comprised of FTD.COM, a leading Internet and telephone marketer of
flowers and specialty gifts. FTD.COM sells directly to consumers, primarily
through its www.ftd.com
Web site and its 1-800-SEND-FTD toll-free telephone number. The Company is required to
file annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and other information with the Securities and
Exchange Commission (SEC). The public can obtain copies of these materials by
visiting the SECs Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330, or by accessing
the SECs website at www.sec.gov. In
addition, as soon as reasonably practicable after these materials are filed with
or furnished to the SEC, the Company will make copies available to the public
free of charge on or through its Web site, www.ftdi.com. The
information on the Companys Web site is not incorporated into, and is not part
of, this annual report. 2002 Merger of the
Company with FTD.COM Effective June 28, 2002, the Company, FTD and
FTD.COM completed a merger transaction (the 2002 Merger) pursuant to which
FTD.COM became an indirect wholly-owned subsidiary of the Company and the
former public stockholders of FTD.COM became stockholders of the Company. The
Company accounted for the 2002 Merger using the purchase method of accounting. Pursuant
to the 2002 Merger, each stockholder of FTD.COM, other than the Company or its
other direct or indirect wholly-owned subsidiaries, received 0.26 shares of Class A
Common Stock for each share of FTD.COM common stock owned at the time of the
2002 Merger. Additionally, all outstanding options to purchase shares of
FTD.COM common stock were converted into options to purchase shares of Class A
Common Stock and all restricted shares of FTD.COM common stock were converted
into restricted shares of Class A Common Stock, in accordance with the
same exchange ratio and continue to be subject to the same restrictions and
vesting schedule as existed prior to the 2002 Merger. In connection with the
2002 Merger, the controlling stockholders of the Company entered into a
governance agreement with the Company that requires the Company to nominate
designated representatives of the controlling stockholders to the Companys
Board of Directors (the Board) for so long as the controlling stockholders
continue to own certain specified percentages of Common Stock. The controlling
stockholders also entered into a registration rights agreement with the Company
at the time of the 2002 Merger that may require the Company to register their
shares of Common Stock. 1 The Formation and
Termination of Relationship with FTD Association Pursuant to an Agreement and Plan of Merger dated August 2,
1994 (the 1994 Merger Agreement), among the Company, FTD Acquisition
Corporation, a Delaware corporation, and Florists Transworld Delivery
Association, a Michigan non-profit cooperative association founded by a group
of retail florists in the United States in 1910 (the Old Association), the
Company acquired all of the outstanding equity of the Old Association on December 19,
1994 (the Acquisition). The Operating Company was the surviving corporation
following the Acquisition, and upon consummation of the Acquisition, the
Operating Company became a wholly-owned subsidiary of the Company. Immediately
following the Acquisition, the Old Association was converted from a non-profit
corporation to a for-profit corporation and renamed Florists Transworld
Delivery, Inc.  The Company,
through the Operating Company, operates all of the businesses conducted by the
Old Association prior to the Acquisition except for certain trade association
activities which were being conducted by FTD Association, an Ohio non-profit
corporation organized in connection with the Acquisition and structured as a
member-owned trade association (the Association). Neither the Company nor the
Operating Company had any ownership interest in the Association. In connection with the Acquisition, the Association
and FTD entered into a Mutual Support Agreement, dated December 18, 1994
(the Mutual Support Agreement), and a Trademark License Agreement, dated December 18,
1994 (the Trademark Agreement and together with the Mutual Support Agreement,
the Association Agreements). The Association Agreements, among other things,
provided for: (i) existing and future members of the Association to have
the exclusive right, subject to execution of a Trademark Agreement with the
Operating Company, to use the FTD logo and other FTD trademarks in connection
with the operation of a retail florist shop; (ii) all members of the
Association in good standing to be provided access to FTDs clearinghouse
services, Mercury Network and certain other FTD services and products; (iii) the
Operating Company to pay the Association an amount equal to a percentage of the
value of every floral order cleared through FTDs clearinghouse service; and (iv) the
Operating Company and the Association were to be able to designate up to 20% but
not fewer than two individuals to be elected to the others board of directors. On April 30, 2001,
FTD entered into a Termination Agreement with the Association, which became
effective as of June 29, 2001 (the Termination Agreement). The
Termination Agreement, which contained limited two-year non-compete provisions,
terminated the Association Agreements. As consideration for the dissolution of
the contractual relationship between the Company and the Association pursuant
to the Termination Agreement, FTD agreed to pay the Association $14.0 million,
$12.6 million which was paid on June 29, 2001 and $1.4 million which was
paid July 1, 2002. In fiscal year 2001, the Company recorded $14.5 million
of expenses related to this transaction, including professional fees. Operations The Companys primary operations include its florist
business and consumer business segments. Composition of the Companys
reportable segments for fiscal year 2001 have been reclassified to conform to
the current year presentation. The following table
illustrates the percentage of the Companys total revenue generated by the
Companys segments as a percentage of total revenue for the three fiscal years
ended June 30, 2003, 2002 and 2001: Revenues 2003
  
  2002
  
  2001Florist business
  
  47.4
  %
  52.6
  %
  61.6
  %Consumer business
  
  52.6
  
  47.4
  
  38.4Total revenues
  
  100.0
  %
  100.0
  %
  100.0
  %  2  Florist business.The
florist business segment includes revenue associated with the services and
products provided to FTD member florists and other retail locations offering
floral products, and is primarily comprised of the services and products as
described below. Membership as of June 30, 2003, 2002 and 2001 was
approximately 19,400, 19,800 and 14,400 members, respectively. Average
membership for the years ended June 30, 2003, 2002 and 2001 was 20,400,
16,800 and 16,000 members, respectively. Within the florist business segment,
clearinghouse services, publications and other member services products and
services revenue comprised 57%, 57% and 53% of the florist business revenue for
the years ended June 30, 2003, 2002 and 2001, respectively. Mercury
Network services and Mercury computer equipment products and services revenue
comprised 15%, 19% and 19% of the florist business revenue for the years ended June 30,
2003, 2002 and 2001, respectively. Specialty wholesaling products revenue
comprised 28%, 24% and 28% of the florist business revenue for the years ended June 30,
2003, 2002 and 2001, respectively. Clearinghouse services.   Clearinghouse
services primarily consist of billing and collection services provided to both
the sending and receiving florists in flowers-by-wire transactions. Revenues
from the clearinghouse are generated by retaining a percentage of the sales
price of orders sent through the clearinghouse and are recorded in the month
the orders are filled. Revenue is also generated from the monthly membership
fee charged to member florists and credit card processing services provided to
member florists. Cash rebates, which are earned by florists under a customer
incentive program in conjunction with the credit card processing service
offered by the Company, are classified as contra-revenue, in accordance with
Emerging Issues Task Force (EITF) Issue No. 01-9,  Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendors Products)(EITF
Issue No. 01-9). Publications products and other member services.   Publications
products and other member services primarily consist of a telephone directory
of FTD member florists that is published on a quarterly basis in both CD-ROM
and paper book form. Revenues relating to publications are recognized ratably
over the period in which the publications are issued. The Company also provides
services related to the set up and maintenance of FTD Florists Online Web
sites accessible through FTD.COMs www.ftd.com Web
site. In addition, the Company provides a 24 hour telephone answering and
floral order-taking service (Flowers All Hours). Revenues associated with FTD
Florists Online Web sites and Flowers All Hours are recorded in the period the
service is provided. Mercury Network services.   The Companys
Mercury Network is a proprietary telecommunications network linking the Company
and approximately 72% of the Companys member florists. Florists who are linked
by the Mercury Network are able to transmit orders and send each other messages
for a per order or per message fee. Revenues related to transmitting orders and
messages are recorded in the period the transmission occurs. Mercury computer equipment products and services.   Mercury computer
equipment and software sales include both the sales and leasing of hardware and
software designed for the floral industry. The software provides access to the
Companys Mercury Network to allow for sending and receiving orders, billing capabilities,
order-entry capabilities, an interface to various accounting software packages
and a comprehensive range of payroll and accounting functions. The Company
follows the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition,as
amended by SOP 98-9, Software Revenue
Recognition with Respect to Certain Arrangements, requiring revenue
earned on software arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, post-contract customer support, installation
and training) to be allocated to each element based on the relative fair values
of the elements. The Company recognizes revenue related to hardware products
which are sold, including specified upgrades/enhancements, at the time of
shipment. The Company recognizes revenue related to software products which are
sold ratably over the estimated useful life of the software. For 3 systems that are being
leased, the Company recognizes hardware and software revenue ratably over the
period of the lease agreement. Support revenue is recognized over the period of
the support agreement. Installation and training revenues are recognized at the
time the service is provided. Specialty wholesaling products.   The Company sells
both FTD-branded and non-branded holiday and everyday floral arrangement
containers and products. The Company also sells packaging, promotional products
and a wide variety of other floral-related supplies, including greeting cards
and the Floral Selections Guide, a counter display catalog published by FTD
featuring FTD products for all occasions. Sales of specialty wholesaling
products are recorded when the products are shipped. Consumer business.The
consumer business is comprised of FTD.COM, an Internet and telephone marketer
of flowers and specialty gifts, which sells products directly to consumers
through the 1-800-SEND-FTD toll-free telephone number and electronically to
consumers through the www.ftd.com Web
site. FTD.COM offers same-day delivery of floral orders to nearly 100% of the
U.S. population. The majority of orders are fulfilled by a group of independent
FTD florists who adhere to FTD.COMs quality and service standards. FTD.COM
offers over 400 floral arrangements and over 800 specialty gift items,
including gourmet gifts, holiday gifts, bath and beauty products, dried
flowers, gifts for the home and stuffed animals. Orders placed through FTD.COMs Web site or
1-800-SEND-FTD typically are paid for using a credit card. When a customer
makes a purchase that will be fulfilled by an FTD florist, FTD.COM processes
the order, charges the customers credit card and transmits the order to the
Mercury Network. The Mercury Network then transmits the order to the fulfilling
florist. FTD.COM charges the customer a service fee of $9.99 for floral orders
and certain specialty gift items placed through its Web site or through 1-800-SEND-FTD,
prior to any promotional discounts. Orders from FTD.COMs specialty gift selection are
fulfilled by a manufacturer or a third party distributor based on a
pre-negotiated price. FTD.COM generally charges the customer shipping and
handling fees for these specialty gift product orders. Amounts charged to the
customer for the product and shipping and handling are recorded as revenue and
the pre-negotiated price of the product and the costs incurred for shipping and
handling are recorded as costs of goods sold and services provided. Order revenue and service fees are reported net of
discounts. FTD.COM recognizes 100% of the order value as revenue and the
associated costs of goods sold and services provided when the order is
fulfilled. Operating expenses.Selling
expenses primarily include expenses related to the Companys florist business
sales force and rebates offered to florists as incentive to increase order
volumes processed through the FTD clearinghouse. Advertising expenses are
primarily related to the Companys marketing and advertising programs on both
national and local levels. FTDs advertising promotes FTD member florists, FTD
branded products, the www.ftd.comWeb
site and the toll-free telephone number, 1-800-SEND-FTD. The florist business segment promotes the FTD brand
and its products and services primarily through broadcast and cable television
advertisements, magazine advertisements and newspaper supplements. Sponsorships
are also a major part of the florist business segments marketing efforts. Additionally,
the florist business segment supplies advertising and marketing tools on a
local basis for FTD florists to support the Companys co-branding strategy. FTD
florists are provided with advertising tools such as advertisements for
newspaper print, point-of-sale items, radio scripts and television tapes to be
customized with individual shop information. FTD florists can also purchase
customizable direct mail pieces through FTD. The consumer business segments marketing program
utilizes a mix of offline, online, direct and customer loyalty marketing
strategies, representing a balanced marketing program focused on both 4 customer acquisition and
retention. Offline advertising consists primarily of yellow pages advertising.
Online advertising consists primarily of online advertisements and links on
shopping and search-oriented Web sites. The direct marketing campaign focuses
on the development of relationships with many companies that have large
consumer databases. Statement inserts, e-mails, online placements, discount
offers and mileage and point award programs are utilized to market to these
consumers. The cost associated with mileage and point award programs are
classified as cost of goods sold, in accordance with EITF Issue No. 01-9. Customer
loyalty marketing strategies focus on the utilization of the Companys extensive
database of customer information to enhance customer retention efforts. General and administrative
expenses primarily consist of direct corporate expenses and customer service
and technology expenses in both business segments. Seasonality In view of seasonal variations in the revenues and
operating results of the Companys florist and consumer business segments, the
Company believes that comparisons of its revenues and operating results for any
period with those of the immediately preceding period or the same period of the
preceding fiscal year may be of limited relevance in evaluating the Companys
historical performance and predicting the Companys future financial
performance. The Companys working capital, cash and short-term borrowings also
fluctuate during the year as a result of the factors set forth below. The Company generated 20.3%, 24.4%, 26.3% and 29.0% of
its total revenue in the quarters ended September 30, December 31, March 31
and June 30 of fiscal year 2003, respectively. The Companys quarterly
revenue and operating results typically exhibit seasonality similar to that
experienced in fiscal year 2003. For example, revenue and operating results
tend to be lower for the quarter ending September 30 because none of the
most popular floral and gift holidays, which include Valentines Day, Easter,
Mothers Day, Thanksgiving and Christmas, fall within that quarter. In
addition, depending on the year, the popular floral holiday of Easter sometimes
falls within the quarter ending March 31 and sometimes falls within the
quarter ending June 30. Seasonality is also
attributable to increased revenues in the quarter ended March 31 related
to the increased floral orders and shipments of holiday products to florists in
anticipation of the popular floral holiday of Mothers Day. In addition,
historical year over year total revenue and operating results fluctuated in the
first quarter related to the revenue generated from the Floral Selections
Guide, which is published bi-annually. Trademarks The Companys intellectual property portfolio includes
service marks, trademarks and collective trademarks that distinguish the
services and products offered by the Company or its member florists from those
offered by other companies. The FTD word mark and the Mercury Man logo are
registered in the United States, Canada and other jurisdictions throughout the
world for various products and services. These marks are used directly by the
Company or under license by member florists and 
FTD.COM. Other registered trademarks and service marks of the
Company include FTDA, Florists Transworld Delivery, Mercury and Mercury
Network.  The Company also has
registered collective trademarks which are used under license by its member
florists and FTD.COM for floral products and related items. These collective
trademarks include Autumn Splendor, Big Hug, Birthday Party, Chicken
Soup, Sweet Dreams, Thanks A Bunch and the FTD Anniversary Bouquet.  In addition, the Company has applied to
register certain other trademarks, service marks and collective trademarks in
the United States and other countries, and likely will seek to register
additional marks, as appropriate. It is possible that some of these
applications to register additional marks will not result in registrations. 5 The Company also uses
various marks under license, including the Interflora mark. The Company is
the exclusive licensee to use this mark in North America and South America, as
well as other countries including, but not limited to, Japan, South Korea,
Panama, the Philippine Islands, Puerto Rico and the Virgin Islands. Competition The Company competes in the extremely fragmented
floral services industry with a large number of wholesalers, service providers
and direct marketers of flowers and gifts. The principal competitor of the
Companys florist business segment is Teleflora LLC (Teleflora). Teleflora
and FTD are the largest floral service providers in the United States based on
membership. Teleflora offers some products and services that are comparable to
those offered by the Company, and florists may subscribe to both of these
competing services. The principal competitor of the Companys consumer business
segment is 1-800-FLOWERS.COM, Inc., which offers similar floral and
specialty gift items to consumers through a Web site and a toll-free telephone
number. The Operating Company is
subject to certain operating restrictions pursuant to a Modified Final
Judgment, dated November 13, 1990, of the United States District Court for
the Eastern District of Michigan in United States of America
v. Florists Telegraph Delivery Association, Civ. No. 56-15748,
and United States of America v. Florists Transworld
Delivery Association, Civ. No. 66-28784 (collectively referred
to as the Consent Order). Among its terms, the Consent Order prohibits FTD
from restricting membership to florists who are not subscribers of a competing
clearinghouse. The Consent Order expires on August 1, 2005. Employees At June 30, 2003, the
Company employed approximately 800 full-time employees. The Company considers
its relations with its employees to be good. None of the Companys employees is
currently covered by a collective bargaining agreement. Item 2.   PROPERTIES The Companys principal
executive offices, consisting of approximately 120,000 square feet of office
space, are owned by the Company and are located in Downers Grove, Illinois. In
addition, the Company leases office space in Sanford, Maine for its Renaissance
operations, an independent warehouse and distribution facility in Cincinnati,
Ohio for product distribution and office space in Centerbrook, Connecticut and
Medford, Oregon for two of its internal call centers. The Companys management
believes that its facilities are adequate for its current operations. Item 3.   LEGAL
PROCEEDINGS The Company, FTD,
FTD.COM and the directors of the Company and FTD.COM have been named as
defendants in five class action lawsuits filed in the Court of Chancery for New
Castle County in Wilmington, Delaware by individual stockholders of FTD.COM on
behalf of all former public stockholders of FTD.COM: Frances
Howland v. FTD.COM et al., Civil Action No. 19458 NC; Johnathon Anderson v. Richard Perry et al., Civil Action No. 19459
NC; Stephen Gluck v. Richard C. Perry, Civil
Action No. 19461 NC; Geoff Mott v. IOS Brands
Corp., Civil Action No. 19468 NC; and Highwood
Partners, L.P. v. IOS Brands Corp., Civil Action No. 19556 NC. These
lawsuits were filed beginning on March 5, 2002, after the press release
announcing the 2002 Merger was issued. The complaints generally make
essentially the same allegations, namely that: ·the offer by the Company to
exchange 0.26 shares of Class A Common Stock for each share of FTD.COM
common stock is inadequate, 6 ·the individual defendants
breached the fiduciary duties they owed in their capacity as directors by,
among other things, failing to conduct an auction or otherwise check the market
value of FTD.COM before voting to accept the merger proposal, ·the Company and its board
of directors prevented the FTD.COM board of directors from conducting a
meaningful review of the transaction, and ·the Company, FTD.COM and
certain individual defendants timed the 2002 Merger to deny public stockholders
the full potential increase in FTD.COMs stock price following the 2002 Merger. The Company has reached an agreement to settle the
consolidated shareholder class actions pending in the Court of Chancery for New
Castle County in Wilmington, Delaware, titled In Re FTD.COM, Inc.
Shareholders Litigation.  A Stipulation
and Agreement of Compromise, Settlement and Release relating to this matter has
been executed (the Stipulation and Settlement Agreement). The terms of the Stipulation and Settlement Agreement,
which are subject to final Court approval and notice to class members, include
no finding of wrongdoing on the part of any of the defendants, or any other
finding that the claims alleged had merit. The Company and the other defendants
have denied, and continue to deny, that they have committed any violation of
federal securities or other laws. The Company expects the Court to hold a
fairness hearing in the near future to consider objections, if any, and to
determine whether it will approve the settlement. Pursuant to the Stipulation and Settlement Agreement,
the Company has agreed to issue shares of FTD, Inc. Class A common
stock valued at $10.7 million to the members of the class. In connection with
the settlement, the Company recorded an $11.0 million charge in the fourth
quarter of fiscal year 2003 as other expense, including related administrative
costs. This charge will not be deductible for income tax purposes. There are two insurance policies relating to these
matters, one covering the Company and its directors and officers and another
covering FTD.COM and its directors and officers. The Company intends to
aggressively pursue its claims under both of these insurance policies. Both of
the insurance carriers have initiated litigation seeking to deny coverage for
the shareholder lawsuits that are the subject of the settlement, while the
Company believes that it, FTD.COM and the individual defendants are entitled to
coverage. Any recoveries from the insurance providers relating to the
settlement will be recorded as other income in the period realized. In addition, the Company
is involved in various lawsuits and other matters arising in the normal course
of business. In the opinion of management of the Company, although the outcome
of these claims and suits are uncertain, they should not have a material
adverse effect on the Companys financial condition, liquidity or results of
operations. Item 4.   SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Companys
security holders during the fourth quarter of fiscal year 2003.   7


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PART II Item 5.   MARKET FOR REGISTRANTS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS The Class A Common Stock is quoted on the NASDAQ
National Market under the symbol FTDI. 
As of June 30, 2003 there were approximately 1,760 holders of
record of Class A Common Stock. There currently is no public market for
the Class B Convertible Common Stock. As of June 30, 2003 there were
three holders of record of Class B Convertible Common Stock. The holders
of Class A Common Stock are entitled to one vote per share while the
holders of Class B Convertible Common Stock have no voting rights;
provided, however, that the holders of Class B Convertible Common Stock
have the right to vote as a separate class in certain cases involving mergers,
consolidations, reorganizations or recapitalizations in which the holders of Class B
Convertible Common Stock receive different consideration on a per share basis
than holders of Class A Common Stock, but shall not be entitled to vote
separately as a class on any amendment that simply increases or decreases the
number of shares of such class. The Class B Convertible Common Stock is
convertible into shares of Class A Common Stock pursuant to the provisions
of the Companys Restated Certificate of Incorporation. The Company has not paid any cash dividends on its
Common Stock since its inception. Any future determination as to the payment of
dividends will be at the discretion of the Board and will depend on the Companys
financial condition, results of operations, capital requirements, compliance
with charter and contractual restrictions and such other factors as the Board
deems relevant. In addition, under the terms of the Companys Amended
and Restated Credit Agreement dated as of September 27, 2002, by and among
the Company, FTD and Harris Trust and Savings Bank (the 2002 Credit Agreement),
the Company may not declare or pay any dividend or make any distribution (other
than dividends or distributions payable solely in capital stock of the Company)
on shares of its Common Stock to holders of such Common Stock if at the time of
such proposed dividend, or immediately after giving effect thereto, certain
financial conditions are not satisfied. The table below sets forth
the high and low sales prices as reported in the NASDAQ National Market for FTD, Inc.
Class A Common Stock for each quarterly period of fiscal year 2003. Because
the Class A Common Stock was only reported on the NASDAQ National Market
on June 28, 2002, the first day of public trading, trading activity in the
Class A Common Stock was limited and did not, as of that date, constitute
an established public trading market, therefore, the table below sets forth
only the high and low sales prices on June 28, 2002 for the prior fiscal
year. Period
  
  
  
  High
  
  Low2003:1st
  quarter (July 1 - September 30)
  
  $
  14.39
  
  $
  10.392nd
  quarter (October 1 - December 31)
  
  $
  17.60
  
  $
  11.753rd
  quarter (January 1 - March 31)
  
  $
  22.80
  
  $
  15.154th
  quarter (April 1 - June 30)
  
  $
  25.20
  
  $
  19.222002:4th quarter
  (June 28 - June 30)
  
  $
  12.87
  
  $
  12.00  Item 6.   SELECTED
FINANCIAL DATA The
following table sets forth the Companys selected historical data for the 1999
through 2003 fiscal years. The selected historical statement of operations data
for the 1999 through 2003 fiscal years was derived from the Companys audited
consolidated financial statements. The financial data is qualified by reference
to, and should be read in conjunction with, the Companys consolidated
financial statements and the notes to those statements and Managements
Discussion and Analysis of Financial Condition and 8 Results of Operations appearing elsewhere in this Form 10-K.
Certain amounts in the Companys fiscal years 1999 through 2002 financial
statements have been reclassified to conform to the current year presentation. Fiscal year ended June 30,2003
  
  2002
  
  2001
  
  2000
  
  1999(In thousands, except per share amounts)Statement of Operations:Total revenues
  
  $
  363,343
  
  $
  325,266
  
  $
  305,995
  
  $
  264,834
  
  $
  209,385Cost of goods
  sold and services provided
  
  203,905
  
  177,328
  
  159,879
  
  135,069
  
  95,894Gross profit
  
  159,438
  
  147,938
  
  146,116
  
  129,765
  
  113,491Selling, general
  and administrative expenses
  
  122,639
  
  127,280
  (1)
  120,826
  (2)
  152,871
  (3)
  102,747Income (loss)
  from operations
  
  36,799
  
  20,658
  
  25,290
  
  (23,106
  )
  10,744Other expense,
  net
  
  12,137
  (4)
  3,400
  (5)
  18,660
  (6)
  4,006
  
  13,799
  (5)Income tax
  expense (benefit)
  
  15,373
  
  6,718
  
  3,401
  
  (7,586
  )
  (194
  )Minority interest(7)
  
  
  
  2,525
  
  1,908
  
  (4,389
  )
  Net income (loss)
  
  $
  9,289
  
  $
  8,015
  
  $
  1,321
  
  $
  (15,137
  )
  $
  (2,861
  )Net income (loss) per sharebasic
  
  $
  0.57
  
  $
  0.55
  
  $
  0.09
  
  $
  (0.99
  )
  $
  (0.19
  )Net income (loss)
  per sharediluted
  
  $
  0.56
  
  $
  0.54
  
  $
  0.09
  
  $
  (0.99
  )
  $
  (0.19
  )Other Data:Depreciation and amortization
  
  $
  7,898
  
  $
  9,421
  
  $
  9,487
  
  $
  8,628
  
  $
  7,307Capital expenditures
  
  $
  4,528
  
  $
  4,453
  
  $
  3,952
  
  $
  15,655
  
  $
  8,970Balance
  Sheet Data:(at end of period)Working capital (deficit)
  
  $
  (22,192
  )
  $
  19,683
  
  $
  13,736
  
  $
  778
  
  $
  (8,285
  )Total assets
  
  204,371
  
  231,901
  
  175,351
  
  171,466
  
  144,697Long-term debt, including current portion
  
  6,500
  
  47,000
  
  54,875
  
  54,750
  
  51,750Total equity
  
  $
  122,323
  
  $
  114,217
  
  $
  51,139
  
  $
  47,849
  
  $
  23,778  
 (1)During
the year ended June 30, 2002, the Company recorded the following as a
component of selling, general and administrative expenses: ·Compensation expense of $8.7 million related to bonus
payments paid to executive officers, in addition to related employer payroll
taxes, in connection with the 2002 Merger. ·A gain of $2.6 million attributable to the settlement of a
claim against the developer of an unlaunched version of FTD.COMs Web
site. ·Severance costs of $2.2 million for certain former employees. ·Merger related expenses of $1.6 million incurred by FTD.COM
related to the 2002 Merger. ·A $1.4 million gain attributable to the termination of
certain future post-retirement health care benefits. The Company provides
certain post-retirement health care benefits to qualifying retirees under the
terms of its qualified retirement plan. This termination of benefits caused a
decrease in the Companys post-retirement health care obligation attributed to
prior services rendered. ·A gain of $1.1 million attributable to a single business tax
refund related to prior years filings. 9 ·An impairment loss for internal use software in the amount of
$0.4 million that had been used to process clearinghouse and related
transactions for member services. (2)In the second quarter of
fiscal year 2001, the Company recorded a $0.5 million gain, reflected in
selling, general and administrative expenses, attributable to the settlement of
a third party vendor cancellation fee for less than the amount originally
accrued in the fourth quarter of fiscal year 2000 by FTD.COM. (3)In the fourth quarter of
fiscal year 2000, the Company recorded a $4.4 million charge, reflected in
selling, general and administrative expenses, associated with the write-off of
development work related to an unlaunched version of FTD.COMs Web site. Additionally,
in the same quarter of fiscal year 2000, FTD.COM terminated one of its Internet
portal distribution agreements. In conjunction with this termination, the
Company recorded a $2.3 million charge, reflected in selling, general and
administrative expenses. (4)In the fourth quarter of
fiscal year 2003, the Company recorded as a component of other expense, net, a
charge of $11.0 million related to the recording of a liability associated with
the proposed settlement of pending consolidated shareholder class action
litigation related to the Companys fiscal 2002 merger with FTD.COM, including
administrative costs. (5)In September 2001,
the Company and FTD entered into the 2001 Credit Agreement. As a result of
entering into the 2001 Credit Agreement, unamortized deferred financing costs
associated with the then existing debt were expensed, resulting in a net loss
on extinguishment of debt of $0.6 million. In December 1998, the Company
repurchased the $60.0 million aggregate principal amount of 14% Senior
Subordinated Notes due December 15, 2001 (the Notes). The aggregate
repurchase price totaled $64.2 million and consisted of the $60.0 million
principal on the Notes and a $4.2 million pre-payment penalty. As a result of
the repurchase of the Notes, $1.7 million of unamortized discount and $1.2
million of deferred financing costs associated with the Notes were expensed in December 1998.
Accordingly, the loss on the repurchase of the Notes totaled $7.1 million. These
expense items are reflected in other expense, net in accordance with Statement
of Financial Accounting Standards (SFAS) No. 145, Recission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. (6)In the fourth quarter of
fiscal year 2001, FTD recorded a termination charge of $14.5 million, reflected
in other expense, net related to the dissolution of a contractual relationship
between FTD and a member-owned trade association pursuant to the Termination
Agreement. (7)In
fiscal years 2000 through 2002, the minority interest represents the minoritys
interest in FTD.COM through the date of the 2002 Merger. Item 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion
should be read in conjunction with the consolidated financial statements and
notes to those statements that appear elsewhere in this Form 10-K. The
following discussion contains forward-looking statements that reflect the
Companys plans, estimates and beliefs. The Companys actual results could
differ from those discussed in the forward-looking statements. Factors that
could cause or contribute to any differences include, but are not limited to,
those discussed under the caption Forward-Looking Information and elsewhere
in this Form 10-K. 10 Operations The Company generates its
revenue from two business segments, the florist business segment and the
consumer business segment. Composition of the Companys reportable segments for
fiscal year 2001 has been reclassified to conform to the current year
presentation. Florist business.   The
florist business segment includes revenue associated with the services and
products provided to FTD member florists. Within the florist business segment,
clearinghouse services, publications and other member services products and
services revenue comprised 57%, 57% and 53% of the florist business revenue for
the years ended June 30, 2003, 2002 and 2001, respectively. Mercury
Network services and Mercury computer equipment products and services revenue
comprised 15%, 19% and 19% of the florist business revenue for the years ended June 30,
2003, 2002 and 2001, respectively. Specialty wholesaling products revenue
comprised 28%, 24% and 28% of the florist business revenue for years ended June 30,
2003, 2002 and 2001, respectively. Consumer business.   The
consumer business segment is comprised of FTD.COM, an Internet and telephone
marketer of flowers and specialty gifts, which sells products directly to
consumers through the 1-800-SEND-FTD toll-free telephone number and
electronically to consumers through the www.ftd.com Web
site. FTD.COM offers same-day delivery of floral orders to nearly 100% of the
U.S. population. The majority of orders are fulfilled by a group of independent
FTD florists who adhere to FTD.COMs quality and service standards. FTD.COM
offers over 400 floral arrangements and over 800 specialty gift items, including
gourmet gifts, holiday gifts, bath and beauty products, dried flowers, gifts
for the home and stuffed animals. Year ended June 30,
2003, compared to year ended June 30, 2002 Total revenues Year ended June 30,2003
  
  2002
  
  % Change(in thousands)Florist business
  
  $
  172,385
  
  $
  171,197
  
  
  0.7
  %Consumer business
  
  190,958
  
  154,069
  
  
  23.9Total revenues
  
  $
  363,343
  
  $
  325,266
  
  
  11.7
  %  Total revenues increased by $38.0 million, or 11.7%,
to $363.3 million for the year ended June 30, 2003, compared to $325.3
million for the year ended June 30, 2002. Florist business segment revenue increased by $1.2
million, or 0.7%, to $172.4 million for the year ended June 30, 2003,
compared to $171.2 million for the year ended June 30, 2002. This increase
in revenues is primarily related to the bi-annual sale of the Floral Selections
Guide, which was sold during fiscal year 2003, and an increase in sales related
to FTDs wholesale products, which include FTDs branded floral supplies and
wholesale fresh flowers. This increase in revenues was partially offset by a
decrease in revenues associated with orders sent over the Mercury Network. The
primary reasons for this decrease were related to the termination of a
relationship with a competing clearinghouse, which resulted in fewer orders
being transmitted over the Mercury Network, and a planned reduction in the per
order transmission fees charged by the Company, which went into effect in July 2002. Consumer business segment
revenue increased by $36.9 million, or 23.9%, to $191.0 million for the year
ended June 30, 2003, compared to $154.1 million for the year ended June 30,
2002 primarily due to increased order volume. Total order volume was
approximately 3.2 million orders for the fiscal year ended June 30, 2003,
representing a 22.8% increase over the prior fiscal year order volume of
approximately 2.6 million. This increase in order volume was primarily due to
continued growth in organic order volume due 11 to new
and existing marketing initiatives and expanded product offerings. Additionally,
the increase in order volume was attributable to the acquisition of the
businesses of National Flora, Flowers Direct and Flowers USA, which were
acquired by the Company in November 2001, July 2002 and October 2002,
respectively. Internet orders were 79.8% of total orders for the fiscal year
ended June 30, 2003, compared to 80.8% for the fiscal year ended June 30,
2002. The decrease in the percent of Internet orders to total orders was
primarily attributable to the acquisitions of the National Flora, Flowers
Direct and Flowers USA businesses, which have a higher percentage of telephone
sales than the organic consumer business. Total costs of
goods sold and services provided Year ended June 30,2003
  
  2002
  
  % Change(in thousands)Florist business
  
  $
  57,111
  
  $
  56,572
  
  
  1.0
  %Consumer business
  
  144,286
  
  118,180
  
  
  22.1Corporate
  
  2,508
  
  2,576
  
  
  (2.6
  )Total costs of goods
  sold and services provided
  
  $
  203,905
  
  $
  177,328
  
  
  15.0
  %  Total costs of goods sold and services provided
increased by $26.6 million, or 15.0%, to $203.9 million for the year ended June 30,
2003, compared to $177.3 million for the year ended June 30, 2002. As a
percent of revenue, gross margins decreased to 43.9% for the year ended June 30,
2003 from 45.5% for the year ended June 30, 2002, primarily attributable
to the higher percentage of total sales in the Companys lower margin consumer
business segment. Costs of goods sold and services provided associated
with the florist business segment increased by $0.5 million, or 1.0%, to $57.1
million for the year ended June 30, 2003, compared to $56.6 million for
the year ended June 30, 2002. This increase was primarily attributable to
increased revenues in the florist business segment, as previously noted. As a
percent of revenue, the florist business segments gross margin remained
relatively consistent at 66.9% for the year ended June 30, 2003 compared
to 67.0% for the year ended June 30, 2002. Costs of goods sold and services provided associated
with the consumer business segment increased by $26.1 million, or 22.1%, to
$144.3 million for the year ended June 30, 2003, compared to $118.2
million for the year ended June 30, 2002. This increase was primarily
attributable to increased revenues, as previously noted. As a percent of
revenue, the consumer business segments gross margin increased to 24.4% for
the year ended June 30, 2003 from 23.3% for the year ended June 30,
2002, primarily as a result of increased specialty gift orders, which typically
have higher gross profit margins, coupled with operating improvements,
including efficiencies in order entry processing. Costs of goods sold and
services provided associated with corporate activities decreased by $0.1
million, or 2.6%, to $2.5 million for the year ended June 30, 2003,
compared to $2.6 million for the year ended June 30, 2002. These costs are
related to the development and support of the internal corporate technology
platforms. Advertising and
selling costs Year ended June 30,2003
  
  2002
  
  % Change(in thousands)Florist business
  
  $
  52,196
  
  $
  52,966
  
  
  (1.5
  )%Consumer business
  
  19,831
  
  14,969
  
  
  32.5Total advertising and
  selling costs
  
  $
  72,027
  
  $
  67,935
  
  
  6.0
  %  12


---

Advertising and selling costs increased by $4.1
million, or 6.0%, to $72.0 million for the year ended June 30, 2003,
compared to $67.9 million for the year ended June 30, 2002. Advertising and selling costs associated with the
florist business segment decreased by $0.8 million, or 1.5%, to $52.2 million
for the year ended June 30, 2003, compared to $53.0 million for the year
ended June 30, 2002. This decrease was primarily due to reductions in
advertising expenses related to a more targeted and efficient advertising
campaign and a decrease in volume-based rebates associated with orders sent
through the FTD clearinghouse. These decreases were partially offset by costs
related to the expansion of the Companys sales force. Advertising and selling
costs associated with the consumer business segment increased by $4.8 million,
or 32.5%, to $19.8 million for the year ended June 30, 2003, compared to
$15.0 million for the year ended June 30, 2002. The increase was primarily
due to an increase in online advertising expenses related to an increase in
order volume and cost per order related to online advertising placements. Certain
of these online agreements contain terms that include both fixed and variable
payment elements, the variable portion of which is based upon the number of
orders generated from third party Web sites in excess of a threshold as defined
in the related agreements. The Company records expenses related to these
agreements based on an estimated per order cost, calculated by estimating the
anticipated number of orders to be generated under each such agreement. As a
result of the Companys marketing and promotional efforts, the total customer
base (defined as all persons who have purchased at least once through the www.ftd.com Web site or FTD.COMs toll-free telephone
number, 1-800-SEND-FTD, as well as customer names added through the Companys
acquisitions) increased by 43.6%, or 2.2 million customers, to 7.2 million
customers as of June 30, 2003 from 5.0 million customers as of June 30,
2002. This increase included the addition of 0.4 million and 0.3 million
customers attributable to the acquisitions of the Flowers Direct and Flowers
USA businesses, respectively. General and administrative costs Year ended June 30,2003
  
  2002
  
  % Change(in thousands)Florist business
  
  
  $
  11,366
  
  
  $
  13,098
  
  
  (13.2
  )%Consumer business
  
  
  13,883
  
  
  12,375
  
  
  12.2Corporate
  
  
  25,363
  
  
  33,872
  
  
  (25.1
  )Total general and
  administrative costs
  
  
  $
  50,612
  
  
  $
  59,345
  
  
  (14.7
  )%  General and administrative costs decreased by $8.7
million, or 14.7%, to $50.6 million for the year ended June 30, 2003,
compared to $59.3 million for the year ended June 30, 2002. The general and administrative costs associated with
the florist business segment decreased by $1.7 million, or 13.2%, to $11.4
million for the year ended June 30, 2003, compared to $13.1 million for
the year ended June 30, 2002. This decrease was partially attributable to
cost control efforts, which encompassed headcount reductions in corporate
technology functions and a $0.4 million charge in the prior fiscal year related
to the impairment of internal use software that had been used to process
clearinghouse and related transactions which did not reoccur in the current
fiscal year. The general and administrative costs associated with
the consumer business segment increased by $1.5 million, or 12.2%, to $13.9
million for the year ended June 30, 2003, compared to $12.4 million for
the year ended June 30, 2002. This increase was primarily related to a
$2.6 million gain recorded in the prior year attributable to the settlement of
a claim against the developer of an unlaunched version of the FTD.COM Web site,
offset by $1.6 million of costs incurred in the prior year related to the 2002
Merger, neither of which reoccurred in the current fiscal year. Additionally,
there was an increase in call center and technology costs related to an
increase in order volume in fiscal year 2003. 13 Corporate general and
administrative costs decreased by $8.5 million, or 25.1%, to $25.4 million for
the year ended June 30, 2003, compared to $33.9 million for the year ended
June 30, 2002. This decrease was primarily attributable to $8.7 million in
bonus payments and $1.7 million in severance costs incurred in the prior year
related to the 2002 Merger and $0.5 million in the prior year related to
additional severance costs for certain former employees. In addition,
amortization expense decreased $2.7 million in the current fiscal year as a
result of the adoption of FAS 142. This decrease in costs was partially offset
by a $1.4 million gain in the prior year related to the termination of certain
future post retirement health care benefits, a $1.1 million gain in the prior
year attributable to a single business tax refund related to prior years
filings, an increase in employee benefit costs in the current year and an
increase in amortization expense in the current year related to a customer list
acquired in the 2002 Merger. Other income and expenses Year ended June 30,2003
  
  2002
  
  % Change(in thousands)Interest income
  
  $
  (168
  )
  $
  (1,038
  )
  
  (83.8
  )%Interest expense
  
  1,577
  
  3,342
  
  
  (52.8
  )Other expense,
  net
  
  10,728
  
  1,096
  
  
  878.8Total other income and
  expenses
  
  $
  12,137
  
  $
  3,400
  
  
  257.0
  %  Other income and expenses increased by $8.7 million,
or 257.0%, to $12.1 million for the year ended June 30, 2003, compared to
$3.4 million for the year ended June 30, 2002. Interest income decreased by $0.8 million, or 83.8%,
to $0.2 million for the year ended June 30, 2003, compared to $1.0 million
for the year ended June 30, 2002. The decrease was due to a decrease in
cash balances and lower average interest rates in fiscal year 2003 compared to
fiscal year 2002. Interest expense decreased by $1.7 million, or 52.8%,
to $1.6 million for the year ended June 30, 2003, compared to $3.3 million
for the year ended June 30, 2002. The decrease was due to a decrease in
long-term debt and lower average borrowing rates. Other expense, net
increased by $9.6 million to $10.7 million for the year ended June 30,
2003, compared to $1.1 million for the year ended June 30, 2002. The
primary reason for this increase is the $11.0 million liability that was
recorded in the fourth quarter of fiscal 2003 associated with the proposed
settlement of pending consolidated shareholder class action litigation related
to the Companys 2002 Merger with FTD.COM, including administrative costs. Partially
offsetting this increase was $0.6 million recorded in fiscal year 2002 related
to the write off of unamortized deferred financing costs as a result of the
execution of a new financing agreement. Year ended June 30,
2002, compared to year ended June 30, 2001 Total revenues Year ended June 30,2002
  
  2001
  
  % Change(in thousands)Florist business
  
  $
  171,197
  
  $
  188,478
  
  
  (9.2
  )%Consumer business
  
  154,069
  
  117,517
  
  
  31.1Total revenues
  
  $
  325,266
  
  $
  305,995
  
  
  6.3
  %  Total revenues increased by $19.3 million, or 6.3%, to
$325.3 million for the year ended June 30, 2002, compared to $306.0 million
for the year ended June 30, 2001. 14 The florist business segment revenue decreased by
$17.3 million, or 9.2%, to $171.2 million for the year ended June 30,
2002, compared to $188.5 million for the year ended June 30, 2001. This
decrease was primarily due to the full year effect of a planned significant
reduction in the number of specialty wholesaling products, in particular,
supplies for seasonal bouquets, offered to florists in fiscal year 2002. Additionally,
the year ended June 30, 2001 included revenue attributable to the Floral
Selections Guide, which is published bi-annually. The decrease was also
due to a decrease in technology-related revenues resulting from Mercury
equipment sales and fewer network transmissions in the year ended June 30,
2002 compared to the same period last year. The Company had two agreements with
a competing floral service provider that provided a guaranteed minimum order
fee for orders processed over the Mercury Network. These agreements comprised
$1.9 million, or 1.1%, and $2.0 million, or 1.1%, respectively, of the Companys
florist business segment revenue for the years ended June 30, 2002 and
2001. During the third quarter of fiscal year 2002, one of the agreements
expired and the other expired during the first quarter of fiscal year 2003. The consumer business
segment revenue increased by $36.6 million, or 31.1%, to $154.1 million for the
year ended June 30, 2002, compared to $117.5 million for the year ended June 30,
2001. This increase was primarily due to continued growth in order volume and
average order value. The total order volume was approximately 2.6 million for
the fiscal year ended June 30, 2002, representing a 28.2% increase over
the prior fiscal year order volume of approximately 2.0 million. The increase
in orders was due in part to FTD.COMs purchase of certain assets of National
Flora, Inc. (National Flora) for $9.1 million in November 2001. See
Note 3 of the Notes to the Consolidated Financial Statements for a
discussion of the National Flora purchase. Internet orders were 80.8% of total
orders for the fiscal year ended June 30, 2002, compared to 85.1% for the
fiscal year ended June 30, 2001. The decrease in the percent of Internet
orders to total orders was principally attributable to the acquisition of the
National Flora business, which primarily generates orders from telephone sales. Total costs of goods sold and services provided Year ended June 30,2002
  
  2001
  
  % Change(in thousands)Florist business
  
  $
  56,572
  
  $
  65,948
  
  
  (14.2
  )%Consumer business
  
  118,180
  
  91,689
  
  
  28.9Corporate
  
  2,576
  
  2,242
  
  
  14.9Total costs of goods
  sold and services provided
  
  $
  177,328
  
  $
  159,879
  
  
  10.9
  %  Total costs of goods sold and services provided
increased by $17.4 million, or 10.9%, to $177.3 million for the year ended June 30,
2002, compared to $159.9 million for the year ended June 30, 2001. As a
percent of revenue, gross margins decreased to 45.5% for the year ended June 30,
2002 from 47.8% for the year ended June 30, 2001, primarily attributable
to the higher percentage of total sales in the Companys lower margin consumer
business segment. Costs of goods sold and services provided associated
with the florist business segment decreased by $9.3 million, or 14.2%, to $56.6
million for the year ended June 30, 2002, compared to $65.9 million for
the year ended June 30, 2001. This decrease was primarily attributable to
decreased revenues in the florist business segment, as previously noted. As a
percent of revenue, the florist business segments gross margin increased to
67.0% for the year ended June 30, 2002 from 65.0% for the year ended June 30,
2001 as a result of a change in the revenue mix in the florist business
segment. Costs of goods sold and services provided associated
with the consumer business segment increased by $26.5 million, or 28.9%, to
$118.2 million for the year ended June 30, 2002, compared to $91.7 million
for the year ended June 30, 2001. This increase was primarily attributable
to increases in order volume. As a percent of revenue, the consumer business
segments gross margin increased to 23.3% for the year ended 15 June 30, 2002 from
22.0% for the year ended June 30, 2001, primarily as a result of operating
improvements, including efficiencies in order entry processing, and increased
specialty gift orders, which typically have higher gross profit margins. Costs of goods sold and
services provided associated with corporate activities increased by $0.4
million, or 14.9%, to $2.6 million for the year ended June 30, 2002,
compared to $2.2 million for the year ended June 30, 2001. These costs are
related to the development and support of the internal corporate technology
platforms. The increase is primarily due to additional hardware and software
maintenance expenses in fiscal year 2002. Advertising and selling costs Year ended June 30,2002
  
  2001
  
  % Change(in thousands)Florist business
  
  $
  52,966
  
  $
  54,340
  
  
  (2.5
  )%Consumer business
  
  14,969
  
  13,471
  
  
  11.1Total advertising and
  selling costs
  
  $
  67,935
  
  $
  67,811
  
  
  0.2
  %  Advertising and selling costs increased by $0.1
million, or 0.2%, to $67.9 million for the year ended June 30, 2002,
compared to $67.8 million for the year ended June 30, 2001. The advertising and selling costs associated with the
florist business segment decreased by $1.3 million, or 2.5%, to $53.0 million
for the year ended June 30, 2002, compared to $54.3 million for the year
ended June 30, 2001. This decrease was primarily due to reduced marketing
and promotion expenditures resulting from a shift from an offline marketing
program focused on year-round advertising to a floral holiday-centric plan
focused on Christmas, Valentines Day, Easter and Mothers Day, in addition to
a decrease in commissions provided to sending florists. The advertising and selling costs associated with the
consumer business segment increased by $1.5 million, or 11.1%, to $15.0 million
for the year ended June 30, 2002, compared to $13.5 million for the year
ended June 30, 2001. The increase was primarily due to an increase in
offline advertising expenses and direct marketing expenses, partially offset by
a decrease in online advertising expenses. Offline marketing expenses increased
due to costs related to yellow pages advertising associated with the
acquisition of the National Flora business and direct marketing expenses
increased due to an increase in the number of direct marketing programs. Online
advertising expenses decreased primarily due to lower annual contractual
obligations. The total customer base (defined as all persons who have purchased
at least once through the www.ftd.com Web
site or FTD.COMs toll-free telephone number, 1-800-SEND-FTD, as well as
customer names added through the Companys acquisitions) increased by 45.0%, or
1.6 million customers, to 5.0 million customers as of June 30, 2002 from
3.4 million customers as of June 30, 2001. This increase included the
addition of 0.3 million customers attributable to the acquisition of the
National Flora business. General and administrative costs Year ended June 30,2002
  
  2001
  
  % Change(in thousands)Florist business
  
  $
  13,098
  
  $
  15,939
  
  
  (17.8
  )%Consumer business
  
  12,375
  
  12,360
  
  
  0.1Corporate
  
  33,872
  
  24,716
  
  
  37.0General and
  administrative costs
  
  $
  59,345
  
  $
  53,015
  
  
  11.9
  %  16 General and administrative costs increased by $6.3
million, or 11.9%, to $59.3 million for the year ended June 30, 2002,
compared to $53.0 million for the year ended June 30, 2001. The general and administrative costs associated with
the florist business segment decreased by $2.8 million, or 17.8%, to $13.1
million for the year ended June 30, 2002, compared to $15.9 million for
the year ended June 30, 2001. This decrease was primarily due to a
reduction in training and support related to Mercury Technology and a decrease
in administrative costs related to sales of floral supplies. The general and administrative costs associated with
the consumer business remained consistent at $12.4 million for the years ended June 30,
2002 and 2001. This was primarily due to a $2.6 million gain attributable to
the settlement of a claim against the developer of an unlaunched version of
FTD.COMs Web site recorded in fiscal year 2002 offset by a $1.6 million charge
related to costs associated with the 2002 Merger also recorded in fiscal year
2002 and a $0.5 million gain in fiscal year 2001 attributable to the settlement
of a third party vendor cancellation fee for less than the amount originally
accrued by FTD.COM in the fourth quarter of fiscal year 2000. Corporate general and
administrative costs increased $9.2 million, or 37.0%, to $33.9 million for the
year ended June 30, 2002, compared to $24.7 million for the year ended June 30,
2001. This increase is primarily related to compensation expense related to
bonus payments of $8.7 million paid to executive officers in connection with
the 2002 Merger as discussed further in Note 2 of the Notes to Consolidated
Financial Statements, severance costs of $2.2 million related to certain former
employees, partially offset by a $1.4 million post-retirement health care
benefits gain due to the termination of certain future benefits and a gain of
$1.1 million attributable to a single business tax refund related to prior
years filings, all of which were recorded in fiscal year 2002. Other income and expenses Year ended June 30,2002
  
  2001
  
  % Change(in thousands)Interest income
  
  $
  (1,038
  )
  $
  (1,474
  )
  
  (29.6
  )%Interest expense
  
  3,342
  
  5,195
  
  
  (35.7
  )Other expense,
  net
  
  1,096
  
  14,939
  
  
  (92.7
  )Total other income and
  expenses
  
  $
  3,400
  
  $
  18,660
  
  
  (81.8
  )%  Other income and expenses decreased by $15.3 million,
or 81.8%, to $3.4 million for the year ended June 30, 2002, compared to
$18.7 million for the year ended June 30, 2001. Interest income decreased by $0.5 million, or 29.6%,
to $1.0 million for the year ended June 30, 2002, compared to $1.5 million
for the year ended June 30, 2001. The decrease was primarily due to lower
average interest rates in fiscal year 2002 compared to fiscal year 2001. Interest expense decreased by $1.9 million, or 35.7%,
to $3.3 million for the year ended June 30, 2002, compared to $5.2 million
for the year ended June 30, 2001. The decrease was primarily due to lower
average borrowing rates. Other expense decreased by
$13.8 million, or 92.7%, to $1.1 million for the year ended June 30, 2002,
compared to $14.9 million for the year ended June 30, 2001. This decrease
is primarily related to the $14.5 million charge recorded in fiscal year 2001
related to the Termination Agreement between FTD and the Association. Partially
offsetting this decrease was the $0.6 million write-off of unamortized deferred
financing costs recorded in fiscal year 2002 as a result of the execution of a
new financing agreement. 17 Quarterly
Financial Information (Unaudited) (In Thousands, Except Per Share Data) First
  
  Second
  
  Third
  
  Fourth
  
  FiscalFiscal Year 2003
  
  
  
  Quarter
  
  Quarter
  
  Quarter
  
  Quarter(1)
  
  YearTotal revenues
  
  
  $
  73,586
  
  
  
  $
  88,791
  
  
  
  $
  95,632
  
  
  $
  105,334
  
  $
  363,343Gross profit
  
  
  35,466
  
  
  
  38,167
  
  
  
  40,780
  
  
  45,025
  
  159,438Income from
  operations
  
  
  10,366
  
  
  
  6,103
  
  
  
  9,232
  
  
  11,098
  
  36,799Net income (loss)
  
  
  $
  5,810
  
  
  
  $
  3,346
  
  
  
  $
  5,248
  
  
  $
  (5,115
  )
  $
  9,289Net income (loss) per common sharebasic
  
  
  $
  0.35
  
  
  
  $
  0.21
  
  
  
  $
  0.32
  
  
  $
  (0.31
  )
  $
  0.57Net income (loss)
  per common sharediluted
  
  
  $
  0.35
  
  
  
  $
  0.20
  
  
  
  $
  0.32
  
  
  $
  (0.31
  )
  $
  0.56First
  
  Second
  
  Third
  
  Fourth
  
  FiscalFiscal Year 2002
  
  
  
  Quarter(2)
  
  Quarter(3)
  
  Quarter(4)
  
  Quarter(5)
  
  YearTotal revenues
  
  
  $
  60,903
  
  
  
  $
  76,325
  
  
  
  $
  92,301
  
  
  $
  95,737
  
  $
  325,266Gross profit
  
  
  31,177
  
  
  
  35,340
  
  
  
  40,306
  
  
  41,115
  
  147,938Income (loss)
  from operations
  
  
  8,784
  
  
  
  5,521
  
  
  
  7,193
  
  
  (840
  )
  20,658Net income (loss)
  
  
  $
  4,109
  
  
  
  $
  2,178
  
  
  
  $
  3,213
  
  
  $
  (1,485
  )
  $
  8,015Net income (loss) per common sharebasic
  
  
  $
  0.28
  
  
  
  $
  0.15
  
  
  
  $
  0.22
  
  
  $
  (0.10
  )
  $
  0.55Net income (loss) per
  common sharediluted
  
  
  $
  0.28
  
  
  
  $
  0.15
  
  
  
  $
  0.22
  
  
  $
  (0.10
  )
  $
  0.54  
 Net income (loss) per share is
computed independently for each of the quarters presented. Therefore, the sum
of the quarterly net income (loss) per share in fiscal year 2002 does not equal
the total computed for the fiscal year. (1)In
the fourth quarter of fiscal year 2003, the Company recorded as a component of
other expense, a charge of $11.0 million related to the recording of a
liability associated with the proposed settlement of pending consolidated
shareholder class action litigation related to the 2002 Merger with FTD.COM,
including administrative expenses. (2)In
the first quarter of fiscal year 2002, the Company and FTD entered into the
2001 Credit Agreement. As a result of entering into the 2001 Credit Agreement,
unamortized deferred financing costs associated with the then existing debt
were expensed, resulting in a net loss on extinguishment of debt of $0.6
million. This expense is reflected in other expense, in accordance with SFAS No. 145.
Additionally, during the first quarter of fiscal year 2002, the Company
recorded a gain of $2.6 million attributable to the settlement of a claim
against the developer of an unlaunched version of FTD.COMs Web site as a
component of selling, general and administrative expenses. (3)During
the second quarter of fiscal year 2002, the Company recorded the following as a
component of selling, general and administrative expenses: ·Severance costs of $0.5
million for certain former employees. ·A $1.4 million gain
attributable to the termination of certain future post-retirement health care
benefits. The Company provides certain post-retirement health care benefits to
qualifying retirees under the terms of its qualified retirement plan. This
termination of benefits caused a decrease in the Companys post-retirement
health care obligation attributed to prior services rendered. 18 ·An
impairment loss for internal use software in the amount of $0.4 million that
had been used to process clearinghouse and related transactions for member
services. (4)During
the third quarter of fiscal year 2002, the Company recorded merger expenses of
$1.0 million incurred by FTD.COM related to the 2002 Merger as a component of
selling, general and administrative expenses. (5)During
the fourth quarter of fiscal year 2002, the Company recorded the following as a
component of selling, general and administrative expenses: ·Compensation expense of
$8.7 million related to bonus payments paid to executive officers in connection
with the 2002 Merger. ·Severance costs of $1.7
million for certain former employees. ·Merger expenses of $0.6
million incurred by FTD.COM related to the 2002 Merger. ·A
gain of $1.1 million attributable to a single business tax refund related to
prior years filings. Liquidity and
Capital Resources Cash and cash equivalents decreased by $34.5 million
to $1.9 million at June 30, 2003 from $36.4 million at June 30, 2002. Cash provided by operating activities was $30.4
million for the year ended June 30, 2003 compared to cash provided by operating
activities of $25.8 million for the year ended June 30, 2002.  Fiscal year 2003 cash provided by operating
activities is primarily attributable to net income of $9.3 million, an increase
in accrued liabilities of $8.9 million, which is primarily related to the $11.0
million liability recorded during fiscal year 2003 associated with the proposed
settlement of pending consolidated shareholder class action litigation,
depreciation of $6.4 million and amortization of $1.5 million.  Fiscal year 2002 cash provided by operating
activities is primarily related to net income of $8.0 million, depreciation of
$6.7 million and amortization of $2.7 million. Cash used in investing activities was $19.2 million
for the year ended June 30, 2003 compared to cash used in investing activities
of $12.7 million for the year ended June 30, 2002.  Fiscal year 2003 cash used in investing
activities is primarily due to FTD.COMs purchase of the businesses of Flowers
Direct and Flowers USA in July 2002 and October 2002, respectively, for a total
of $12.4 million and capital expenditures for depreciable fixed assets such as
furniture and equipment of $1.9 million and capital expenditures for
amortizable intangibles such as costs related to the development and
implementation of internal use software and other information technology costs
of $2.6 million.  Fiscal year 2002 cash
used in investing activities is primarily due to FTD.COMs purchase of the
National Flora business in November 2001 for a total of $9.1 million and
capital expenditures for depreciable fixed assets of $1.7 million and capital
expenditures for amortizable intangibles of $2.8 million. Cash used in financing activities was $45.9 million
for the year ended June 30, 2003 and was primarily attributable to $40.5
million of net repayments of debt outstanding under the revolving credit facility
and $5.5 million used to repurchase Class A Common Stock, pursuant to a Board
approved stock repurchase program.  Cash
used in financing activities was $7.5 million for the year ended June 30, 2002
and was primarily attributable to $30.0 million of long-term debt repayments,
offset in part by $22.1 million of net proceeds from the revolving credit
facility.  19


---

As consideration for terminating the
contractual relationship between the Company and Florists Transworld Delivery
Association (the Association), FTD paid $14.0 million to the Association, of
which $12.6 million was paid on June 29, 2001, with the remaining $1.4 million
being subject to a one-year escrow holdback, which was reflected as restricted
cash in the Companys consolidated balance sheet as of June 30, 2002.  The $1.4 million was paid on July 1, 2002. The Companys principal sources of
liquidity are cash from operations and funds available for borrowing under the
2002 Credit Agreement.  The 2002 Credit
Agreement provides maximum availability of $75.0 million.  Borrowings under the 2002 Credit Agreement
are used to finance working capital, acquisitions, certain expenses associated
with the bank credit facilities and letter of credit needs.  At June 30, 2003, the Company had $6.5
million outstanding under the revolving credit facility and $3.1 million
outstanding under various letters of credit. 
Borrowings under the revolving credit facility will mature on December
31, 2005.  The 2002 Credit Agreement
includes covenants, which, among other things, require that the Company
maintain a total funded debt to EBITDA ratio at the end of any fiscal quarter of
no greater than 2.5 to 1.0 and a fixed charge coverage ratio of not less than
2.0 to 1.0.  In addition, the Company is
required to maintain a minimum level of consolidated net worth of $90.0 million
plus 50% of net income for each fiscal quarter of the Company beginning in the
quarter ended September 30, 2002, for which net income is a positive
amount, plus 100% of the net cash proceeds received from certain issuances of
equity securities other than pursuant to the exercise of employee stock
options.  The Company obtained a waiver
related to the fixed charge coverage ratio covenant for the period ended June
30, 2003 to allow for the shareholder litigation settlement.  At June 30, 2003, the Company was in
compliance with all other covenants contained in the 2002 Credit Agreement. In December 2001, the Company entered into
interest rate cap agreements with members of its participating bank group to
reduce the impact of potential increases on floating rate debt.  The interest rate caps provide the Company
with a cap rate of 5.0% on a maximum of $20.0 million, effective through
December 31, 2003.  The Company accounts
for the interest rate cap as a cash flow hedge whereby the fair value of the
interest rate cap is reflected in other assets in the accompanying consolidated
balance sheet and is being amortized to interest expense over its term.  The cost of the interest rate cap was $0.1
million.  Due to decreases in interest
rates, the carrying value at June 30, 2003 was zero, which approximates fair
value. In addition
to its debt service obligations, the Companys remaining liquidity requirements
are primarily for capital expenditures, software development costs and working
capital needs.  The Company believes,
based on current circumstances, that its existing and future cash flows from
operations, together with borrowings under the 2002 Credit Agreement, will be
sufficient to fund its working capital needs, capital expenditures, software
development costs and to make interest and principal payments as they become due
under the terms of the 2002 Credit Agreement for the foreseeable future. 20 Summary Disclosures About Contractual
Obligations and Commercial Commitments The following tables
reflect a summary of the Companys contractual cash obligations and other
commercial commitments at June 30, 2003 (in thousands): Payments Due by
Period Contractual Cash Obligations
  
  
  
  Total
  
  Less Than
  1 Year
  
  1 to 3
  Years
  
  4 to 5
  Years
  
  After 5
  YearsLong-term
  debt(1)
  
  $
  6,500
  
  
  $
  
  
  
  $
  6,500
  
  $
  
  
  
  $
  Internet
  distribution agreements
  
  773
  
  
  773
  
  
  
  
  
  
  
  Distribution
  center agreement
  
  1,097
  
  
  1,097
  
  
  
  
  
  
  
  Operating
  leases
  
  3,208
  
  
  1,531
  
  
  1,284
  
  393
  
  
  Total contractual
  cash obligations
  
  $
  11,578
  
  
  $
  3,401
  
  
  $
  7,784
  
  $
  393
  
  
  $
    
 (1)   Under the 2002 Credit Agreement, the maturity of outstanding debt
could be accelerated if FTD does not maintain certain financial and operating
covenants.  At June 30, 2003, the Company
was in compliance with the covenants contained in the 2002 Credit Agreement,
except the fixed charge coverage ratio, for which the Company received a waiver
from the participating banks.  The
2002 Credit Agreement expires on December 31, 2005. In addition to the cash obligations above,
the Company has a Management Consulting Services Agreement with parties related
to Perry Acquisition Partners, Bain Capital Investors LLC and Fleet Growth
Resources III, Inc. (the Management Consulting Services Agreement).  Annual required payments under this agreement
amount to $2.0 million plus reimbursement of reasonable out-of-pocket expenses
continuing through July 1, 2005. Expiration Per PeriodOther Commercial Commitments:
  
  
  
  Total Amounts
  Committed
  
  Less Than
  1 Year
  
  1 to 3
  Years
  
  4 to 5
  Years
  
  After 5
  YearsLetters
  of credit
  
  
  $
  3,114
  
  
  
  $
  3,114
  
  
  
  $
  
  
  
  
  $
  
  
  
  
  $
    Critical Accounting Policies and Estimates The Companys consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.  The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to revenue recognition, distribution agreements and the valuation
of accounts receivable, inventory, long-lived assets and deferred income
taxes.  Management bases its estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities.  Actual results may differ
from these estimates under different assumptions or conditions.  Management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in preparation of its consolidated financial statements. Revenue Recognition Revenues generated by the florist business
segment of the Company for processing floral and specialty gift orders through
the clearinghouse are recorded in the month the orders are delivered.  Revenues for other services related to the
processing of such orders (including equipment rentals and transmission
charges) are recorded in the period the service is provided.  Sales of florist shop supplies are recorded 21 when the products
are shipped.  Revenues relating to
publications are recognized ratably over the period in which the publications
are issued.  Revenues associated with FTD
Florists Online Web site hosting and Flowers All Hours are recorded in the
period the service is provided.  Cash
rebates which are earned by florists under a customer incentive program in
conjunction with a credit card clearing service offered by the Company are
classified as contra-revenue, in accordance with EITF Issue No. 01-9. In addition, the Company also sells
computer equipment and software to member florists.  The Company follows the provisions of SOP
97-2,as amended by SOP 98-9.  SOP 97-2 requires revenue earned on software
arrangements involving multiple elements (e.g., software products,
upgrades/enhancements, post-contract customer support, installation and
training) to be allocated to each element based on the relative fair values of
the elements.  The Company recognizes
revenue from hardware products (including specified upgrades/enhancements) at
the time of shipment for systems sold. 
The Company recognizes revenue from software products which are sold
ratably over the estimated useful life of the software.  For systems that are being leased, the
Company recognizes hardware and software revenue ratably over the period of the
lease agreement.  Support revenue is
recognized over the period of the support agreement.  Installation and training revenues are
recognized at the time of occurrence. The Companys
consumer business segment recognizes 100% of the order value as revenue and
recognizes the associated costs of good sold and services provided when the
order is fulfilled.  FTD.COM recognizes
revenue on a gross basis, as opposed to a net basis similar to a commission
arrangement, because it bears the risks and benefits associated with the
revenue-generating activities by:  (1) acting
as a principal in the transaction; (2) establishing prices; (3) being
responsible for fulfillment of the order; (4) taking the risk of loss for
collection, delivery and returns; and (5) marketing its products, among
other things.  If the relative amounts of
risks and rewards borne by FTD.COM associated with processing floral and
specialty gift orders were to change in the future, FTD.COMs reporting policy
related to revenue recognition and costs of goods sold and services provided
could change. Distribution Agreements FTD.COM has
entered into Internet distribution agreements pursuant to which FTD.COM
receives various services, including advertising space on shopping and
search-oriented Web sites, portal links to FTD.COMs Web site and marketing of
FTD.COMs product offerings through co-branded Web sites.  Certain of these agreements contain terms
that include both fixed and variable payment elements, the variable portion of
which is based upon the number of orders generated from these third party Web
sites in excess of a threshold as defined in the related agreements.  FTD.COM records expenses related to these
agreements based on an estimated per order cost taking into consideration the
anticipated number of orders to be generated under each such agreement
calculated in accordance with the process described in Concepts Statement No. 7
issued by the Financial Accounting Standards Board (FASB).  The number of orders generated is impacted by
a variety of factors, including but not limited to, the volume of traffic
experienced on the third partys Web sites, existence of other advertisements
on the third partys Web site and advertisement placement on the third partys
Web site.  Many of these factors are
outside of FTD.COMs control.  If a
change in estimate were to occur, the cumulative effect on reported expenses
would be recognized in the period during which the change occurs. Accounts Receivable The Companys
management must make estimates of accounts receivable that will not be
collected.  The Company performs ongoing
credit evaluations of its customers and adjusts credit limits based upon
payment history and the customers credit-worthiness, as determined by the
Companys review of their current credit information.  The Company continuously monitors collections
and payments from its customers and maintains a provision for estimated losses
based upon historical experience and specific customer collection issues that
it has identified.  While such credit
losses have historically been within 22 managements expectations and the provisions established, there can be no
assurance that the Company will continue to experience the same credit loss
rates as in the past.  If the financial
condition of the Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances for
doubtful accounts may be required. Inventory The Companys
inventory consists of finished goods and is stated at the lower of cost or
market value.  The Companys management
regularly reviews inventory quantities on hand and records a provision for
excess and obsolete inventory based primarily on recent selling prices, the age
of inventory and forecasts of product demand by aging category.  A significant increase in the demand for the
Companys products could result in a short-term increase in the cost of
inventory purchases while a significant decrease in demand could result in an
increase in the amount of excess inventory quantities on hand.  In addition, the Companys estimates of
future product demand may prove to be inaccurate, in which case it may have
understated or overstated the provision required for excess and obsolete
inventory.  Product demand is impacted by
promotional incentives offered by the Company and customer preferences, among
other things.  In the future, if the
Companys inventory is determined to be overvalued, it would be required to
recognize such costs in cost of goods sold at the time of such
determination.  Therefore, although the
Companys management seeks to ensure the accuracy of forecasts of future
product demand, any significant unanticipated changes in demand could have a significant
impact on the value of inventory and the Companys reported operating results. Long-lived Assets The Company recognizes intangible assets
at fair value, whether acquired individually or as a part of a group of assets
where the entire cost of the group of assets is allocated to the individual
assets based on their relative fair values. 
The subsequent accounting for intangible assets depends on whether its
useful life is indefinite or finite. An intangible asset with a determinable
finite useful life is amortized evenly over that useful life, however, the
Company re-evaluates whether an intangible asset has an indefinite or finite
useful life during each reporting period. 
In addition, the Company assesses the impairment if events or changes in
circumstances indicate that the carrying value may not be recoverable. An intangible asset with an indefinite
useful life is not amortized and is reviewed annually for impairment and more
frequently if events or circumstances indicate that the asset may be impaired.  The Company determines if an impairment
exists by comparing the fair value of the intangible asset with its carrying
value.  For goodwill, the Company
compares the fair value of the reporting unit with its carrying value.  Any excess of carrying value of goodwill over
its fair value is recognized as an impairment loss in continuing
operations.  In addition, if an
indefinite lived intangible asset is subsequently determined to have a finite
useful life, the intangible asset is written down to the lower of its fair
value or carrying amount and then amortized prospectively, based on the
remaining useful life of the intangible asset. See
discussion of the adoption of SFAS No. 142 in Notes 3 and 4 of the Notes to the
Consolidated Financial Statements. Deferred Income Taxes The Company
recognizes deferred tax assets and liabilities based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities.  The Company regularly
reviews its deferred tax assets for recoverability and establishes a valuation
allowance based on historical taxable income, projected future taxable income
and the expected timing of the reversals of existing temporary differences to
reduce its deferred tax assets to the amount that it believes is more likely
than not 23 to be realized.  While the Company
has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event the Company were to determine that it would not be able to realize all or
part of its deferred tax assets in the future, an adjustment to the deferred
tax assets would be charged to income in the period such determination was
made.  The Company has determined that it
is more likely than not that its deferred tax assets will be realized. Recently Issued Accounting Pronouncements In June 2002, the FASB issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities
(SFAS No. 146), requiring companies to record certain exit costs activities
when legally obligated instead of when an exit plan is adopted.  The provisions of SFAS No. 146 are effective
for exit or disposal activities that are initiated after December 31, 2002.  The adoption of SFAS No. 146 did not have a
material impact on the Companys consolidated financial statements. In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS No. 149).  SFAS
No. 149 clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative as discussed in Statement
No. 133.  It also specifies when a
derivative contains a financing component that warrants special reporting in
the Consolidated Statement of Cash Flows. SFAS No. 149 amends certain other
existing pronouncements in order to improve consistency in reporting these
types of transactions.  The new guidance
is effective for contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after June 30, 2003.  The Company does not expect this standard to
have a material impact on its consolidated financial statements. In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity(SFAS No. 150). 
SFAS No. 150 specifies that instruments within its scope embody
obligations of the issuer and that, therefore, the issuer must classify them as
liabilities.  SFAS No. 150 requires
issuers to classify as liabilities the following three types of free standing
financial instruments: (1) mandatorily redeemable financial instruments;
(2) obligations to repurchase the issuers equity shares by transferring
assets and (3) certain obligations to issue a variable number of
shares.  SFAS No. 150 defines a
freestanding financial instrument as a financial instrument that (1) is
entered into separately and apart from any of the entitys other financial
instruments or equity transactions or (2) is entered into in conjunction
with some other transaction and can be legally detached and exercised on a
separate basis.  For all financial
instruments entered into or modified after May 31, 2003, SFAS No. 150 is
effective immediately.  For all other
instruments of public companies, SFAS No. 150 goes into effect at the beginning
of the first interim period beginning after June 15, 2003.  For contracts that were created or modified
before May 31, 2003 and still exist at the beginning of the first interim
period beginning after June 15, 2003, entities should record the transition to
SFAS No. 150 by reporting the cumulative effect of a change in an accounting
principle.  SFAS No. 150 prohibits
entities from restating financial statements for earlier years presented.  The Company does not expect this standard to
have a material impact on its consolidated financial statements. In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45).  FIN 45 significantly changes practice in
the accounting for, and disclosure of, guarantees.  FIN 45 requires certain guarantees to be
recorded at fair value as those terms are defined in SFAS 5, Accounting for
Contingencies.  The adoption of FIN
45 did not have a material impact on the Companys consolidated financial
statements. In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities, and
Interpretation of Accounting Research Bulletin No. 51 (FIN 46).  FIN 46 introduces a new consolidation 24 model which
determines control and consolidation based on potential variability in gains
and losses of the entity being evaluated for consolidation.  FIN 46 applies to variable interest
entities created after January 31, 2003 and to variable interest entities
in which a company obtains an interest after that date.  FIN 46 applies in the first fiscal year
or interim period beginning after June 15, 2003, to variable interest
entities in which a company holds a variable interest that it acquired before
February 1, 2003.  The Company does
not expect this standard to have a material impact on its consolidated
financial statements. From time to
time the staff of the SEC communicates its interpretations of accounting rules
and regulations.  The manner by which
these views are communicated varies by topic. 
While these communications represent the views of the staff, they do not
carry the authority of law or regulation. 
Nonetheless, the practical effect of these communications is that
changes in the staffs views from time to time can impact the accounting and
reporting policies of public companies. Related
Party Transactions The
Company incurred expenses of $2.0 million, $2.0 million and $2.1 million for
the years ended June 30, 2003, 2002 and 2001, respectively, related to the
payment for management, financial and other corporate advisory services and
expenses to parties related to each of Perry Acquisition Partners, L.P., Bain
Capital Investors LLC and Fleet Growth Resources III, Inc., which are
stockholders or affiliates of the Company. 
The Companys management consulting services agreement that it entered
into with these parties requires payments of $2.0 million each fiscal year plus
reimbursement of reasonable out-of-pocket expenses continuing through June 30,
2005. At June 30,
2003, the Company had no loans receivable from current or former officers of
the Company.  At June 30, 2002, the
Company had loans receivable from various current and former officers of the
Company of $0.2 million with terms of four years, principal due at maturity in
2005, and interest rates ranging from 6.5% to 8.5% per annum. Forward-Looking Information This annual
report on Form 10-K contains various forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 regarding the
Companys outlook, including: statements regarding anticipated growth in
revenue, net income and earnings per share; expectations regarding the
likelihood of recurrence of certain charges and gains; expectations regarding
capital investments; and expectations regarding future cash generated from
operations.  These forward-looking
statements are based on managements current expectations, assumptions,
estimates and projections about the Company and its industry.  Investors are cautioned that actual results
could differ from those anticipated by the forward-looking statements as a
result of: the Companys ability to acquire and retain FTD member florists and
continued recognition by members of the value of the Companys products and
services; florists acceptance of the new technology sales structure; the
Companys ability to sell additional products and services to member florists;
the final terms of any resolution relating to the pending shareholder class
action or litigation; the Companys ability to expand existing marketing
partnerships and secure new marketing partners within the consumer business
segment; the success of the Companys marketing campaigns; the ability to
retain customers and increase average order value within the consumer business
segment; the existence of failures in the Mercury Network or the Companys
consumer business segment systems; competition from existing and potential new
competitors; levels of discretionary consumer purchases of flowers and
specialty gifts; the Companys ability to manage its level of expenses within
both the consumer and florist business segments; actual growth rates for the
markets in which the Company competes compared with forecasted growth rates;
the Companys ability to increase capacity and introduce enhancements to its
Web sites; the Companys ability to integrate additional partners or
acquisitions, if any are identified. 
These factors, along with other potential risks and uncertainties, are
discussed in the Companys reports and other documents filed with the SEC. 25 Item 7A.   QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK The Companys exposure to interest rate
risk is primarily the result of borrowings under its bank credit
facilities.  In order to limit its
exposure to interest rate fluctuations, the Company entered into interest rate
cap agreements with members of its participating bank group.  The interest rate caps provide the Company
with a cap rate of 5.0% on a maximum of $20.0 million, effective through
December 31, 2003, under which the financing party agrees to pay the Company a
variable rate if the rate on the floating rate debt exceeds the cap rate.  During the fiscal year ended June 30, 2003,
the variable interest rate did not exceed the 5.0% cap rate.  Accordingly, the Company did not receive any
payments under these agreements during the fiscal year ended June 30, 2003. At June 30, 2003, $6.5 million of debt was
outstanding under the 2002 Credit Agreement, all of which is covered by
interest rate cap agreements.  An adverse
change in interest rates would cause an increase in the amount of interest
paid.  If the Companys borrowings were
to remain outstanding for the remaining term of the 2002 Credit Agreement, a
100 basis point increase in LIBOR, up until the rate exceeds 5.0%, would result
in an increase of $65,000 in the amount of annualized interest paid and
annualized interest expense recognized in the Companys consolidated financial
statements. The Company will continue to monitor
changing economic conditions.  Based on
current circumstances, the Company does not expect a substantial increase in
costs or a material adverse effect on cash flows as a result of changing
interest rates. The Company
is also exposed to foreign currency exchange rate risk with respect to the
Canadian dollar and the Swiss Franc.  The
resulting foreign currency exchange adjustments are included in the other
comprehensive (income) loss caption on the consolidated statements of
operations and comprehensive income and were not material for the years ended
June 30, 2003, 2002 and 2001.  The
Company does not expect to be materially affected by foreign currency exchange
rate fluctuations in the future, as the transactions denominated in Canadian
dollars and Swiss Francs are not material to the Companys consolidated
financial statements.  Therefore, the
Company does not currently enter into derivative financial instruments as
hedges against foreign currency fluctuations of the Canadian dollar or the
Swiss Franc. Item 8.   FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA The
consolidated financial statements of the Company required by this item are set
forth on pages F-1 through F-33 of this Form 10-K and the
related schedule is set forth on page F-35 of this Form 10-K. Item
9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE (a)Previous independent
accountants (i)On November 15, 2002, FTD,
Inc. dismissed KPMG LLP as its independent public accountants.  The Registrants Audit Committee participated
in and approved the decision to change independent accountants. (ii)The
reports of KPMG LLP on the financial statements for the fiscal years ended
June 30, 2002 and 2001 contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle, except the June 30, 2001 audit report was modified
to reflect the restatement of the financial statements. (iii)In
connection with its audits for the fiscal years ended June 30, 2002 and
2001 and through November 15, 2002, there have been no disagreements with KPMG
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, 26 which disagreements
if not resolved to the satisfaction of KPMG LLP would have caused them to make
reference thereto in their report on the financial statements for such years. (iv)During
the fiscal years ended June 30, 2002 and 2001 and through November 15, 2002,
there have been no reportable events (as defined in Regulation S-K Item 304
(a)(1)(v)). (v)The
Registrant requested that KPMG LLP furnish it with a letter addressed to the
SEC stating whether or not it agrees with the above statements.  A copy of such letter, dated November 21,
2002, is filed as Exhibit 16.1 to Form 8-K filed with the SEC on November 22,
2002. (vi)The
 Company has agreed to indemnify and hold
KPMG LLP (KPMG) harmless against and from any and all legal costs and
expenses incurred by KPMG in successful defense of any legal action or
proceeding that arises as a result of KPMGs consent to the incorporation by
reference of its audit reports on the Companys past financial statements
incorporated by reference in this Form 10-K. (b)New
independent accountants The
Registrants Audit Committee engaged Ernst & Young LLP as its principal
independent public accountants as of November 15, 2002.  During the fiscal years ended June 30, 2002
and 2001 and through November 15, 2002, the Registrant has not consulted with
Ernst & Young LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed; or the
type of audit opinion that might be rendered on the Registrants financial
statements; or (ii) any matter that was either the subject of a disagreement,
as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304(a)(1)(v) of Regulation S-K. Item 9A.   CONTROLS AND PROCEDURES Evaluation and Disclosure Controls and
Procedures Based on
their evaluation as of a date within 90 days of the filing of this Form 10-K,
the Companys management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures, as required by Exchange Act Rule 13a-15.  Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported with the
time periods specified by the SECs rules and forms. Changes in Internal Controls There were no
significant changes in the Companys internal controls over financial reporting
(as defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter
ended June 30, 2003 that have materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Controls The Company
believes that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been deleted. 27


---

PART III Item 10.   DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the
directors of the Company will be set forth under the caption Election of
Directors in the Proxy Statement related to the Companys 2003 annual meeting
of stockholders and is incorporated herein by reference. Information regarding
executive officers of the Company will be set forth under the caption Executive
Officers of FTD, Inc. in the Proxy Statement and is incorporated herein
by reference. Information required by Item 405 of Regulation S-K will be set
forth under the caption Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement and is incorporated herein by reference. Item 11.   EXECUTIVE
COMPENSATION Information required by
this item will be set forth under the caption Executive Compensation in the
Proxy Statement and, except for the information under the captions Executive
CompensationCompensation Committee Report on Executive Compensation and Stockholder
Return Comparison, is incorporated herein by reference. Item 12.   SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by
this item will be set forth under the captions Security Ownership of Certain
Beneficial Owners and Management and Equity Compensation Plan Information in
the Proxy Statement and is incorporated herein by reference. Item 13.   CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding any
disclosable relationships and related transactions will be set forth under the
caption Certain Relationships and Related Transactions in the Proxy Statement
and is incorporated herein by reference. Item 14.   PRINCIPAL
ACCOUNTANT FEES AND SERVICES The information required
by this caption will be set forth under the caption Principal Accountant Fees
and Services in the Proxy Statement and is incorporated herein by reference. 28 PART IV Item 15.   EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)   Financial
Statements, Schedules and Exhibits (1) & (2) The consolidated financial
statements and schedule which are filed with this Form 10-K are set forth
in the Index to Consolidated Financial Statements and Schedule at Page F-1
which immediately precedes such documents. (3) See accompanying
Index to Exhibits. (b)   Reports
on Form 8-K On April 29, 2003, the Company furnished a
Current Report on Form 8-K under Items 9 (Regulation FD Disclosure) and 12
(Results of Operations and Financial Condition) disclosing the issuance of a
press release announcing its financial results for the third quarter ended March 31,
2003. On May 12, 2003, the
Company furnished a Current Report on Form 8-K under Item 9 (Regulation FD
Disclosure) providing for the Companys Chief Executive Officer and Chief
Financial Officers certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (c)   Executive Compensation Plans and Arrangements See accompanying Index to
Exhibits. 29


---

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized. FTD, Inc.By:
  
  /s/ Robert L.
  NortonName:
  
  Robert L. NortonTitle:
  
  Chairman
  of the Board of Directors and Chief Executive OfficerDate:
  
  September 12, 2003  Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated. Signature
  
  
  
  Title
  
  
  
  Date/s/ Robert L.
  Norton
  Robert
  L. Norton
  
  Chairman of the
  Board of Directors and Chief Executive Officer (Principal Executive Officer)
  
  September 12, 2003*
  Carrie
  A. Wolfe
  
  Chief Financial
  Officer and Treasurer 
  (Principal Accounting and Financial 
  Officer)
  
  September 12, 2003*
  Christopher J.D.
  Ainsley
  
  Director
  
  September 12, 2003*
  Habib Y. Gorgi
  
  Director
  
  September 12, 2003*
  Stephen G. Kasnet
  
  Director
  
  September 12, 2003*
  Stephen G.
  Pagliuca
  
  Director
  
  September 12, 2003*
  Richard C. Perry
  
  Director
  
  September 12, 2003*
  Michael
  J. Soenen
  
  Director,
  President and Chief Operating 
  Officer
  
  September 12, 2003  * By:
  
  /s/ Robert L.
  NortonRobert L. NortonAttorney-in-FactSeptember 12, 2003  30


---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE Independent Auditors Reports
  
  F-2Consolidated Balance Sheets at
  June 30, 2003 and 2002
  
  F-3Consolidated Statements of
  Operations and Comprehensive Income for the years ended June 30, 2003,
  2002 and 2001
  
  F-4Consolidated Statements of Stockholders
  Equity for the years ended June 30, 2003, 2002 and 2001
  
  F-5Consolidated Statements of Cash
  Flows for the years ended June 30, 2003, 2002 and 2001
  
  F-6Notes to Consolidated Financial
  Statements
  
  F-7Independent Auditors Report on Financial Statement
  Schedule
  
  F-34Schedule IIValuation and Qualifying
  Accounts
  
  F-35  F-1


---

Independent Auditors Reports The
Board of Directors and Stockholders
FTD, Inc.: We
have audited the accompanying consolidated balance sheet of FTD, Inc. and
subsidiaries at June 30, 2003 and the related consolidated statements of
operations and comprehensive income, stockholders equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 15(a). These consolidated financial statements and
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these consolidated financial statements and
schedule based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In
our opinion, the 2003 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FTD, Inc.
and subsidiaries at June 30, 2003 and the results of their operations and
their cash flows for the year ended  June 30,
2003, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related 2003 financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein. As discussed in Note 2 to the financial statements,
effective July 1, 2002, the Company changed its method of accounting for
goodwill. /s/ Ernst&YoungLLP Chicago, Illinois
August 1, 2003  
  The
Board of Directors and Stockholders
FTD, Inc.: We
have audited the accompanying consolidated balance sheet of FTD, Inc. and
subsidiaries at June 30, 2002, and the related consolidated statements of
operations and comprehensive income, stockholders equity, and cash flows for
each of the years in the two-year period then ended. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of FTD, Inc. and subsidiaries at June 30, 2002, and the
results of their operations and their cash flows for each of the years in the two-year
period then ended, in conformity with accounting principles generally accepted
in the United States of America. /s/ KPMG LLP Chicago,
Illinois
July 29, 2002 F-2


---

FTD, INC.CONSOLIDATED BALANCE SHEETS
As of June 30, 2003 and 2002
(In thousands, except share amounts) 2003
  
  2002ASSETSCurrent Assets:Cash and cash equivalents
  
  $
  1,921
  
  $
  36,410Restricted cash
  
  
  
  1,400Accounts receivable, less
  allowance for doubtful accounts of $5,284 at June 30, 2003 and $6,093 at
  June 30, 2002
  
  23,398
  
  26,203Inventories, net
  
  8,668
  
  9,741Deferred income taxes
  
  4,740
  
  5,026Prepaid expenses and
  other
  
  4,224
  
  4,343Total
  current assets
  
  42,951
  
  83,123Property and equipment:Land and improvements
  
  1,600
  
  1,600Building and improvements
  
  8,858
  
  8,968Mercury consoles
  
  4,233
  
  8,275Furniture and equipment
  
  19,131
  
  23,675Total
  
  33,822
  
  42,518Less accumulated
  depreciation
  
  20,648
  
  28,058Property and equipment,
  net
  
  13,174
  
  14,460Other assets:Other noncurrent assets,
  net
  
  11,986
  
  10,760Customer lists, less
  accumulated amortization of $1,023 at June 30, 2003 and $108 at
  June 30, 2002
  
  3,653
  
  4,047Trademark, net of
  accumulated amortization of $2,719 at June 30, 2003 and 2002
  
  12,281
  
  12,281Goodwill, less
  accumulated amortization of $17,286
  
  120,326
  
  107,230Total
  other assets
  
  148,246
  
  134,318Total
  assets
  
  $
  204,371
  
  $
  231,901LIABILITIES AND STOCKHOLDERS
  EQUITYCurrent liabilities:Accounts payable
  
  $
  37,729
  
  $
  41,958Customer deposits
  
  6,095
  
  8,438Unearned income
  
  1,664
  
  954Other accrued liabilities
  
  19,655
  
  12,090Total
  current liabilities
  
  65,143
  
  63,440Long-term debt
  
  6,500
  
  47,000Post-retirement benefits
  and accrued pension obligations
  
  4,858
  
  4,880Deferred income taxes
  
  5,547
  
  2,364Stockholders equity:Preferred stock: $0.01
  par value, 5,000,000 shares authorized, no shares issued and outstanding
  
  
  
  Common stock:Class A, $0.01 par
  value, 300,000,000 shares authorized; 15,516,800 and 14,629,316 shares issued
  at June 30, 2003 and 2002, respectively
  
  155
  
  146Class B convertible,
  $0.0005 par value, 20,000,000 shares authorized; 2,112,502 and 3,000,000
  shares issued at June 30, 2003 and 2002, respectively
  
  1
  
  2Paid-in capital
  
  148,840
  
  148,708Accumulated deficit
  
  (7,086
  )
  (16,375
  )Accumulated other
  comprehensive loss
  
  (621
  )
  (849
  )Unamortized restricted
  stock
  
  (250
  )
  (1,639
  )Treasury stock at cost,
  438,196 and 260,407 shares of Class A, respectively, and 801,250 shares
  of Class B convertible as of June 30, 2003 and 2002
  
  (18,716
  )
  (15,776
  )Total
  stockholders equity
  
  122,323
  
  114,217Total liabilities and stockholders equity
  
  $
  204,371
  
  $
  231,901 SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS. F-3


---

FTD, INC.CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
For the years ended June 30, 2003, 2002 and 2001
(In thousands, except per share amounts) 2003
  
  2002
  
  2001Revenues:Products
  
  $
  246,609
  
  $
  202,158
  
  $
  177,364Services
  
  116,734
  
  123,108
  
  128,631Total revenues
  
  363,343
  
  325,266
  
  305,995Costs of Goods Sold and Services Provided:Products
  
  184,075
  
  156,872
  
  137,434Services
  
  19,830
  
  20,456
  
  22,445Total costs of goods
  sold and services provided
  
  203,905
  
  177,328
  
  159,879Gross Profit:Products
  
  62,534
  
  45,286
  
  39,930Services
  
  96,904
  
  102,652
  
  106,186Total gross profit
  
  159,438
  
  147,938
  
  146,116Operating Expenses:Advertising and selling
  
  72,027
  
  67,935
  
  67,811General and
  administrative
  
  50,612
  
  59,345
  
  53,015Total operating expenses
  
  122,639
  
  127,280
  
  120,826Income from operations
  
  36,799
  
  20,658
  
  25,290Other Income and Expenses:Interest income
  
  (168
  )
  (1,038
  )
  (1,474
  )Interest expense
  
  1,577
  
  3,342
  
  5,195Other expense, net
  
  10,728
  
  1,096
  
  14,939Total other income and
  expenses
  
  12,137
  
  3,400
  
  18,660Income before income tax
  and minority interest
  
  24,662
  
  17,258
  
  6,630Income tax expense
  
  15,373
  
  6,718
  
  3,401Minority interest
  
  
  
  2,525
  
  1,908Net income
  
  $
  9,289
  
  $
  8,015
  
  $
  1,321Other Comprehensive Loss (Income):Foreign currency
  translation adjustments
  
  $
  261
  
  $
  (48
  )
  $
  (29
  )Minimum pension
  liability adjustment, net of income tax benefit of $172, $145 and $252 for
  the years ended June 30, 2003, 2002 and 2001, respectively
  
  (33
  )
  (237
  )
  (429
  )Comprehensive income
  
  $
  9,517
  
  $
  7,730
  
  $
  863Net
  Income Per Common Sharebasic:
  
  $
  0.57
  
  $
  0.55
  
  $
  0.09Net Income Per Common Sharediluted:
  
  $
  0.56
  
  $
  0.54
  
  $
  0.09Weighted Average Common Shares Outstanding:Basic
  
  16,329
  
  14,530
  
  14,655Diluted
  
  16,581
  
  14,747
  
  14,903 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4


---

FTD, INC.CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
For the years ended June 30, 2003, 2002 and 2001
(In thousands) AccumulatedClass A
  
  Class B
  
  
  
  
  
  other
  
  Unamortized
  
  
  
  
  
  Totalcommon stock
  
  common stock
  
  Paid-in
  
  Accumulated
  
  comprehensive
  
  restricted
  
  Treasury Stock
  
  stockholdersShares
  
  Amount
  
  Shares
  
  Amount
  
  capital
  
  deficit
  
  loss
  
  stock
  
  Shares
  
  Amount
  
  equity Balance at June 30,
  2000
  
  12,593
  
  
  $
  123
  
  
  
  3,000
  
  
  
  $
  2
  
  
  $
  81,388
  
  
  $
  (25,711
  )
  
  
  $
  (106
  )
  
  
  $
  (5,902
  )
  
  
  272
  
  
  $
  (1,945
  )
  
  $
  47,849Net income
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,321
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,321Foreign currency
  translation adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (29
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (29
  )Deferred compensation
  expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  2,023
  
  
  
  
  
  
  
  
  
  2,023Adjustment made to
  Class A 
  shares
  
  5
  
  
  3
  
  
  
  
  
  
  
  
  
  
  (3
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Tax benefit of restricted
  stock vesting
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  799
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  799Minimum pension liability
  adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (429
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (429
  )Settlement of lawsuit
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  11,630
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  750
  
  
  (12,000
  )
  
  (370
  )Cancellation of
  restricted stock
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  101
  
  
  
  
  
  
  
  
  
  101Issuance of stock
  previously held in treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  42
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (13
  )
  
  33
  
  
  75Repurchase of common
  stock into treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  13
  
  
  (201
  )
  
  (201
  )Balance at June 30,
  2001
  
  12,598
  
  
  126
  
  
  
  3,000
  
  
  
  2
  
  
  93,856
  
  
  (24,390
  )
  
  
  (564
  )
  
  
  (3,778
  )
  
  
  1,022
  
  
  (14,113
  )
  
  51,139Net income
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  8,015
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  8,015Foreign currency
  translation adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (48
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (48
  )Deferred compensation
  expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  2,070
  
  
  
  
  
  
  
  
  
  2,070Gain on vesting of
  subsidiary 
  stock
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (435
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (435
  )Reduction of tax benefit
  related to restricted stock vesting
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (290
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (290
  )Minimum pension liability
  adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (237
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (237
  )Issuance of stock related
  to the 2002 Merger (see Note 2)
  
  2,044
  
  
  20
  
  
  
  
  
  
  
  
  
  
  55,336
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  55,356Remeasurement of options
  and restricted stock at merger date
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  613
  
  
  
  
  
  
  
  
  
  
  (613
  )
  
  
  
  
  
  
  
  
  Forfeiture of restricted
  stock
  
  (13
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (682
  )
  
  
  
  
  
  
  
  
  
  682
  
  
  
  
  
  
  
  
  
  Repurchase of treasury
  stock of subsidiary
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (725
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (725
  )Issuance of stock
  previously held in treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,035
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (192
  )
  
  1,139
  
  
  2,174Repurchase of common
  stock into treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  232
  
  
  (2,802
  )
  
  (2,802
  )Balance at June 30,
  2002
  
  14,629
  
  
  146
  
  
  
  3,000
  
  
  
  2
  
  
  148,708
  
  
  (16,375
  )
  
  
  (849
  )
  
  
  (1,639
  )
  
  
  1,062
  
  
  (15,776
  )
  
  114,217Net income
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  9,289
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  9,289Deferred compensation
  expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,572
  
  
  
  
  
  
  
  
  
  1,572Tax benefits from
  stock-related compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  282
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  282Foreign currency
  translation adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  261
  
  
  
  
  
  
  
  
  
  
  
  
  
  261Minimum pension liability
  adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (33
  )
  
  
  
  
  
  
  
  
  
  
  
  
  (33
  )Issuance of stock
  previously held in treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (142
  )
  
  
  
  
  
  
  
  
  
  (183
  )
  
  
  (41
  )
  
  572
  
  
  247Repurchase of common
  stock into treasury
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  218
  
  
  (3,512
  )
  
  (3,512
  )Conversion of
  Class B common stock to Class A common
  stock
  
  888
  
  
  9
  
  
  
  (888
  )
  
  
  (1
  )
  
  (8
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Balance at June 30, 2003
  
  15,517
  
  
  $
  155
  
  
  
  2,112
  
  
  
  $
  1
  
  
  $
  148,840
  
  
  $
  (7,086
  )
  
  
  $
  (621
  )
  
  
  $
  (250
  )
  
  
  1,239
  
  
  $
  (18,716
  )
  
  $
  122,323 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5


---

FTD, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2003, 2002 and 2001
(In thousands) 2003
  
  2002
  
  2001Cash flows from operating activities:Net income
  
  $
  9,289
  
  $
  8,015
  
  $
  1,321Adjustments to reconcile net income to net cash
  provided by operating activities:Depreciation and
  amortization
  
  7,898
  
  9,421
  
  9,487Amortization and write
  off of deferred financing costs and original issue discount
  
  263
  
  881
  
  281Deferred compensation
  expense
  
  1,572
  
  2,070
  
  2,064Non-cash settlement of
  liabilities
  
  
  
  (807
  )
  (524
  )Impairment loss
  
  
  
  526
  
  Gain on vesting of
  subsidiary stock issuance
  
  
  
  (435
  )
  Post-retirement
  settlement gain
  
  
  
  (1,395
  )
  Minority interest in gain
  of subsidiary
  
  
  
  2,525
  
  1,908Provision for doubtful
  accounts
  
  3,420
  
  4,048
  
  3,134Deferred income taxes
  
  3,722
  
  6,718
  
  3,401Increase (decrease) in cash due to changes in
  operating assets and liabilities, net of acquisitions:Restricted cash
  
  1,400
  
  
  
  (1,400
  )Accounts receivable
  
  (1,943
  )
  (6,964
  )
  (3,492
  )Inventories
  
  720
  
  1,071
  
  1,732Prepaid expenses and
  other
  
  544
  
  768
  
  (691
  )Other noncurrent assets
  
  106
  
  187
  
  297Accounts payable
  
  (5,487
  )
  346
  
  (195
  )Accrued liabilities,
  customer deposits, unearned income and other
  
  8,896
  
  (1,191
  )
  (1,306
  )Net cash provided by
  operating activities
  
  30,400
  
  25,784
  
  16,017Cash flows from investing activities:Acquisitions
  
  (12,426
  )
  (9,060
  )
  Expenditures related to
  the 2002 Merger
  
  (2,504
  )
  (1,062
  )
  Capital expenditures
  
  (4,528
  )
  (4,453
  )
  (3,952
  )Decrease (increase) in
  officer notes receivable
  
  248
  
  1,834
  
  (1,928
  )Net cash used in
  investing activities
  
  (19,210
  )
  (12,741
  )
  (5,880
  )Cash flows from financing activities:Net proceeds from
  (repayments of) revolving credit facility
  
  (40,500
  )
  22,125
  
  8,875Repayments of long-term
  debt
  
  
  
  (30,000
  )
  (8,750
  )Deferred financing costs
  
  (224
  )
  (802
  )
  Purchase of interest rate
  cap
  
  
  
  (120
  )
  Issuance of treasury stock
  
  247
  
  2,174
  
  33Treasury stock
  repurchases
  
  (5,463
  )
  (852
  )
  (201
  )Net cash used in
  financing activities
  
  (45,940
  )
  (7,475
  )
  (43
  )Effect of foreign
  exchange rate changes on cash
  
  261
  
  (48
  )
  (29
  )Net increase (decrease)
  in cash and cash equivalents
  
  (34,489
  )
  5,520
  
  10,065Cash and cash equivalents
  at beginning of period
  
  36,410
  
  30,890
  
  20,825Cash and cash equivalents
  at end of period
  
  $
  1,921
  
  $
  36,410
  
  $
  30,890Supplemental
  disclosures of cash flow informationCash paid for:Interest
  
  $
  1,465
  
  $
  3,050
  
  $
  4,989Income taxes
  
  $
  11,418
  
  $
  236
  
  $
  259 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS. F-6


---

FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of
Significant Accounting Policies Description of the Business FTD, Inc. (the Registrant
or the Company) is a Delaware corporation that commenced operations in 1994. As
used in the Notes to the Consolidated Financial Statements, the terms the Registrant
or the Company refer to FTD, Inc., including its wholly-owned
subsidiary, Florists Transworld Delivery, Inc., a Michigan corporation (FTD
or the Operating Company). The operations of FTD, the Companys principal
operating subsidiary, include those of its wholly-owned subsidiaries, FTD.COM
INC. (FTD.COM) and FTD Canada, Inc., and its indirect wholly-owned
subsidiary, Renaissance Greeting Cards, Inc. (Renaissance). Substantially
all the Companys operations are conducted through FTD and its subsidiaries. Principles of Consolidation The consolidated financial
statements of the Company include the accounts of the Company and its
wholly-owned subsidiaries, including its primary operating subsidiary FTD. The
accounts of FTD include its wholly-owned subsidiaries, FTD.COM and FTD Canada, Inc.,
and its indirect wholly-owned subsidiary, Renaissance. All intercompany
accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents Cash and cash equivalents
consist of deposits with banks and short-term investments with original
maturities of three months or less from the date of purchase. Fair Value of Financial Instruments Financial instruments
consist primarily of accounts receivable, accounts payable, customer deposits,
unearned income, other accrued liabilities and long-term debt. At June 30,
2003 the fair value of these financial instruments approximates their carrying
amount. Accounts Receivable and Allowance for Doubtful
Accounts Accounts receivable
consist primarily of amounts due to the Company from normal business activities.
In certain circumstances, the Company requires deposits from customers to
mitigate potential risk associated with receivables. The Company maintains an
allowance for doubtful accounts to reflect managements best estimate of
probable losses inherent in the accounts receivable balance. Management
determines the allowance based on known troubled accounts, historical
experience and other currently available evidence. Inventories Inventories consist of
finished goods and is stated at the lower of cost or market value. Cost is
determined using the weighted average method. Property and Equipment Property and equipment are
recorded at cost and are depreciated over their estimated useful lives using the
straight-line method. The useful lives are five to thirty years for building
and improvements, three to five years for Mercury computer equipment and two to
ten years for furniture and equipment. F-7 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (1) Summary of Significant Accounting Policies
(Continued) Software to be
Sold, Leased, or Marketed The Company follows the
provisions of Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed. SFAS No. 86 requires
that all costs relating to the purchase or internal development and production
of a computer software product to be sold, leased or otherwise marketed be
expensed in the period incurred unless the requirements for technological
feasibility have been established. The Company capitalizes all eligible
computer software costs incurred once technological feasibility is established.
The Company amortizes these costs using the greater of the straight-line method
over a period of three to five years or the revenue method prescribed by SFAS No. 86. Internal Use
Software The Company has adopted
the provisions of AICPA Statement of Position (SOP) 98-1, Accounting for the Costs of Software Developed or Obtained for Internal
Useand Emerging Issues Task Force (EITF) Consensus No. 00-02,
Accounting for Web Site Development Costs.Accordingly,
certain costs incurred in the planning and development stage of internal-use
computer software, including Web site development costs, are expensed as
incurred. Costs incurred during the application development stage are
capitalized. These costs are amortized using the straight-line method over a
period of three to five years. Goodwill and Other
Intangibles Goodwill associated with
purchases prior to June 30, 2001 is stated at cost and was amortized using
the straight-line method over thirty years until June 30, 2002 at which
time amortization ceased with the adoption of SFAS 142. Goodwill and trademarks
acquired in purchase business combinations completed after June 30, 2001,
in accordance with SFAS No. 142, are not amortized. Other intangibles
consist of acquired trademark and customer lists and are being amortized over
five years, using the straight-line method. Impairment of
Long-Lived Assets Goodwill is assessed for impairment at least annually,
on a reporting unit basis, or more frequently when events and circumstances
occur indicating that the recorded goodwill may be impaired. If the book value
of a reporting unit exceeds its fair value, the implied fair value of goodwill
is compared with the carrying amount of goodwill.  If the carrying amount of goodwill exceeds
the implied fair value, an impairment loss is recorded in an amount equal to
that excess. The Company reviews other long-lived
assets for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable or
that the useful lives of these assets are no longer appropriate. Each
impairment test is based on a comparison of the estimated undiscounted cash
flows to the recorded value of the asset. If impairment is indicated, the asset
is written down to its estimated fair value based on a discounted cash flow
analysis. Income Taxes Deferred tax assets and
liabilities are recognized based on the differences between financial statement
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets F-8 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. (1) Summary of
Significant Accounting Policies (Continued) Foreign Currency Translation In accordance with SFAS No. 52,
Foreign Currency Translation, balance
sheet accounts of the Companys foreign operations are translated from foreign
currency into U.S. dollars at the year-end rate of exchange. Translation gains
or losses related to net assets located outside the United States are included
in stockholders equity. Income and expenses of the Companys foreign
operations are translated at the weighted average rates of exchange for the
year. Gains and losses resulting from foreign currency transactions are
included in net income (loss). Earnings per Share The computation of basic
and diluted net income per share for the fiscal years ended June 30, 2003,
2002 and 2001 is as follows: Year ended June 30,2003
  
  2002
  
  2001Net income
  available to common shareholders
  
  $
  9,289
  
  $
  8,015
  
  $
  1,321Weighted average
  basic shares of common stock outstanding
  
  16,329
  
  14,530
  
  14,655Effect of
  dilutive securities:Unvested
  restricted shares of Class A Common Stock
  
  134
  
  154
  
  90Options to
  purchase shares of Class A Common Stock outstanding
  
  118
  
  63
  
  158Weighted average
  diluted shares of common stock outstanding
  
  16,581
  
  14,747
  
  14,903Net income per share of Common Stockbasic
  
  $
  0.57
  
  $
  0.55
  
  $
  0.09Net income per share of
  Common Stockdiluted
  
  $
  0.56
  
  $
  0.54
  
  $
  0.09  Shares associated with
stock options that were not included in the computation of earnings per share
because their effect was anti-dilutive consisted of 23,700 shares, 88,400
shares and 47,000 shares at June 30, 2003, 2002 and 2001, respectively. Revenues The Company generates its revenue from two business
segments, the florist business segment and the consumer business segment. Florist business.The florist
business segment includes revenue associated with the services and products
provided to FTD member florists and other retail locations offering floral
products, primarily comprised of the services and products as described below. Clearinghouse services.   Clearinghouse
services primarily consist of billing and collection services provided to both
the sending and receiving florists in flowers-by-wire transactions. Revenues
from the F-9 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) clearinghouse are
generated by retaining a percentage of the sales price of orders sent through
the clearinghouse and are recorded in the month the orders are filled. Revenue
is also generated from the (1) Summary of
Significant Accounting Policies (Continued) monthly membership fee
charged to member florists and credit card processing services provided to
member florists. Cash rebates, which are earned by florists under a customer
incentive program in conjunction with the credit card processing service
offered by the Company, are classified as contra-revenue, in accordance with
Emerging Issues Task Force (EITF) Issue No. 01-9, Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendors Products) (EITF
Issue No. 01-9). Publications
products and other member services.   Publications
products and other member services primarily consist of a telephone directory
of FTD member florists that is published on a quarterly basis in both CD-ROM
and paper book form. Revenues relating to publications are recognized ratably
over the period in which the publications are issued. The Company also provides
services related to the set up and maintenance of FTD Florists Online Web
sites accessible through FTD.COMs www.ftd.com Web
site. In addition, the Company provides a 24 hour telephone answering and
floral order-taking service (Flowers All Hours). Revenues associated with FTD
Florists Online Web sites and Flowers All Hours are recorded in the period the
service is provided. Mercury Network
services.   The
Companys Mercury Network is a proprietary telecommunications network linking
the Company and approximately 72% of the Companys member florists. Florists
who are linked by the Mercury Network are able to transmit orders and send each
other messages for a per order or per message fee. Revenues related to
transmitting orders and messages are recorded in the period the transmission
occurs. Mercury computer equipment products and services.   Mercury computer
equipment and software sales include both the sales and leasing of hardware and
software designed for the floral industry. The software provides access to the
Companys Mercury Network to allow for sending and receiving orders, billing
capabilities, order-entry capabilities, an interface to various accounting
software packages and a comprehensive range of payroll and accounting functions.
The Company follows the provisions of Statement of Position (SOP) 97-2, Software Revenue Recognition,as
amended by SOP 98-9, Software Revenue
Recognition with Respect to Certain Arrangements, requiring revenue
earned on software arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, post-contract customer support, installation
and training) to be allocated to each element based on the relative fair values
of the elements. The Company recognizes revenue related to hardware products
which are sold, including specified upgrades/enhancements, at the time of
shipment. The Company recognizes revenue related to software products which are
sold ratably over the estimated useful life of the software. For systems that
are being leased, the Company recognizes hardware and software revenue ratably
over the period of the lease agreement. Support revenue is recognized over the
period of the support agreement. Installation and training revenues are
recognized at the time the service is provided. Specialty
wholesaling products.   The Company sells both FTD-branded and
non-branded holiday and everyday floral arrangement containers and products. The
Company also sells packaging, promotional products and a wide variety of other
floral-related supplies, including greeting cards and the Floral Selections
Guide, a counter display catalog published by FTD featuring FTD products for
all occasions. Sales of specialty wholesaling products are recorded when the
products are shipped. F-10 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consumer business.The
consumer business is comprised of FTD.COM, an Internet and telephone marketer
of flowers and specialty gifts, which sells products directly to consumers
through the (1) Summary of
Significant Accounting Policies (Continued) 1-800-SEND-FTD
toll-free telephone number and electronically to consumers through the www.ftd.com Web site. FTD.COM offers same-day delivery of
floral orders to nearly 100% of the U.S. population. The majority of orders are
fulfilled by a group of independent FTD florists who adhere to FTD.COMs
quality and service standards. FTD.COM offers over 400 floral arrangements and
over 800 specialty gift items, including gourmet gifts, holiday gifts, bath and
beauty products, dried flowers, gifts for the home and stuffed animals. Orders placed through FTD.COMs Web site or 1-800-SEND-FTD
typically are paid for using a credit card. When a customer makes a purchase
that will be fulfilled by an FTD florist, FTD.COM processes the order, charges
the customers credit card and transmits the order to the Mercury Network. The
Mercury Network then transmits the order to the fulfilling florist. FTD.COM
charges the customer a service fee of $9.99 for floral orders and certain
specialty gift items placed through its Web site or through 1-800-SEND-FTD,
prior to any promotional discounts. Orders from FTD.COMs specialty gift selection are
fulfilled by a manufacturer or a third party distributor based on a
pre-negotiated price. FTD.COM generally charges the customer shipping and
handling fees for these specialty gift product orders. Amounts charged to the
customer for the product and shipping and handling are recorded as revenue and
the pre-negotiated price of the product and the costs incurred for shipping and
handling are recorded as costs of goods sold and services provided. Order revenue and service
fees are reported net of discounts. FTD.COM recognizes 100% of the order value
as revenue and the associated costs of goods sold and services provided when
the order is fulfilled. Revenues from the Sale of the Floral Selections Guide As a condition of FTD
affiliation, all FTD florists must purchase a Floral Selections Guide and
related workbook every two years or upon initial membership. The Company
recognized revenue related to the Floral Selections Guide in the month that it
was shipped to the florist. The purchase of the Floral Selections Guide
entitles the FTD florist to a non-exclusive, non-transferable right for
on-premise use of the Floral Selections Guide for as long as the purchaser
remains an FTD florist in good standing. There are no refund provisions
associated with the purchase of the Floral Selections Guide. Historically, the
Company has provided de minimis refunds in isolated cases. Revenue from sales
of the Floral Selections Guide during fiscal years 2003, 2002 and 2001, was
$5.1 million, $0.3 million and $3.9 million, respectively. Consideration Given to Customers During the third quarter of fiscal year 2002, the
Company adopted the requirements of EITF Issue No. 01-9. In accordance
with the requirements of EITF Issue No. 01-9, the Company has reclassified
certain advertising and selling expenses to contra-revenue that relate to cash
rebates which are earned by florists under a customer incentive program in
conjunction with the credit card clearing services offered by the Company. The
financial data for all periods presented has been reclassified to conform with
EITF F-11 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Issue No. 01-9. The
amounts related to the cash rebates for fiscal years 2003, 2002 and 2001 were
$2.2 million, $2.3 million and $2.3 million, respectively. Also, in accordance with
the requirements of EITF Issue No. 01-9, the Company has reclassified
advertising and selling expenses related to its consumer business segment to
costs of goods sold and (1) Summary of
Significant Accounting Policies (Continued) services
provided that relate to the granting of mileage and reward points to customers
in connection with an order. The amounts related to the granting of mileage and
reward points for fiscal years 2003, 2002 and 2001 were $4.4 million, $3.3
million and $1.7 million, respectively. Advertising and Sales Promotion Costs The Company expenses production, advertising time and
space costs and related residual rights and contracts at the time the
advertising is first broadcast or displayed. Promotion costs, including costs
associated with affinity programs in the consumer business segment, are charged
to expense when incurred. In the years ended June 30,
2003, 2002 and 2001, advertising and sales promotion expense was $53.3 million,
$52.8 million, and $51.6 million, respectively. Stock-Based Compensation The Company follows the provisions of SFAS No. 123,Accounting for Stock-Based Compensation. SFAS No. 123
allows entities to continue to apply the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the fair
value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the intrinsic value method prescribed by APB
Opinion No. 25. The
Companys pro forma information is as follows (in thousands, except per share
amounts): For the year ended June 30,2003
  
  2002
  
  2001Net income, as
  reported
  
  $
  9,289
  
  $
  8,015
  
  $
  1,321Less: total
  stock-based employee compensation expense determined under fair value based
  method for all awards, net of related tax effects
  
  478
  
  187
  
  303Pro forma net
  income
  
  $
  8,811
  
  $
  7,828
  
  $
  1,018Net income per share of
  Common Stock:Basicas reported
  
  $
  0.57
  
  $
  0.55
  
  $
  0.09Basicpro forma
  
  $
  0.54
  
  $
  0.54
  
  $
  0.07Dilutedas reported
  
  $
  0.56
  
  $
  0.54
  
  $
  0.09Dilutedpro forma
  
  $
  0.53
  
  $
  0.53
  
  $
  0.07  F-12 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Use of Estimates The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates. (1) Summary of
Significant Accounting Policies (Continued) Reclassifications Certain amounts in the
Companys fiscal year 2002 and 2001 financial statements have been reclassified
to conform to the current year presentation. Composition of the Companys reportable
segments for fiscal year 2001 have been reclassified to conform to the current
year presentation. (2) 2002
Merger Agreement Effective June 28,
2002, the Company, FTD and FTD.COM completed a merger transaction (the 2002
Merger) pursuant to which FTD.COM became an indirect wholly-owned subsidiary
of the Company and the former public stockholders of FTD.COM became
stockholders of the Company. Prior to the 2002 Merger, the financial statements
of FTD.COM were included in the Companys consolidated financial statements
with appropriate accounting for minority interest. The purpose and reasons for
the 2002 Merger include, along with other factors, the following: ·the ability of the Company
to more easily access the public markets to raise additional debt or equity, ·the ability of the Company
to attract a larger investor base due to the Companys anticipated greater
market float after the 2002 Merger as compared to FTD.COM, ·the ability of the Company
and FTD.COM to more effectively pursue future acquisitions, ·the ability of the Company
and FTD.COM to more efficiently allocate resources within the organization, and ·the ability of FTD.COM
stockholders to diversify their investment in FTD.COM and participate in the
future growth and earnings, if any, of all of the FTD businesses owned by the
Company. The Company accounted for
the 2002 Merger using the purchase method of accounting. The allocation of the
purchase price was finalized in 2003 and was allocated to the assets acquired
and liabilities assumed as follows (in thousands): Goodwill
  
  $
  51,330Other intangible
  assets (amortized over 5 years)
  
  3,293Other assets
  (amortized over 3 years)
  
  491Carrying value of
  minority interest purchased
  
  5,285Deferred income
  taxes
  
  (1,476
  )Total purchase price
  
  $
  58,923  F-13 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) 2002
Merger Agreement (Continued) The
goodwill recorded as part of the 2002 Merger is attributable to the consumer
business segment and is not deductible for tax purposes. The unaudited
consolidated condensed pro forma results of operations data for the years ended
June 30, 2002 and 2001 as if the 2002 Merger had occurred on July 1,
2000 are as follows (in thousands, except per share information): June 30, 2002
  
  June 30, 2001Total revenues
  
  
  $
  325,266
  
  
  
  $
  305,995Income from
  operations
  
  
  $
  17,433
  
  
  
  $
  22,065Net income
  
  
  $
  8,573
  
  
  
  $
  1,262Net income per share of Common Stockbasic
  
  
  $
  0.59
  
  
  
  $
  0.08Net income per share of
  Common Stockdiluted
  
  
  $
  0.58
  
  
  
  $
  0.07  Pursuant to the 2002 Merger, each stockholder of
FTD.COM, other than the Company or its other direct or indirect wholly-owned
subsidiaries, received 0.26 shares of the Companys Class A common stock,
par value $0.01 per share (Class A Common Stock), for each share of
FTD.COM common stock owned at the time of the 2002 Merger. As such, 7,863,161
shares of FTD.COM common stock, including outstanding restricted shares, were
converted to 2,044,421 shares of Class A Common Stock. Additionally,
220,000 options to purchase shares of FTD.COM common stock, which were
originally granted under the FTD.COM INC. 1999 Equity Incentive Plan, were
converted into 57,200 options to purchase shares of Class A Common Stock
and all restricted shares of FTD.COM common stock were converted into
restricted shares of Class A Common Stock in accordance with the same
exchange ratio and continue to be subject to the same restrictions and vesting
schedule as existed prior to the 2002 Merger. In connection with the 2002 Merger, the controlling
stockholders of the Company entered into a governance agreement with the
Company that requires the Company to nominate designated representatives of the
controlling stockholders to the Companys Board of Directors (the Board) for
so long as the controlling stockholders continue to own certain specified
percentages of Common Stock. The controlling stockholders also entered into a
registration rights agreement with the Company at the time of the 2002 Merger
that may require the Company to register their shares of Common Stock. In addition, in connection with the 2002 Merger, the
Company awarded one-time bonuses of $5,321,174 and $3,237,467 to the chief
executive officers of the Company and FTD.COM, respectively, and recorded the
bonuses as general and administrative expenses. Based on the consensus
views reached in EITF No. 00-23, Issues Related to the Accounting for Stock
Compensation Under APB Opinion No. 25 and FASB Interpretation No. 44,
and the Financial Accounting Standards Board Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation (an Interpretation of APB
Opinion No. 25), issued in March 2000, the exchange of FTD.COM awards
for awards of the Company as described in the preceding paragraph is considered
a modification of a stock-based compensation arrangement. Accordingly, a new
measurement of compensation cost was required at the date of the exchange. For
unvested restricted stock and option awards, the difference between the
original intrinsic value of the awards and the value of the awards at the new
measurement date is recognized as compensation expense over the remaining life of
the awards. The vested portion of restricted stock awards was considered part
of the purchase price of the acquisition of the minority interest, except F-14 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) 2002
Merger Agreement (Continued) for
shares that had not been unrestricted for more than six months (immature
shares). Immature shares are shares outstanding related to restricted stock for
which the restrictions have lapsed within six months prior to the exchange date.
To the extent the exchanged options are fully vested or exchanged shares are immature,
any additional compensation expense resulting from the new measurement date was
recognized immediately. As such, at the time of the 2002 Merger, the Company
increased deferred compensation by $152,000 related to the difference between
the original intrinsic value of the unvested option awards and the value of the
unvested option awards at the new measurement date and recorded compensation
expense of $58,000 for fully vested stock options that were outstanding at June 28,
2002. Additionally, the Company increased deferred compensation by $201,000
related to the difference between the original intrinsic value of the unvested
restricted stock awards and the value of the unvested restricted stock awards
at the new measurement date and recorded compensation expense of $202,000
related to the immature restricted shares outstanding at June 28, 2002. (3) Acquisitions On October 2, 2002, FTD.COM completed the
acquisition of the outstanding stock of A.F.E. Inc. (doing business as Flowers
USA) (Flowers USA), now known as Flowers USA, Inc. pursuant to an
agreement and plan of merger by and among FTD.COM, A.F.E. Acquisition Corp.,
A.F.E. Inc. and David M. Adams, as sole shareholder of A.F.E. Inc. (the Flowers
USA Agreement). Flowers USA was a direct marketer of flowers and specialty
gifts. Pursuant to the terms of the Flowers USA Agreement,
the purchase price of the acquisition was $7.7 million. Initially, $8.0 million
was funded from the Companys existing cash balances, of which $0.3 million was
later paid to the Company by the seller in connection with working capital
adjustments under the Flowers USA Agreement. In addition, the Company incurred
acquisition costs of $0.1 million. The assets acquired primarily consisted of
Flowers USAs customer list, valued at $0.4 million, and goodwill of $7.7
million, in addition to net liabilities assumed of $0.3 million. On July 18, 2002, FTD.COM completed the
acquisition of substantially all of the operating assets of Flowers Direct,
L.L.P. (Flowers Direct) pursuant to an asset purchase agreement by and among
Flowers Direct, E-Service Holdings, LLC, Express Worldwide Florist, Inc.
and FTD.COM (the Flowers Direct Agreement). Flowers Direct was a direct
marketer of flowers and specialty gifts. Pursuant to the terms of the Flowers Direct Agreement,
the purchase price for the assets acquired was $4.7 million, which was funded
from the Companys existing cash balances. Additionally, the Company incurred
acquisition costs of $0.2 million. The assets acquired primarily consisted of
Flowers Directs customer list, valued at $0.2 million, and goodwill of $4.7
million. On November 9, 2001, FTD.COM completed the
acquisition of certain assets of National Flora, Inc. (National Flora)
pursuant to an asset purchase agreement dated as of November 7, 2001, by
and among Gerald Stevens, Inc., National Flora and FTD.COM (the Asset
Purchase Agreement). National Flora was a direct marketer of flowers and
specialty gifts. Pursuant to the terms of the Asset Purchase Agreement,
the purchase price of the acquisition was approximately $9.0 million, which was
funded from FTD.COMs existing cash balances. Additionally, FTD.COM incurred
$0.1 million of other acquisition costs. The assets acquired primarily
consisted of $1.7 F-15


---

FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (3) Acquisitions
(Continued) million in prepaid
advertising expenses, National Floras rights under or in respect of certain
contracts and agreements, National Floras customer list, valued at $0.9
million, and goodwill of $6.5 million. The results of operations of Flowers USA, Flowers
Direct and National Flora since the respective transaction closing dates are
included in the Companys consolidated financial statements. The Company
accounted for these acquisitions using the purchase method of accounting; accordingly,
the Companys financial statements reflect the allocation of the total purchase
price to the net tangible and intangible assets acquired, based on their
respective fair values. In accordance with the
provisions of SFAS No. 142, the $7.7 million, $4.7 million and the $6.5
million in goodwill acquired in the Flowers USA, Flowers Direct and National
Flora acquisitions, respectively, will not be amortized but will be tested for
impairment at least annually. Additionally, the customer lists will be amortized
over five years. For tax purposes, the goodwill related to the Flowers Direct
and National Flora asset acquisitions is expected to be deductible. The pro
forma impact of these acquisitions is not material to the Companys
consolidated financial statements included in this report. (4) Goodwill
and Other Intangibles As of June 30, 2003, 2002 and 2001, the Company
had recorded accumulated goodwill amortization of $17.3 million, $17.3 million
and $15.0 million, respectively, accumulated trademark amortization of $2.7
million, $2.7 million and $2.3 million, respectively and accumulated software
amortization of $2.0 million. The Company completed its transitional impairment test
of goodwill and trademark assets as of July 1, 2002 and its annual
impairment test as of May 1, 2003 and it was determined that no impairment
existed as a result of these analyses. The Company will continue to evaluate
goodwill and trademark assets for impairment at least annually. In fiscal year 2002, the Company reduced a deferred
tax valuation allowance of $1.0 million which was originally established as
part of purchase accounting in 1994, thus reducing goodwill by $1.0 million. The
following is a summary of net income and earnings per share for the year ended June 30,
2002 and 2001, as adjusted to eliminate amortization of goodwill and trademark
assets from the prior fiscal years, as these assets are no longer required to
be amortized in fiscal 2003. 2002
  
  2001(in thousands, except per share data)Net incomeas
  reported
  
  $
  8,015
  
  $
  1,321Add back:
  goodwill and trademark amortization
  
  2,654
  
  2,690Net
  incomeadjusted
  
  $
  10,669
  
  $
  4,011Basic net income per share of Common Stockas
  reported
  
  $
  0.55
  
  $
  0.09Goodwill and
  trademark amortization
  
  0.18
  
  0.18Basic net income
  per share of Common Stockadjusted
  
  $
  0.73
  
  $
  0.27Diluted net income per share of Common Stockas
  reported
  
  $
  0.54
  
  $
  0.09Goodwill and
  trademark amortization
  
  0.18
  
  0.18Diluted net income per
  share of Common Stockadjusted
  
  $
  0.72
  
  $
  0.27  F-16 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  (4) Goodwill
and Other Intangibles (Continued) The
following tables provide the carrying amount of amortizable intangible assets
and the related accumulated amortization at June 30, 2003 and the
estimated amortization expense for each of the next five fiscal years (in
thousands): Gross
  Carrying
  Amount
  
  Accumulated
  Amortization
  
  Net
  Carrying
  AmountTotal amortizable
  intangible assets:Customer lists
  
  $
  4,676
  
  
  $
  1,023
  
  
  $
  3,653  Estimated amortization expense:For the year ending
  June 30, 2004
  
  $
  935For the year
  ending June 30, 2005
  
  935For the year
  ending June 30, 2006
  
  935For the year
  ending June 30, 2007
  
  828For the year ending
  June 30, 2008
  
  20  Amortization
expense for the years ended June 30, 2003, 2002 and 2001 was as follows: 2003
  
  2002
  
  2001(in thousands)Goodwill and
  trademark amortization
  
  $
  
  
  $
  2,654
  
  $
  2,690Amortization of
  other intangibles
  
  915
  
  108
  
  Total amortization
  expense
  
  $
  915
  
  $
  2,762
  
  $
  2,690  During the year ended June 30, 2003, the
indefinite lived trademark did not have a change in the carrying amount of
$12.3 million. The
changes in the carrying amount of goodwill, by segment, for the year ended June 30,
2003 were as follows: Florist
  Business
  
  Consumer
  Business
  
  Total(in thousands)Balance as of
  June 30, 2002
  
  $
  47,680
  
  $
  59,550
  
  $
  107,230Adjustment
  related to the 2002 Merger
  
  
  
  680
  
  680Addition related
  to the acquisition of the Flowers Direct business
  
  
  
  4,738
  
  4,738Addition related
  to the acquisition of the Flowers USA business
  
  
  
  7,678
  
  7,678Balance as of
  June 30, 2003
  
  $
  47,680
  
  $
  72,646
  
  $
  120,326  (5) Long-Term
Debt At June 30, 2003 and 2002 long-term debt
consisted of a revolving credit facility pursuant to an Amended and Restated
Credit Agreement with Harris Trust and Savings Bank, as Administrative Agent F-17 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) Long-Term
Debt (Continued) (the 2002 Credit
Agreement), which amended and restated the credit agreement dated as of September 27,
2001 by and among the Company, FTD and Harris Trust and Savings Bank, as
Administrative Agent (the 2001 Credit Agreement). The 2002 Credit Agreement
includes a revolving credit commitment of $75.0 million, of which $6.5 million
was outstanding under the revolving credit facility, $3.1 million was
outstanding under various letters of credit and $65.4 million was unused at June 30,
2003. The outstanding debt balance is classified as long-term debt as no
repayments of the debt outstanding are required prior to December 31,
2005, at which time the outstanding balance is due in full. Under the
terms of the 2002 Credit Agreement, borrowings are subject to a variable
interest rate based on the prime commercial rate or the London Interbank
Offered Rate (LIBOR). At June 30, 2003, the weighted average interest
rate was 4.00%, compared to 4.07% at June 30, 2002. During fiscal years
2003, 2002 and 2001, the Company recorded commitment fees of $145,000, $53,000
and $65,000, respectively, as interest expense related to the unused portion of
the revolving credit facilities. The 2002 Credit Agreement includes covenants, which,
among other things, require that the Company maintain a total funded debt to
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio
at the end of any fiscal quarter of no greater than 2.5 to 1.0, and a fixed
charge coverage ratio of not less than 2.0 to 1.0. In addition, the Company is
required to maintain a minimum level of consolidated net worth of $90.0 million
plus 50% of net income for each fiscal quarter of the Company beginning in the
quarter ended September 30, 2002, for which net income is a positive
amount, plus 100% of the net cash proceeds received from the Companys and any
of its subsidiaries issuances of equity securities. The Company was in compliance
with all debt covenants as of June 30, 2003 except the fixed charge
coverage ratio, for which the Company received a waiver from the participating
banks. The 2002 Credit Agreement imposes various restrictions
on the Company, including restrictions that limit the Companys and its
subsidiaries ability to incur additional debt, make certain payments or
investments, consummate asset sales, incur liens, merge, consolidate or dispose
of substantial assets, among other restrictions. The 2002 Credit Agreement also
includes restrictions that limit the ability of the Companys subsidiaries to
pay dividends. In addition, substantially all of the assets of the Company are
pledged as security under the 2002 Credit Agreement. As a result of entering into the 2002 and the 2001
Credit Agreements, the Company recorded $1.1 million of deferred financing
costs, which are being amortized straight-line over the term of the 2002 Credit
Facility. Additionally, $0.6 million of unamortized deferred financing costs
associated with the previous credit agreement were expensed in the year ended June 30,
2002. This expense is reflected in other expense in the accompanying
Consolidated Statements of Operations and Comprehensive Income for the year
ended June 30, 2002, in accordance with SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections, which the Company
elected to early adopt during fiscal year 2002. The Company is exposed to various market risks, which
primarily consist of interest rate risk. The Companys policy is to utilize
derivative instruments in an effort to hedge its underlying economic exposure
and to manage these instruments with the objective to reduce its exposure to
changes in interest rates to the extent deemed appropriate by management. The
Company does not use derivative instruments for trading purposes. F-18 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) Long-Term
Debt (Continued) The Company entered into
interest rate cap agreements on December 5, 2001 to reduce the impact of
potential increases on floating rate debt. The interest rate caps provide the
Company with a cap rate of 5.0% on a maximum of $20.0 million as of June 30,
2003, and are effective through December 31, 2003. Due to decreases in
interest rates, the carrying value at June 30, 2003 was zero, which
approximates fair value. (6) Leases As Lessor The Company leases Mercury computer equipment and
software to customers through leases classified as operating leases. As of June 30,
2003 and 2002, net capitalized equipment leased to customers under operating
leases, including equipment used for maintenance purposes, was $0.6 million and
$0.9 million, respectively. The
total minimum future rentals on non-cancelable leases of Mercury computer
equipment and software are as follows (in thousands): Year
  
  
  
  Amount2004
  
  $
  6502005
  
  5692006
  
  475Total
  
  $
  1,694  As Lessee The
Company has entered into operating leases for certain hardware components of
the Mercury computer equipment, facilities, a distribution center and other
equipment. Rental expense relating to these leases totaled $1.5 million, $1.9
million and $1.7 million for fiscal years 2003, 2002 and 2001, respectively. The
minimum aggregate annual operating lease obligations are as follows (in
thousands): Year
  
  
  
  Amount2004
  
  $
  1,5312005
  
  8602006
  
  4242007
  
  2822008
  
  111Total
  
  $
  3,208  The total minimum lease
payments have not been reduced by minimum sublease rentals of $1.7 million due
in the future under non-cancelable subleases of Mercury computer equipment. F-19 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (7) Income
Taxes The Companys net operating loss carryforward at June 30,
2002 was $9.4 million, which is anticipated to be fully utilized upon filing
the tax return related to the current fiscal year. The
provision for income taxes consists of the following components (in thousands): 2003
  
  2002
  
  2001Current:Federal
  
  $
  8,505
  
  $
  
  
  $
  State
  
  3,330
  
  240
  
  Total current
  
  11,835
  
  240
  
  Deferred:Federal
  
  3,095
  
  4,979
  
  2,968State
  
  443
  
  1,499
  
  433Total deferred
  
  3,538
  
  6,478
  
  3,401Income tax expense
  
  $
  15,373
  
  $
  6,718
  
  $
  3,401  The
provision for income taxes for the years ended June 30, 2003, 2002 and
2001, differs from the amount computed by applying the U.S. federal income tax
rate of 35%, 35% and 34% for fiscal years 2003, 2002 and 2001, respectively, to
pretax income because of the effect of the following items (in thousands): 2003
  
  2002
  
  2001Tax expense at
  U.S. federal income tax rate
  
  $
  8,631
  
  $
  6,040
  
  $
  2,254State income
  taxes, net of federal income tax effect
  
  2,426
  
  1,214
  
  276Litigation
  settlement, non-deductible
  
  3,850
  
  
  
  Change in
  valuation allowance
  
  
  
  (1,500
  )
  Amortization of
  non-deductible goodwill
  
  
  
  798
  
  775Other permanent
  items, net
  
  466
  
  166
  
  96Income tax expense
  
  $
  15,373
  
  $
  6,718
  
  $
  3,401  F-20 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (7) Income
Taxes (Continued) At June 30,
2003 and 2002, the Companys deferred tax assets and liabilities consisted of
the following (in thousands): 2003
  
  2002Current deferred tax
  assets:Allowance for doubtful accounts
  
  $
  2,114
  
  $
  2,437Inventory
  
  1,036
  
  298Unearned income
  
  666
  
  382Accrued vacation
  
  453
  
  347Restricted stock vesting
  
  294
  
  754Severance costs
  
  67
  
  698Other
  
  110
  
  110Total current
  deferred tax assets
  
  4,740
  
  5,026Noncurrent
  deferred tax assets:Net operating loss carryforwards
  
  
  
  3,763Postretirement benefit obligations
  
  1,357
  
  1,415Accrued pension
  
  586
  
  537Other
  
  
  
  171Total noncurrent
  deferred tax assets
  
  1,943
  
  5,886Noncurrent deferred tax liabilitiestax over book
  depreciation and amortization and difference in basis
  
  (7,490
  )
  (8,250
  )Net noncurrent
  deferred tax liabilities
  
  (5,547
  )
  (2,364
  )Net deferred tax assets
  (liabilities)
  
  $
  (807
  )
  $
  2,662  In assessing the
realization of deferred tax assets, the Company considers whether it is more
likely than not that some portion or the entire deferred tax asset will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which these temporary
differences are deductible. This assessment is performed considering expected
taxable income in future years and tax planning strategies available to the
Company. In fiscal year 2002, the Company determined that it is more likely
than not that its deferred tax assets will be realized. As such, the then
existing valuation allowance of $2.5 million was reversed. The recognition of
$1.0 million of the related tax benefit was applied to goodwill, as it was
generated from the 1994 Acquisition. The remaining $1.5 million was recorded as
a benefit in the provision for income taxes in fiscal year 2002. (8) Software
to be Sold, Leased, or Marketed The costs associated with
the development of the Mercury computer software are capitalized in accordance
with SFAS No. 86 and are recorded in other noncurrent assets on the
Consolidated Balance Sheets at June 30, 2003 and 2002. At June 30,
2003 and 2002, the net book value of capitalized computer software costs was
$1.7 million and $2.5 million, respectively. During the years ended June 30,
2003, 2002 and 2001, $1.0 million, $1.3 million and $0.9 million, respectively,
was charged to expense related to the amortization of these capitalized
computer software costs. In accordance with SFAS No. 86, at June 30,
2003, the unamortized capitalized cost of the computer software was compared to
the net realizable value F-21 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (8) Software
to be Sold, Leased, or Marketed (Continued) of the
product to determine whether any necessary write-downs should be made. The net
realizable value is the estimated future gross revenues reduced by the
estimated future cost of completing and disposing of the product. At June 30,
2003, no write-down was necessary. (9) Internal
Use Software Certain costs incurred in the planning and development
stage of internal-use computer software, including Web site development costs,
are expensed as incurred. Costs incurred during the development stage are
capitalized. During fiscal year 2002, the Company recorded an impairment loss
for internal use software, in the amount of $0.4 million, that had been used to
process clearinghouse and related transactions for member services, in addition
to $0.1 million related to other software. Capitalized internal use
software costs are amortized over the expected economic life of three to five
years using the straight-line method. At June 30, 2003 and 2002, the net
book value of capitalized internal use software costs of $4.0 million and $5.7
million, respectively, were included in other noncurrent assets on the Companys
Consolidated Balance Sheets. During the years ended June 30, 2003, 2002
and 2001, amortization expense related to internal use software was $2.8
million, $2.5 million and $3.1 million, respectively. (10) Post-retirement
Benefits Other Than Pensions The Company previously provided post-retirement health
care benefits to qualifying retirees under the terms of the Companys qualified
retirement plan. Under the terms of the plan, retirees are required to share in
the cost of these benefits. During fiscal year 1997, the Company terminated
such benefits to employees. As a result of eliminating active employees from
the plan, the Company created an unrecognized net gain that is being amortized
over the average retiree life expectancy of 15.6 years. During the year ended June 30, 2002, the Company
terminated certain future post-retirement health care benefits. This
termination in benefits caused a decrease in the Companys post-retirement
health care obligation attributed to prior services rendered and generated a
pretax settlement gain of $1.4 million, which was recorded as a reduction of
general and administrative expenses in the year ended June 30, 2002. In
accordance with the disclosure requirements of SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits,
the following tables provide a reconciliation of the benefit obligation and
funded status at June 30, 2003 and 2002, as well as the components of net
periodic post-retirement benefit costs for the years ended June 30, 2003,
2002 and 2001 (in thousands): 2003
  
  2002Benefit
  obligation at beginning of year
  
  $
  1,505
  
  $
  2,069Interest cost
  
  99
  
  128Benefits paid
  
  (96
  )
  (145
  )Actuarial (gain)
  loss
  
  61
  
  (547
  )Benefit obligation
  at end of year
  
  $
  1,569
  
  $
  1,505Funded status
  
  $
  (1,569
  )
  $
  (1,505
  )Unrecognized net gain
  
  (1,823
  )
  (2,033
  )Accrued benefit cost
  
  $
  (3,392
  )
  $
  (3,538
  )  F-22 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (10) Post-retirement Benefits Other Than Pensions
(Continued) 2003
  
  2002
  
  2001Service cost
  
  $
  
  
  $
  
  
  $
  Interest cost
  
  99
  
  128
  
  154Recognized net
  actuarial gain
  
  (148
  )
  (172
  )
  (201
  )Total net periodic
  postretirement benefit income
  
  $
  (49
  )
  $
  (44
  )
  $
  (47
  )  The discount rates used in
determining the accumulated post-retirement benefit obligation (the APBO)
were 6.0%, 7.25% and 7.5% for the years ended June 30, 2003, 2002 and
2001, respectively. For measurement purposes a 7.81% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 2003. The
rate is assumed to decrease to 5.75% in 2008 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. If the current health care cost
trend rate assumption was increased by one percent, the APBO at June 30,
2003 would have increased approximately $142,000 or 9.0%, while the net
periodic cost for the fiscal year ended June 30, 2003 would have increased
approximately $9,000, or 9.4%. If the current health care cost trend rate
assumptions were decreased by one percent, the APBO at June 30, 2003 would
have decreased approximately $124,000, or 7.9%, while the periodic cost for the
fiscal year ended June 30, 2003, would have decreased $8,000, or 8.3%. (11) Employee
Benefit Plans Approximately 150 employees and former employees
participate under the Companys defined benefit plan. Benefits under the
Companys pension plan, which has been frozen since January 1, 1997, were
based on the employees age, years of service and the highest consecutive
five-year average compensation. In
accordance with the disclosure requirements of SFAS No. 132, the following
tables provide a reconciliation of the benefit obligation and plan assets, as
well as the funded status of the pension plan at June 30, 2003 and 2002: 2003
  
  2002Projected benefit
  obligation at beginning of year
  
  $
  1,886
  
  $
  1,963Interest cost
  
  141
  
  147Benefits paid
  
  (195
  )
  (318
  )Actuarial loss
  
  455
  
  94Projected benefit
  obligation at end of year
  
  $
  2,287
  
  $
  1,886Fair value of plan assets at beginning of year
  
  $
  544
  
  $
  831Actual return on
  plan assets
  
  (53
  )
  (139
  )Employer
  contributions
  
  525
  
  170Benefits paid
  
  (195
  )
  (318
  )Fair value of
  plan assets at end of year
  
  $
  821
  
  $
  544Accrued funded status
  
  $
  (1,466
  )
  $
  (1,342
  )Unrecognized net
  loss
  
  1,165
  
  734Accrued pension cost
  
  $
  (301
  )
  $
  (608
  )  F-23 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (11) Employee
Benefit Plans (Continued) The
following table presents amounts recognized on the Consolidated Balance Sheets
(in thousands): 2003
  
  2002Long term accrued
  benefit cost
  
  $
  (1,466
  )
  $
  (1,342
  )Accumulated other
  comprehensive loss
  
  1,165
  
  734Net amount recognized on
  the Consolidated Balance Sheet
  
  $
  (301
  )
  $
  (608
  )  Plan assets for the defined benefit plan consist of
investments in common stock, real estate properties, fixed income securities
and short-term investments. During
the fiscal years ended June 30, 2003, 2002 and 2001, pension expense of
$149,000, $216,000 and $85,000, respectively, was recognized in relation to the
pension plan. During the fiscal years ended June 30, 2003 and 2002, the
Company recorded $33,000 and $237,000, respectively, within other comprehensive
income related to a change in the minimum pension liability. The table below
provides the necessary disclosures in accordance with SFAS No. 132 of the
components of pension expense for the defined benefit plan for the years ended June 30,
2003, 2002 and 2001: 2003
  
  2002
  
  2001Interest cost
  
  $
  141
  
  $
  147
  
  $
  147Expected return
  on assets
  
  (67
  )
  (75
  )
  (107
  )Recognized net
  actuarial loss
  
  75
  
  51
  
  Net periodic
  pension cost
  
  149
  
  123
  
  40Settlement loss
  
  
  
  93
  
  45Total pension cost
  
  $
  149
  
  $
  216
  
  $
  85  The discount rate used to calculate the projected
benefit obligation was 6.0%, 7.25%, and 7.5% at June 30, 2003, 2002, and
2001 respectively. For fiscal years 2003, 2002 and 2001 the expected long-term
rate of return on assets was 9.0%. The Company sponsors a
401(k) savings plan for all of its eligible employees. All eligible employees
may contribute between 1% and 75% of their gross annual salary up to $12,000 annually
for calendar year 2003, on a pre-tax basis. The Company matches an amount equal
to 50% of each participants pre-tax contribution up to 6% of the participants
compensation. Company contributions to the 401(k) plan for fiscal years 2003,
2002 and 2001 were $407,000, $436,000 and $444,000, respectively. (12) Related Party
Transactions The Company
incurred expenses of $2.0 million, $2.0 million and $2.1 million for the years
ended June 30, 2003, 2002 and 2001, respectively, related to the payment
for management, financial and other corporate advisory services and expenses to
parties related to each of Perry Acquisition Partners, L.P., Bain Capital
Investors LLC and Fleet Growth Resources III, Inc., which are stockholders
or affiliates of the Company. The Companys management consulting services
agreement that it entered into with these parties requires payments of $2.0
million each fiscal year plus reimbursement of reasonable out-of-pocket
expenses continuing through June 30, 2005. F-24


---

FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) Related Party
Transactions (Continued) At June 30, 2003, the Company had no loans
receivable from current or former officers of the Company. At June 30,
2002, the Company had loans receivable from various current and former officers
of the Company of $0.2 million with terms of four years, principal due at
maturity in 2005, and interest rates ranging from 6.5% to 8.5% per annum. (13) Stock Awards
and Incentive Plans The Companys 2002
Long-Term Equity Incentive Plan (the 2002 Equity Incentive Plan) was adopted
by the Board and approved by the Companys stockholders on June 27, 2002. The
2002 Equity Incentive Plan provides for the issuance of up to 1,250,000 shares
of Class A Common Stock in connection with the granting of incentive or
non-qualified stock options, stock appreciation rights (SARs), either alone
or in tandem with options, restricted stock, performance awards, or any
combination of the foregoing. In addition, the 2002 Equity Incentive Plan
provides that: ·The aggregate fair market
value (determined as of the grant date) of shares for which an incentive stock
option is exercisable for the first time during any calendar year under all
equity incentive plans of the Company and its subsidiaries may not exceed
$100,000; and ·No 2002 Equity Incentive
Plan participant shall be granted options or SARs to purchase a number of
shares of Class A Common Stock in excess of 50% of the total number of
shares authorized under the 2002 Equity Incentive Plan during any period of one
year. The Companys 1994 Stock Award and Incentive Plan, as
amended (the 1994 Plan), was adopted by the Board and approved by the Companys
stockholders in 1994. The maximum number of shares of Common Stock authorized
for issuance under the 1994 Plan is equal to 15% of the initial equity capital
of the Company upon the consummation of the 1994 Acquisition. The 1994 Plan provides for the granting of incentive
stock options (ISOs); options which do not qualify as ISOs, nonqualified
stock options (NSOs); or a combination of both ISOs and NSOs (Options);
provided, however, that ISOs may only be granted to employees of the Company
and its subsidiaries. Options granted under the 1994 Plan may be accompanied by
SARs or limited SARs or both. The 1994 Plan also provides for the granting of
restricted stock, deferred stock and performance shares (together, Restricted
Awards). To date, the Company has not granted any SARs, limited
stock appreciation rights, deferred shares, or performance awards under either
the 1994 Plan or the 2002 Equity Incentive Plan. F-25 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) Stock Awards
and Incentive Plans (Continued) Outstanding
nonqualified stock options are exercisable during a ten-year period beginning
one to five years after the date of grant. All currently outstanding options
were granted with an exercise price equal to either the fair market value on
the date of grant or the optionees first date of employment with the Company. Changes
in the options outstanding are summarized as follows: Summary of Stock Option ActivityClass A
  Common Stock
  Options
  
  Range of 
  Exercise Prices
  
  Weighted Average
  Exercise PriceBalance,
  June 30, 2000
  
  
  613,300
  
  
  $
  3.75 - $25.00
  
  
  $
  11.28Granted
  
  
  102,300
  
  
  $16.00
  
  
  $
  16.00Exercised
  
  
  (12,550
  )
  
  $
  3.75 - $10.50
  
  
  $
  6.03Recaptured or
  terminated
  
  
  (61,950
  )
  
  $
  7.75 - $25.00
  
  
  $
  19.08Balance,
  June 30, 2001
  
  
  641,100
  
  
  $
  3.75 - $25.00
  
  
  $
  11.38Granted
  
  
  
  
  
  
  
  
  Exercised
  
  
  (192,000
  )
  
  $
  7.75 - $15.00
  
  
  $
  11.32Recaptured or
  terminated
  
  
  (68,500
  )
  
  $
  10.50 - $25.00
  
  
  $
  17.47FTD.COM options
  converted (see Note 2)
  
  
  57,200
  
  
  $
  7.45 - $30.77
  
  
  $
  12.79Balance,
  June 30, 2002
  
  
  437,800
  
  
  $
  3.75 - $30.77
  
  
  $
  10.64Granted
  
  
  620,200
  
  
  $
  15.24 - $16.21
  
  
  $
  16.16Exercised
  
  
  (29,150
  )
  
  $
  3.75 - $16.00
  
  
  $
  8.46Recaptured or
  terminated
  
  
  (42,800
  )
  
  $
  7.75 - $30.77
  
  
  $
  19.40Balance, June 30, 2003
  
  
  986,050
  
  
  $
  3.75 - $30.77
  
  
  $
  13.79  As of June 30,
2003, 2002 and 2001, options covering 986,050, 437,800 and 641,100 shares,
respectively, of Class A Common Stock were outstanding, of which 314,670,
322,540 and 413,070 shares were exercisable, respectively. The following table
summarizes the information regarding the stock options outstanding and
exercisable at June 30, 2003. Options Outstanding
  
  Options ExercisableRange of Exercise Prices
  
  
  
  Number
  of Shares
  
  Weighted Average
  Remaining
  Contractual Life
  (in years)
  
  Weighted Average
  Exercise Price
  
  Number
  of Shares
  
  Weighted
  Average
  Exercise
  Price$3.75
  
  125,000
  
  
  3.93
  
  
  
  $
  3.75
  
  
  125,000
  
  
  $
  3.75$7.45 - $7.75
  
  28,850
  
  
  6.42
  
  
  
  $
  7.56
  
  
  11,300
  
  
  $
  7.72$10.50 - $12.50
  
  163,500
  
  
  4.51
  
  
  
  $
  11.74
  
  
  150,605
  
  
  $
  11.84$15.24 - $16.21
  
  645,000
  
  
  9.33
  
  
  
  $
  16.15
  
  
  14,000
  
  
  $
  16.00$22.08 - $30.77
  
  23,700
  
  
  6.72
  
  
  
  $
  24.51
  
  
  13,765
  
  
  $
  24.72Total
  
  986,050
  
  
  7.70
  
  
  
  $
  13.79
  
  
  314,670
  
  
  $
  9.23  F-26 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) Stock Awards
and Incentive Plans (Continued) Using
the Black-Scholes single option pricing model and the following assumptions,
the average estimated fair value, at the dates of grant of the Companys
options in fiscal years 2003 and 2001, was $6.01 and $5.08 per option of Class A
Common Stock, respectively. There were no grants of the Companys options in
fiscal year 2002. 2003
  
  2001Risk-free
  interest rate
  
  3.70
  %
  6.00
  %Expected dividend
  yield
  
  0.00
  %
  0.00
  %Expected
  volatility
  
  31.84
  %
  50.00
  %Estimated lives of
  options (in years)
  
  3.00
  
  3.74  For
FTD.COM options granted in fiscal year 2001, using the Black-Scholes single
option pricing model and the following assumptions, the average estimated fair
value at the date of grant was $1.21 per option of FTD.COM Class A common
stock, which would be equivalent to $4.65 per option of Class A Common
Stock pursuant to the 2002 Merger, based on the exchange ratio of 0.26. There
were no grants of FTD.COM options in fiscal year 2002 or fiscal year 2003. 2001Risk-free
  interest rate
  
  4.80
  %Expected dividend
  yield
  
  0.00
  %Expected
  volatility
  
  75.00
  %Estimated lives of
  options (in years)
  
  4.00  Based
on the above assumptions, the Company would have recognized additional
compensation expense, net of taxes, of $478,000, $187,000 and $265,000 related
to the Companys options in fiscal years 2003, 2002 and 2001, respectively, and
$38,000 related to FTD.COMs options in fiscal year 2001, if the estimated
costs of the outstanding granted stock options of the Company and FTD.COM had
been recorded in the Companys consolidated financial statements. As such, the
Companys net income and earnings per share would have been reduced to the pro
forma amounts shown in the table below (the pro forma disclosures shown are not
representative of the future effects on net income and earnings per share): 2003
  As Reported
  
  2003
  Pro Forma
  
  2002
  As Reported
  
  2002
  Pro Forma
  
  2001
  As Reported
  
  2001
  Pro FormaNet income
  available to common stockholders (in thousands)
  
  
  $
  9,289
  
  
  
  $
  8,811
  
  
  
  $
  8,015
  
  
  
  $
  7,828
  
  
  
  $
  1,321
  
  
  
  $
  1,018Net income per share of
  Common Stock:Basic
  
  
  $
  0.57
  
  
  
  $
  0.54
  
  
  
  $
  0.55
  
  
  
  $
  0.54
  
  
  
  $
  0.09
  
  
  
  $
  0.07Diluted
  
  
  $
  0.56
  
  
  
  $
  0.53
  
  
  
  $
  0.54
  
  
  
  $
  0.53
  
  
  
  $
  0.09
  
  
  
  $
  0.07  F-27 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) Stock Awards
and Incentive Plans (Continued) The Companys and FTD.COMs options granted in fiscal
years 2003 and 2001 vest equally each year over a four-year period from the
date of grant. As a result, the estimated cost indicated above reflects only a
partial vesting of such options. If full vesting were assumed, the estimated
pro forma costs for the year would have been higher than indicated above. Pursuant to the 2002 Merger, each stockholder of
FTD.COM, other than the Company or its other direct or indirect wholly-owned
subsidiaries, received 0.26 shares of Class A Common Stock for each share
of FTD.COM common stock owned at the time of the 2002 Merger. Additionally, all
outstanding options to purchase shares of FTD.COM common stock were converted
into options to purchase shares of Class A Common Stock and all restricted
shares of FTD.COM common stock were converted into restricted shares of Class A
Common Stock in accordance with the same exchange ratio and continue to be
subject to the same restrictions and vesting schedule as existed prior to the
2002 Merger. As such, 220,000 FTD.COM options were converted into 57,200
options of the Company at the time of the 2002 Merger. The new awards have the
same vesting provisions, option periods, aggregate intrinsic value, ratio of
exercise price per option to the market value per share and other terms as the
FTD.COM awards exchanged. Based on the consensus views reached in EITF No. 00-23
and the Financial Accounting Standards Board Interpretation No. 44 issued
in March 2000, the exchange of FTD.COM awards for awards of the Company as
described in the preceding paragraph is considered a modification of a stock-based
compensation arrangement. Accordingly, a new measurement of compensation cost
was required at the date of the exchange. For unvested restricted stock and
option awards, the difference between the original intrinsic value of the
awards and the value of the awards at the new measurement date will be
recognized over the remaining life of the awards. The vested portion of
restricted stock awards was considered part of the purchase price of the
acquisition of the minority interest, except for shares that have not been
unrestricted for more than six months (immature shares). Immature shares are
shares outstanding related to restricted stock for which the restrictions have
lapsed within six months prior to the exchange date. To the extent the
exchanged options are fully vested or exchanged shares are immature, any
additional compensation expense resulting from the new measurement date was
recognized immediately. As such, at the time of the 2002 Merger, the Company
increased deferred compensation by $152,000 related to the difference between
the original intrinsic value of the unvested option awards and the value of the
unvested option awards at the new measurement date and recorded compensation
expense of $58,000 for fully vested stock options that were outstanding at June 28,
2002. Additionally, the Company increased deferred compensation by $201,000
related to the difference between the original intrinsic value of the unvested
restricted awards and the value of the unvested restricted awards at the new
measurement date and recorded compensation expense of $202,000 related to the
immature restricted shares outstanding at June 28, 2002. For the year
ended June 30, 2003, the Company recorded $62,000 of compensation expense
related to the difference between the original intrinsic value of the unvested
option awards and the value of the unvested option awards at the new
measurement date. During fiscal year 2003, the Company granted 11,992
restricted shares of Class A Common Stock at a weighted average fair value
of $15.27 at the dates of grant to the independent board members and an
executive of the Company. The directors and executive will earn the restricted
shares in exchange for future services to be provided to the Company over a
one-year and three-year period, respectively. The Company recorded deferred
compensation in the amount of $0.2 million, equal to the market value of the
restricted shares at the date of grant. The Company did not grant any
restricted stock in fiscal years 2002 F-28 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) Stock Awards
and Incentive Plans (Continued) or 2001. The Company
recognized compensation expense related to restricted stock in general and
administrative expenses of $1.5 million, $1.4 million and $2.1 million in
fiscal years 2003, 2002 and 2001, respectively. No FTD, Inc. restricted shares were canceled
during fiscal year 2003 or fiscal year 2001. During fiscal year 2002, 83,333
shares of unvested FTD, Inc. restricted stock that were previously granted
were canceled. Restricted shares that
were originally granted as FTD.COM restricted shares were converted to FTD, Inc.
restricted shares pursuant to the 2002 Merger. No FTD.COM restricted shares
were granted in fiscal years 2002 or 2001. During fiscal years 2002 and 2001,
116,667 and 35,000 shares, respectively, of unvested FTD.COM restricted stock
that were previously granted were canceled. (14) Commitments
and Contingencies The Company, FTD,
FTD.COM and the directors of the Company and FTD.COM have been named as
defendants in five class action lawsuits filed in the Court of Chancery for New
Castle County in Wilmington, Delaware by individual stockholders of FTD.COM on
behalf of all former public stockholders of FTD.COM: Frances
Howland v. FTD.COM et al., Civil Action No. 19458 NC; Johnathon Anderson v. Richard Perry et al., Civil Action No. 19459
NC; Stephen Gluck v. Richard C. Perry, Civil
Action No. 19461 NC; Geoff Mott v. IOS Brands
Corp., Civil Action No. 19468 NC; and Highwood
Partners, L.P. v. IOS Brands Corp., Civil Action No. 19556 NC. These
lawsuits were filed beginning on March 5, 2002, after the press release
announcing the 2002 Merger was issued. The complaints generally make
essentially the same allegations, namely that: ·the offer by the Company to
exchange 0.26 shares of Class A Common Stock for each share of FTD.COM
common stock is inadequate, ·the individual defendants
breached the fiduciary duties they owed in their capacity as directors by,
among other things, failing to conduct an auction or otherwise check the market
value of FTD.COM before voting to accept the merger proposal, ·the Company and its board
of directors prevented the FTD.COM board of directors from conducting a
meaningful review of the transaction, and ·the Company, FTD.COM and
certain individual defendants timed the 2002 Merger to deny public stockholders
the full potential increase in FTD.COMs stock price following the 2002 Merger. The Company has reached an agreement to settle the
consolidated shareholder class actions pending in the Court of Chancery for New
Castle County in Wilmington, Delaware, titled In Re FTD.COM, Inc.
Shareholders Litigation.  A Stipulation
and Agreement of Compromise, Settlement and Release relating to this matter has
been executed (the Stipulation and Settlement Agreement). The terms of the Stipulation and Settlement Agreement,
which are subject to final Court approval and notice to class members, include
no finding of wrongdoing on the part of any of the defendants, or any other
finding that the claims alleged had merit. The Company and the other defendants
have denied, and continue to deny, that they have committed any violation of
federal securities or other laws. The Company expects the Court to hold a
fairness hearing in the near future to consider objections, if any, and to
determine whether it will approve the settlement. F-29 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (14) Commitments
and Contingencies (Continued) Pursuant to the Stipulation and Settlement Agreement,
the Company has agreed to issue shares of FTD, Inc. Class A Common
Stock valued at $10.7 million to the members of the class. In connection with
the settlement, the Company recorded an $11.0 million charge in the fourth
quarter of fiscal year 2003 with respect to the settlement and related
administrative costs. This charge is included in other expense in the statement
of operations and will not be deductible for income tax purposes. There are two insurance policies relating to these
matters, one covering the Company and its directors and officers and another
covering FTD.COM and its directors and officers. The Company intends to
aggressively pursue its claims under both of these insurance policies. Both of
the insurance carriers have initiated litigation seeking to deny coverage for
the shareholder lawsuits that are the subject of the settlement, while the
Company believes that it, FTD.COM and the individual defendants are entitled to
coverage. Any recoveries from the insurance providers relating to the
settlement will be recorded as other income in the period realized. In addition, the Company
is involved in various lawsuits and other matters arising in the normal course
of business. In the opinion of management of the Company, although the outcome
of these claims and suits are uncertain, they should not have a material
adverse effect on the Companys financial condition, liquidity or results of
operations. (15) Capital Stock
Transactions The Class A Common Stock and Class B
Convertible Common Stock rank equally and, except with respect to voting power,
are substantially identical in all material respects. Class B Convertible
Common Stock is convertible into Class A Common Stock on a one-for-one
basis at the option of the holder. The Company is authorized to establish and
designate one or more series of preferred stock. The Company repurchased into treasury 218,931, 231,568
and 12,550 shares of Class A Common Stock at an approximate cost of
$3,513,000, $2,802,000 and $201,000 during fiscal years 2003, 2002 and 2001,
respectively. Of the $2,802,000 treasury stock repurchased during fiscal year
2002, approximately $1,950,000 was payable as of June 30, 2002. Effective June 28,
2002, the Company, FTD and FTD.COM completed the 2002 Merger. Pursuant to the
2002 Merger, each stockholder of FTD.COM, other than the Company or its other
direct or indirect wholly-owned subsidiaries, received 0.26 shares of Class A
Common Stock for each share of FTD.COM common stock owned at the time of the
2002 Merger. Additionally, all outstanding options to purchase shares of
FTD.COM common stock were converted into options to purchase shares of Class A
Common Stock and all restricted shares of FTD.COM common stock were converted
into restricted shares of Class A Common Stock in accordance with the same
exchange ratio and continue to be subject to the same restrictions and vesting
schedule as existed prior to the 2002 Merger. (16) Subsidiary
Capital Stock Transactions There were no restricted shares granted by FTD.COM in
fiscal year 2002 or 2001. During fiscal year 2002, FTD.COM repurchased into
treasury 143,583 shares of FTD.COM Class A common stock at a cost of
$853,000 of which 85%, representing the Companys ownership in FTD.COM at the
date of each repurchase, is reflected in the Companys Consolidated Statements
of Stockholders Equity. F-30 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (16) Subsidiary
Capital Stock Transactions (Continued) Pursuant to the 2002
Merger, FTD.COM became an indirect wholly-owned subsidiary of the Company and
the former public stockholders of FTD.COM became stockholders of the Company. As
such, all outstanding shares of FTD.COM are held by FTD as a result of the 2002
Merger. Refer to Note 2 for further discussion of 2002 Merger. (17) Minority
Interest in Subsidiary As a result of the 2002
Merger, the Companys minority interest in FTD.COM was eliminated. At the date
of the 2002 Merger, the minority interest in FTD.COM was approximately 15%. The
minority interest in FTD.COMs income was $2.5 million for fiscal year 2002,
through the date of the 2002 Merger, and $1.9 million for fiscal year 2001. (18) Litigation
Settlements The Company recorded a
$2.6 million gain in fiscal year 2002 for the settlement of a claim against the
developer of an unlaunched version of FTD.COMs Web site, which includes the
reversal of $0.8 million in accruals related to the gain. The gain was recorded
in general and administrative expenses. (19) FTD
Association Agreements Pursuant to a merger agreement entered into during
1994, the Company acquired all of the outstanding equity of the Old Association
on December 19, 1994. The Operating Company was the surviving corporation
following the Acquisition and upon consummation of the Acquisition, the
Operating Company became a wholly-owned subsidiary of the Company. Immediately
following the Acquisition, the Old Association was converted from a non-profit
corporation to a for-profit corporation and renamed Florists Transworld Delivery, Inc.  The Company, through the Operating Company,
operates all of the businesses conducted by the Old Association prior to the
Acquisition except for certain trade association activities which were being
conducted by FTD Association, an Ohio non-profit corporation organized in
connection with the Acquisition and structured as a member-owned trade
association (the Association). Neither the Company nor the Operating Company
had any ownership interest in the Association. In connection with the Acquisition, the Association
and FTD entered into a Mutual Support Agreement, dated December 18, 1994
(the Mutual Support Agreement), and a Trademark License Agreement, dated December 18,
1994 (the Trademark Agreement and together with the Mutual Support Agreement,
the Association Agreements). The Association Agreements, among other things,
provided for: (i) existing and future members of the Association to have
the exclusive right, subject to execution of a Trademark Agreement with the
Operating Company, to use the FTD logo and other FTD trademarks in connection
with the operation of a retail florist shop; (ii) all members of the
Association in good standing to be provided access to FTDs clearinghouse,
Mercury Network and certain other FTD services and products; (iii) the
Operating Company to pay the Association an amount equal to a percentage of the
value of every floral order cleared through FTDs clearinghouse; and (iv) the
Operating Company and the Association were to be able to designate up to 20% but
not fewer than two individuals to be elected to the others board of directors. On April 30, 2001,
FTD entered into a Termination Agreement with the Association, which became
effective as of June 29, 2001 (the Termination Agreement). The
Termination Agreement, which contains limited two-year non-compete provisions,
terminates the Association Agreements. As consideration for the F-31 FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (19) FTD
Association Agreements (Continued) dissolution
of the contractual relationship between the Company and the Association
pursuant to the Termination Agreement, FTD agreed to pay the Association $14.0
million, $12.6 million of which was paid on June 29, 2001 and $1.4 million
of which was paid July 1, 2002. The funds used to pay the $1.4 million on July 1,
2002 were placed in escrow, and as such are reflected as restricted cash on the
Consolidated Balance Sheet as of June 30, 2002. In fiscal year 2001 the
Company recorded $14.5 million of expenses related to this transaction,
including professional fees, reflected as other expense. (20) Segment
Information Operating segments are components of the business for
which separate financial information is available that is regularly reviewed by
the enterprises chief operating decision maker to make decisions about
resources to be allocated to each segment and to assess its performance. Following
the 2002 Merger and the resulting changes in the Companys corporate structure,
the Company has reorganized the manner in which its resources are allocated
and, as a result, reviews results based on the consumer business and florist
business segments. Composition of the Companys reportable segments for fiscal
year 2001 has been reclassified to conform to the current year presentation. For purposes of managing the Company, management
reviews segment financial performance to the operating income level for each of
its reportable business segments. As such, interest income, interest expense
and tax expense is recorded on a consolidated corporate basis. The florist business segment includes all products and
services sold to FTD member florists and other retail locations offering floral
products, encompassing clearinghouse services, publishing products and
services, technology sales and leases and specialty wholesale product sales. The
consumer business segment encompasses floral and specialty gift sales sold to
consumers through FTD.COMs Web site, www.ftd.com, or
its toll-free telephone number, 1-800-SEND-FTD. Of the Companys assets totaling $204.4 million at June 30,
2003, the assets of the Companys consumer business totaled approximately $80.6
million of which $53.7 million related to goodwill from the 2002 Merger. The
assets of the Companys florist business segment and corporate headquarters
constitute the remaining assets of approximately $123.8 million. The Companys accounting policies for segments are the
same as those on a consolidated basis as described in Note 1 of Notes to
Consolidated Financial Statements. The Operating Company and FTD.COM had
entered into certain intercompany agreements governing various interim and
ongoing relationships, including a commission agreement, an indemnification
agreement, a trademark license agreement, a registration rights agreement, a
tax sharing agreement, an intercompany services agreement and a Florists
Online hosting agreement. Upon consummation of the 2002 Merger, the
intercompany services, the intercompany indemnification, and the FTD
registration rights agreements were terminated. F-32


---

FTD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (20) Segment
Information (Continued) The following table
reports the Companys operating results by reportable business segment for
fiscal years 2003, 2002 and 2001: 2003
  
  2002
  
  2001Gross
  Segment
  
  Eliminations
  
  Consolidated
  
  Gross
  Segment
  
  Eliminations
  
  Consolidated
  
  Gross
  Segment
  
  Eliminations
  
  Consolidated(in thousands)
  
  (in thousands)
  
  (in thousands)Revenues: Florist business
  
  $
  172,678
  
  
  $
  (293
  )
  
  
  $
  172,385
  
  
  $
  171,308
  
  
  $
  (111
  )
  
  
  $
  171,197
  
  
  $
  188,526
  
  
  $
  (48
  )
  
  
  $
  188,478Consumer business
  
  207,688
  
  
  (16,730
  )
  
  
  190,958
  
  
  168,653
  
  
  (14,584
  )
  
  
  154,069
  
  
  130,294
  
  
  (12,777
  )
  
  
  117,517Total
  
  380,366
  
  
  (17,023
  )
  
  
  363,343
  
  
  339,961
  
  
  (14,695
  )
  
  
  325,266
  
  
  318,820
  
  
  (12,825
  )
  
  
  305,995Costs of Goods Sold
  and Services
  Provided:Florist business
  
  59,066
  
  
  (1,955
  )
  
  
  57,111
  
  
  58,463
  
  
  (1,891
  )
  
  
  56,572
  
  
  68,045
  
  
  (2,097
  )
  
  
  65,948Consumer business
  
  146,691
  
  
  (2,405
  )
  
  
  144,286
  
  
  120,202
  
  
  (2,022
  )
  
  
  118,180
  
  
  93,476
  
  
  (1,787
  )
  
  
  91,689Corporate
  
  2,508
  
  
  
  
  
  
  2,508
  
  
  2,576
  
  
  
  
  
  
  2,576
  
  
  2,242
  
  
  
  
  
  
  2,242Total
  
  208,265
  
  
  (4,360
  )
  
  
  203,905
  
  
  181,241
  
  
  (3,913
  )
  
  
  177,328
  
  
  163,763
  
  
  (3,884
  )
  
  
  159,879Gross Margin:Florist business
  
  113,612
  
  
  1,662
  
  
  
  115,274
  
  
  112,845
  
  
  1,780
  
  
  
  114,625
  
  
  120,481
  
  
  2,049
  
  
  
  122,530Consumer business
  
  60,997
  
  
  (14,325
  )
  
  
  46,672
  
  
  48,451
  
  
  (12,562
  )
  
  
  35,889
  
  
  36,818
  
  
  (10,990
  )
  
  
  25,828Corporate
  
  (2,508
  )
  
  
  
  
  
  (2,508
  )
  
  (2,576
  )
  
  
  
  
  
  (2,576
  )
  
  (2,242
  )
  
  
  
  
  
  (2,242
  )Total
  
  172,101
  
  
  (12,663
  )
  
  
  159,438
  
  
  158,720
  
  
  (10,782
  )
  
  
  147,938
  
  
  155,057
  
  
  (8,941
  )
  
  
  146,116Advertising and
  Selling:Florist business
  
  64,744
  
  
  (12,548
  )
  
  
  52,196
  
  
  63,660
  
  
  (10,694
  )
  
  
  52,966
  
  
  63,281
  
  
  (8,941
  )
  
  
  54,340Consumer business
  
  19,831
  
  
  
  
  
  
  19,831
  
  
  14,969
  
  
  
  
  
  
  14,969
  
  
  13,471
  
  
  
  
  
  
  13,471Total
  
  84,575
  
  
  (12,548
  )
  
  
  72,027
  
  
  78,629
  
  
  (10,694
  )
  
  
  67,935
  
  
  76,752
  
  
  (8,941
  )
  
  
  67,811General and
  Administrative:Florist business
  
  11,366
  
  
  
  
  
  
  11,366
  
  
  13,098
  
  
  
  
  
  
  13,098
  
  
  15,939
  
  
  
  
  
  
  15,939Consumer business
  
  15,976
  
  
  (2,093
  )
  
  
  13,883
  
  
  14,052
  
  
  (1,677
  )
  
  
  12,375
  
  
  13,577
  
  
  (1,217
  )
  
  
  12,360Corporate
  
  23,385
  
  
  1,978
  
  
  
  25,363
  
  
  32,283
  
  
  1,589
  
  
  
  33,872
  
  
  23,499
  
  
  1,217
  
  
  
  24,716Total
  
  50,727
  
  
  (115
  )
  
  
  50,612
  
  
  59,433
  
  
  (88
  )
  
  
  59,345
  
  
  53,015
  
  
  
  
  
  
  53,015Operating Income
  (Loss) before
  Corporate
  Allocations:Florist business
  
  37,502
  
  
  14,210
  
  
  
  51,712
  
  
  36,087
  
  
  12,474
  
  
  
  48,561
  
  
  41,261
  
  
  10,990
  
  
  
  52,251Consumer business
  
  25,190
  
  
  (12,232
  )
  
  
  12,958
  
  
  19,430
  
  
  (10,885
  )
  
  
  8,545
  
  
  9,770
  
  
  (9,773
  )
  
  
  (3
  )Corporate
  
  (25,893
  )
  
  (1,978
  )
  
  
  (27,871
  )
  
  (34,859
  )
  
  (1,589
  )
  
  
  (36,448
  )
  
  (25,741
  )
  
  (1,217
  )
  
  
  (26,958
  )Total
  
  36,799
  
  
  
  
  
  
  36,799
  
  
  20,658
  
  
  
  
  
  
  20,658
  
  
  25,290
  
  
  
  
  
  
  25,290Corporate
  Allocations:Florist business
  
  11,815
  
  
  
  
  
  
  11,815
  
  
  11,881
  
  
  
  
  
  
  11,881
  
  
  10,653
  
  
  
  
  
  
  10,653Consumer business
  
  3,136
  
  
  
  
  
  
  3,136
  
  
  3,003
  
  
  
  
  
  
  3,003
  
  
  2,514
  
  
  
  
  
  
  2,514Corporate
  
  (14,951
  )
  
  
  
  
  
  (14,951
  )
  
  (14,884
  )
  
  
  
  
  
  (14,884
  )
  
  (13,167
  )
  
  
  
  
  
  (13,167
  )Total
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Operating Income
  (Loss):Florist business
  
  25,687
  
  
  14,210
  
  
  
  39,897
  
  
  24,206
  
  
  12,474
  
  
  
  36,680
  
  
  30,608
  
  
  10,990
  
  
  
  41,598Consumer business
  
  22,054
  
  
  (12,232
  )
  
  
  9,822
  
  
  16,427
  
  
  (10,885
  )
  
  
  5,542
  
  
  7,256
  
  
  (9,773
  )
  
  
  (2,517
  )Corporate
  
  (10,942
  )
  
  (1,978
  )
  
  
  (12,920
  )
  
  (19,975
  )
  
  (1,589
  )
  
  
  (21,564
  )
  
  (12,574
  )
  
  (1,217
  )
  
  
  (13,791
  )Total
  
  $
  36,799
  
  
  $
  
  
  
  
  $
  36,799
  
  
  $
  20,658
  
  
  $
  
  
  
  
  $
  20,658
  
  
  $
  25,290
  
  
  $
  
  
  
  
  $
  25,290Depreciation and
  Amortization:Florist business
  
  $
  2,601
  
  
  $
  
  
  
  
  $
  2,601
  
  
  $
  3,042
  
  
  $
  
  
  
  
  $
  3,042
  
  
  $
  3,054
  
  
  $
  
  
  
  
  $
  3,054Consumer business
  
  875
  
  
  
  
  
  
  875
  
  
  182
  
  
  
  
  
  
  182
  
  
  404
  
  
  
  
  
  
  404Corporate
  
  4,422
  
  
  
  
  
  
  4,422
  
  
  6,197
  
  
  
  
  
  
  6,197
  
  
  6,029
  
  
  
  
  
  
  6,029Total
  
  $
  7,898
  
  
  $
  
  
  
  
  $
  7,898
  
  
  $
  9,421
  
  
  $
  
  
  
  
  $
  9,421
  
  
  $
  9,487
  
  
  $
  
  
  
  
  $
  9,487  F-33


---

Independent
Auditors Report on Financial Statement Schedule The Board of Directors and Stockholders
FTD, Inc.: Under date of July 29, 2002, we reported on the
consolidated balance sheet of FTD, Inc. and subsidiaries at June 30,
2002, and the related consolidated statements of operations and comprehensive
income, stockholders equity, and cash flows for each of the years in the
two-year period then ended. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. This
consolidated financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information
set forth therein. /s/ KPMG LLP Chicago, Illinois
July 29, 2002  F-34


---

FTD, INC.SCHEDULE IIVALUATION AND
QUALIFYING ACCOUNTS Balance
  beginning of
  period
  
  Charged to
  cost and
  expenses
  
  Uncollectible
  accounts and
  inventory write offs,
  net of collection of
  accounts previously
  written off
  
  Balance at
  end of periodFiscal year 2003Allowance for
  doubtful accounts (shown as deduction from Accounts Receivable in the
  consolidated balance sheet)
  
  
  $
  6,093
  
  
  
  $
  3,439
  
  
  
  $
  4,248
  
  
  
  $
  5,284Inventory valuation reserve (included in
  Inventories, net in the consolidated balance sheet)
  
  
  $
  348
  
  
  
  $
  1,224
  
  
  
  $
  163
  
  
  
  $
  1,409Fiscal
  year 2002Allowance for
  doubtful accounts (shown as deduction from Accounts Receivable in the
  consolidated balance sheet)
  
  
  $
  4,984
  
  
  
  $
  4,048
  
  
  
  $
  2,939
  
  
  
  $
  6,093Inventory valuation reserve (included in
  Inventories, net in the consolidated balance sheet)
  
  
  $
  1,021
  
  
  
  $
  140
  
  
  
  $
  813
  
  
  
  $
  348Fiscal
  year 2001Allowance for
  doubtful accounts (shown as deduction from Accounts Receivable in the consolidated
  balance sheet)
  
  
  $
  3,596
  
  
  
  $
  3,134
  
  
  
  $
  1,746
  
  
  
  $
  4,984Inventory
  valuation reserve (included in Inventories, net in the consolidated balance
  sheet)
  
  
  $
  1,017
  
  
  
  $
  513
  
  
  
  $
  509
  
  
  
  $
  1,021  F-35


---

INDEX
TO EXHIBITS Exhibit Number
   
   
   
   Description of Document2.1
  
  Agreement and Plan of
  Merger, dated as of March 3, 2002, among IOS Brands Corporation (IOS),
  Florists Transworld Delivery, Inc. (FTDI), Aroma Acquisition Corp.
  and FTD.COM INC. (FTD.COM) (incorporated by reference to Exhibit 2.1
  to IOS Current Report on Form 8-K filed on March 5, 2002).3.1
  
  Restated Certificate of
  Incorporation of FTD, Inc. (incorporated by reference to Annex D to IOS
  Registration Statement on Form S-4, as amended (File No. 333-84734)
  (the 2002 FTD S-4)).3.2
  
  Amended and Restated
  By-laws of FTD, Inc. (incorporated by reference to Annex E to the
  2002 FTD S-4).4.1
  
  Form of
  Subscription Agreement among FTD Corporation and Participating Members
  (incorporated by reference to Exhibit 4.4 to FTD Corporations
  Registration Statement on Form S-1, as amended (File No. 333-37303)
  (the 1997 FTD S-1)).4.2
  
  Stockholders Support
  Agreement, dated as of March 3, 2002, by and among FTD.COM, Perry
  Acquisition Partners, L.P., Perry Partners, L.P., Perry Partners
  International, Inc., Perry Principals Holdings, LLC, Bain Capital Fund
  IV, L.P., Bain Capital Fund IV-B, L.P., Information Partners Capital Fund,
  L.P., BCIP Associates, BCIP Trust Associates, L.P., Chisholm Partners II
  L.P., Fleet Equity Partners VII, L.P., Fleet Growth Resources III, Inc.
  and Randolph Street Partners (incorporated by reference to Exhibit 10.1
  of IOS Current Report on Form 8-K filed on March 5, 2002).4.3
  
  Form of
  Registration Agreement by and among FTD, Inc., Perry Acquisition
  Partners, L.P., Perry Partners, L.P., Perry Partners
  International, Inc., Perry Principals Holdings, LLC, Bain Capital Fund
  IV, L.P., Bain Capital Fund IV-B, L.P., Information Partners Capital Fund,
  L.P., BCIP Associates, BCIP Trust Associates, L.P., Chisholm Partners II
  L.P., Fleet Equity Partners VII, L.P., Fleet Growth Resources III, Inc.
  and Randolph Street Partners (incorporated by reference to Exhibit 10.2
  of IOS Current Report on Form 8-K filed on March 5, 2002).4.4
  
  Form of Governance
  Agreement by and among FTD, Inc., Perry Acquisition Partners, L.P.,
  Perry Partners, L.P., Perry Partners International, Inc., Perry
  Principals Holdings, LLC, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
  L.P., Information Partners Capital Fund, L.P., BCIP Associates and BCIP Trust
  Associates, L.P., Randolph Street Partners, Chisholm Partners II L.P., Fleet
  Equity Partners VII, L.P., and Fleet Growth Resources III, Inc.
  (incorporated by reference to Exhibit 10.3 to IOS Current Report on
  Form 8-K filed on March 5, 2002).10.1
  
  Credit Agreement, dated
  as of November 20, 1997 (the 1997 Credit Agreement) among FTD
  Corporation, FTDI, the various lending institutions party thereto (the
  Lenders) and The First National Bank of Chicago, as Agent (the Agent)
  (incorporated by reference to Exhibit 10.1 to the 1997 FTD S-1).10.2
  
  Amendment No. 1 to
  1997 Credit Agreement, dated as of December 19, 1997, among FTD
  Corporation, FTDI, the Lenders and the Agent (incorporated by reference to
  Exhibit 10.2 to FTD Corporations Annual Report on Form 10-K for
  the fiscal year ended June 30, 1999 (the 1999 Form 10-K)).   10.3
  
  Amendment
  No. 2 to 1997 Credit Agreement, dated as of May 24, 1999, among FTD
  Corporation, FTDI, the Lenders and the Agent (incorporated by reference to
  Exhibit 10.3 to the 1999 Form 10-K).10.4
  
  Amendment No. 3 to
  1997 Credit Agreement, dated as of July 7, 2000, among FTD Corporation,
  FTDI, the Lenders and Bank One, N.A. (as successor to the First National Bank
  of Chicago), as Agent (incorporated by reference to Exhibit 10.20 to FTD
  Corporations Quarterly Report on Form 10-Q for the quarter ended
  December 31, 2000 (the December 31, 2000 10-Q).10.5
  
  Amendment No. 4,
  Waiver, Consent and Release to 1997 Credit Agreement, dated as of
  December 21, 2000, among FTD Corporation, FTDI, the Lenders and the
  Agent (incorporated by reference to Exhibit 10.21 to the
  December 31, 2000 10-Q).10.6
  
  Credit Agreement, dated
  as of September 27, 2001 (the 2001 Credit Agreement), by and among FTDI,
  IOS and each of the Subsidiaries from time to time becoming a party to the
  Agreement, as Guarantors, the several financial institutions from time to
  time party to the Agreement, as Lenders, and Harris Trust and Savings Bank,
  as Administrative Agent (incorporated by reference to Exhibit 10.34 to
  IOS Quarterly Report on Form 10-Q for the quarter ended
  September 30, 2001 (the September 30, 2001 10-Q)).10.7
  
  First Amendment and
  Waiver to the 2001 Credit Agreement, dated as of March 12, 2002, by and
  among IOS, FTDI, the subsidiaries listed on the signature pages thereof,
  as Guarantors, the several financial institutions listed on the signature
  pages thereof, as Lenders, and Harris Trust and Savings Bank, as
  Administrative Agent for the Lenders (incorporated by reference to
  Exhibit 10.34 of the 2002 FTD S-4).10.8
  
  Waiver to the 2001
  Credit Agreement, dated as of August 15, 2002, by and among
  FTD, Inc., FTDI, the subsidiaries listed on the signature
  pages thereof, as Guarantors, the several financial institutions listed
  on the signature pages thereof, as Lenders, and Harris Trust and Savings
  Bank, as Administrative Agent for the Lenders (incorporated by reference to
  Exhibit 10.8 to the Companys Annual Report on Form 10-K for the
  fiscal year ended June 30, 2002).10.9
  
  Amended and Restated
  Credit Agreement dated as of September 27, 2002, among Florists
  Transworld Delivery, Inc., FTD, Inc., and each of the Subsidiaries
  from time to time becoming a party to the Agreement, as Guarantors, the
  several financial institutions from time to time party to the Agreement, as
  Lenders, and from time to time parties thereto, Harris Trust and Savings
  Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1
  to the Companys Quarterly Report on Form 10-Q for the quarter ended
  September 30, 2002).10.10+
  
  First amendment and
  waiver to the 2002 Credit Agreement, dated as of July 31, 2003, by and
  among FTD, Inc., FTDI, the subsidiaries listed on the signature
  pages thereof, as Guarantors, the several financial institutions listed
  on the signature pages thereof, as Lenders, and Harris Trust and Savings
  Bank, as Administrative Agent for the Lenders.10.11+
  
  First Amendment to
  Amended and Restated Pledge Agreement and to Amended and Restated Security
  Agreement, dated as of July 31, 2003, by and among FTD, Inc., FTDI
  and other parties executing this Amendment under the heading Debtors and
  Harris Trust and Savings Bank, acting as administrative agent.   10.12+
  
  Second Supplement to Mortgage and Security Agreement
  with Assignment of Rents, dated as of July 31, 2003, from FTDI to Harris
  Trust and Savings Bank, acting as administrative agent.10.13
  
  Pledge Agreement, dated
  May 24, 1999, by and among FTD Corporation, FTDI and the Agent
  (incorporated by reference to Exhibit 10.4 to the 1999 Form 10-K).10.14
  
  Security Agreement,
  dated November 20, 1997, by and among FTD Corporation, FTDI and the
  Agent (incorporated by reference to Exhibit 10.3 of the 1997 
  FTD S-1).10.15
  
  Mortgage and
  Security Agreement with Assignment of Rents dated as of September 27,
  2001 from FTDI to Harris Trust and Savings Bank, as administrative agent
  (incorporated by reference to Exhibit 10.35 to the September 30,
  2001 10-Q).10.16
  
  Pledge Agreement dated
  as of September 27, 2001, by and among IOS, FTDI, and the other parties
  executing the Agreement under the heading Pledgors and Harris Trust and
  Savings Bank, acting as administrative agent (incorporated by reference to
  Exhibit 10.36 to the September 30, 2001 10-Q).10.17
  
  Security Agreement dated
  as of September 27, 2001, by and among IOS, FTDI, and the other parties
  executing this Agreement under the heading Debtors and Harris Trust and
  Savings Bank, acting as administrative agent (incorporated by reference to
  Exhibit 10.37 to the September 30, 2001 10-Q).10.18+
  
  First Supplement to
  Mortgage and Security Agreement with Assignment of Rents dated as of
  September 27, 2002 from FTDI to Harris Trust and Savings Bank, as
  administrative agent.10.19+
  
  Amended and Restated
  Pledge Agreement dated as of September 27, 2002, by and among FTD, Inc.,
  FTDI, and the other parties executing the Agreement under the heading
  Pledgors and Harris Trust and Savings Bank, acting as administrative agent.10.20+
  
  Amended and Restated Security
  Agreement dated as of September 27, 2002, by and among FTD, Inc.,
  FTDI, and the other parties executing this Agreement under the heading
  Debtors and Harris Trust and Savings Bank, acting as administrative agent.10.21
  
  Securityholders and
  Registration Rights Agreement, dated as of December 19, 1994, among FTD
  Corporation, FTDI, BT Securities Corporation and Montgomery Securities (incorporated
  by reference to Exhibit 10.11 of FTD Corporations Registration
  Statement on Form S-1, as amended (File No. 033-91582) (the 1995
  FTD S-1)).10.22
  
  Tax Sharing Agreement,
  dated as of December 19, 1994, between FTD Corporation and FTDI (incorporated
  by reference to Exhibit 10.12 of the 1995 FTD S-1).10.23
  
  First Amendment to Tax
  Sharing Agreement, dated as of May 19, 1999 among FTD Corporation, FTDI
  and FTD.COM (incorporated by reference to Exhibit 10.6 to FTD.COMs
  Registration Statement on Form S-1, as amended (the FTD.COM
  S-1)).10.24
  
  Stockholders Agreement,
  dated as of December 19, 1994, among FTD Corporation and certain
  stockholders of FTD Corporation (incorporated by reference to
  Exhibit 10.13 to the 1995 FTD S-1).   10.25*
  
  FTD Corporation
  Stock Award and Incentive Plan (incorporated by reference to
  Exhibit 10.14 to the 1995 FTD S-1).10.26*
  
  FTD, Inc. 2002
  Long-Term Equity Incentive Plan (incorporated by reference to Annex F to the
  2002 FTD S-4).10.27*
  
  Letter dated April 12,
  2001 regarding Robert L. Norton employment arrangements (incorporated by
  reference to Exhibit 10.27 to the IOS Form 10-K for the fiscal year
  ended June 30, 2001 (the IOS 2001 10-K).10.28*+
  
  Amendment to letter
  agreement dated May 20, 2003 regarding Robert L. Norton employment
  arrangements.10.29*+
  
  Employment
  agreement dated May 20, 2003 regarding Michael J. Soenen employment
  arrangements.10.30*+
  
  Employment agreement
  dated May 20, 2003 regarding Carrie A. Wolfe employment arrangements.10.31*+
  
  Employment agreement
  dated May 20, 2003 regarding William J. Van Cleave employment
  arrangements.10.32*+
  
  Employment agreement
  dated May 20, 2003 regarding Ann M. Hofferberth employment arrangements.10.33*+
  
  Employment agreement
  dated May 20, 2003 regarding Jon Burney employment arrangements.10.34*+
  
  Employment agreement
  dated May 20, 2003 regarding Daniel Smith employment arrangements.10.35*+
  
  Employment agreement
  dated May 20, 2003 regarding M. J. Soenen employment arrangements.10.36*
  
  Restricted Shares
  Agreement, dated as of June 12, 2000, between FTDI and Robert L.
  Norton (incorporated by reference to Exhibit 10.17 to IOS Annual Report
  on Form 10-K for the fiscal year ended June 30, 2000 (the 2000 
  Form 10-K)).10.37
  
  Termination Agreement,
  dated as of April 30, 2001, among FTDI and FTD Association (incorporated
  by reference to Exhibit 10.25 to IOS Quarterly Report on Form 10-Q
  for the quarter ended March 31, 2001 (the March 31, 2001 10-Q)).10.38*
  
  Restricted Shares
  Agreement, dated as of May 17, 2000, between FTD.COM and Michael J.
  Soenen (incorporated by reference to Exhibit 4.6 to FTD.COMs
  Registration Statement on Form S-8 (Commission File No. 333-39846)
  (the FTD.COM S-8)).10.39*
  
  Form of Restricted
  Shares Agreement dated as of May 17, 2000, between FTD.COM and each of
  William J. Van Cleave for 125,000 restricted shares that become
  non-forfeitable as to one-third of such restricted shares on each anniversary
  of May 17, 2000, Carrie A. Wolfe for 25,000 restricted shares that
  become non-forfeitable as to one-third of such restricted shares on each
  anniversary of May 17, 2000 and Daniel Smith for 25,000 restricted
  shares that become non-forfeitable as to one-third of such restricted shares
  on each anniversary of May 17, 2000 (incorporated by reference to
  Exhibit 4.7 to the FTD.COM S-8).   10.40*
  
  Form of
  Restricted Shares Agreement, dated as of June 9, 2000, between FTD.COM
  and Carrie A. Wolfe for 25,000 restricted shares that become non-forfeitable
  as to one-third of such restricted shares on each anniversary of June 9,
  2000 (incorporated by reference to Exhibit 4.7 to the FTD.COM S-8).10.41*
  
  Form of
  Confidentiality and Non-Competition Agreement between FTD.COM and William J.
  Van Cleave (incorporated by reference to Exhibit 10.15 to the FTD.COM
  Form 10-K for the fiscal year ended June 30, 2000 (Commission File
  No. 0-26779) (the FTD.COM 2000 10-K)).10.42*
  
  Form of
  Confidentiality and Non-Competition Agreement, dated as of January 8,
  2001, between FTD.COM and Ann Hofferberth (incorporated by reference to
  Exhibit 10.15 to the FTD.COM 2000 10-K).10.43*
  
  Form of
  Confidentiality and Non-Competition Agreement, dated as of June 14,
  2001, between FTD.COM and each of Michael J. Soenen and Carrie A. Wolfe
  (incorporated by reference to Exhibit 10.15 to the FTD.COM 2000 10-K).10.44*
  
  Form of
  Confidentiality and Non-Competition Agreement between Florists Transworld
  Delivery, Inc. and each of the following executive officers: Daniel
  Smith, Executive Vice President of FTD.COM, dated as of November 12,
  2002; Jon Burney, Vice President and General Counsel of FTD, Inc., dated
  as of November 12, 2002; and M.J. Soenen, Executive Vice President of
  Mercury Technology, dated as of December 30, 2002 (incorporated by
  reference to Exhibit 10.4 to the Companys Quarterly Report on
  Form 10-Q for the quarter ended December 31, 2002 (the
  December 31, 2002 10-Q)).10.45*
  
  Form of
  Non-Qualified Stock Option Agreement, dated as of January 8, 2001,
  between FTD.COM and Ann Hofferberth for 125,000 shares at a price of $1.94
  per share (incorporated by reference to Exhibit 4.5 to the FTD.COM S-8).10.46*
  
  Form of
  Non-Qualified Stock Option Agreement for use in connection with stock options
  granted under the Companys 2002 Long-Term Equity Incentive Plan; Robert
  Norton, Michael J. Soenen, Jon Burney, Ann Hofferberth, Daniel Smith, William
  Van Cleave and Carrie Wolfe each entered into agreements dated as of
  December 12, 2002 that evidenced options to purchase 195,000, 91,000,
  18,000, 40,000, 16,000, 39,000 and 40,000 shares of the Companys
  Class A common stock, respectively, at an exercise price of $16.21 per
  share and that vest to the extent of one-third of the shares covered thereby
  on each of the first three anniversaries of December 12, 2002; and M.J.
  Soenen entered into an agreement dated as of December 30, 2002 that
  evidenced an option to purchase 35,000 shares of the Companys Class A
  common stock at an exercise price of $15.24 per share and that vests to the
  extent of one-third of the shares covered thereby on each of the first three
  anniversaries of December 30, 2002 (incorporated by reference to
  Exhibit 10.5 to the December 31, 2002 10-Q).   10.47*
  
  Form of
  Restricted Stock Award Agreement for use in connection with restricted stock
  grants under the Companys 2002 Long-Term Equity Incentive Plan; Stephen
  Kasnet, Christopher J.D. Ainsley each entered into agreements dated as of
  November 12, 2002 covering 664 shares of the Companys Class A
  common stock, all of which become non-forfeitable on November 11, 2003;
  Habib Gorgi entered into an agreement dated as of December 19, 2002
  covering 664 shares of the Companys Class A common stock, all of which
  become non-forfeitable on November 11, 2003; and M.J. Soenen entered into
  an agreement dated as of December 30, 2002 covering 10,000 shares of the
  Companys Class A common stock, which become non-forfeitable to the
  extent of one-third of the shares covered by the agreement on each of the
  first three anniversaries of December 30, 2002 (incorporated by
  reference to Exhibit 10.6 to the December 31, 2002 10-Q).10.48
  
  Form of Trademark
  License Agreement between FTDI and FTD.COM (incorporated by reference to
  Exhibit 10.3 to the FTD.COM S-1).10.49
  
  Form of Florists
  Online Hosting Agreement between FTDI and FTD.COM (incorporated by reference
  to Exhibit 10.7 to the FTD.COM S-1).10.50
  
  Form of Commission
  Agreement between FTDI and FTD.COM (incorporated by reference to
  Exhibit 10.8 to the FTD.COM S-1).10.51+
  
  Management Consulting
  Services Agreement, dated as of December 18, 1994, by and among Perry
  Capital Corp. (now known as FTD, Inc.), Perry Principals, L.L.C., Bain
  Capital, Inc., and Fleet Growth Resources, Inc.14+
  
  Code of Business Conduct
  and Ethics.16.1
  
  Letter dated
  November 21, 2002 from KPMG LLP to the Commission regarding the
  Registrants change in independent public accountants (incorporated by
  reference to Exhibit 16.1 to the November 15, 2002 8-K).21.1+
  
  Subsidiaries of
  FTD, Inc.23.1+
  
  Consent of KPMG LLP.23.2+
  
  Consent of
  Ernst & Young LLP.24.1+
  
  Powers of Attorney.31.1+
  
  Rule 13(a) - 14(a)/15(d) - 14(a) Certification
  (Principal Executive Officer)31.2+
  
  Rule 13(a) - 14(a)/15(d) - 14(a) Certification
  (Principal Financial Officer)32+
  
  Section 13.50
  Certifications  
 *Management
contract or compensatory arrangement. +Filed as an
exhibit to this Form 10-K.


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