**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D. C. 20549**

 

**FORM 10-Q**

 

**ý****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended December 31, 2005**

 

**or**

 

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

 

**For thetransition period from                 to                   **

 

**CommissionFile Number: 001-32425**

 

**FTD Group, Inc.**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                                     | ** ** | **87-0719190**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification No.) |

 

**3113Woodcreek DriveDowners Grove, IL 60515**(Address of principal executive offices)

 

**(630) 719-7800**

(Registrant’s telephone number,including area code**)**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. YES ýNO o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act. (Check one):
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý |
|---------------------------|--------|---------------------|--------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  YES o NO ý

 

As of February 8,2006, there were 27,968,294 outstanding shares of the issuer’s Common Stock,par value $0.01 per share.

 

 

----

 

**FTDGROUP, INC.**

**INDEXTO FORM 10-Q**

 
| **Part I. Financial Information** | ** **   |
|----------------------------------------|--------------|
|                                   |         |   |
| ** **                             | **Item 1.**  | **Financial Statements** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | ** **   | **Consolidated Balance Sheets** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | ** **   | **Consolidated Statement of  Operations and Comprehensive Income (Loss)** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | ** **   | **Consolidated Statements of  Cash Flows** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | ** **   | **Notes to Consolidated  Financial Statements** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item 2.**  | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item 3.**  | **Quantitative and Qualitative  Disclosures About Market Risk** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item 4.**  | **Controls and Procedures** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| **Part II. Other Information**    | ** **   |
| ** **                             | ** **   | ** ** |
| ** **                             | **Item 1.**  | **Legal Proceedings** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item 2.**  | **Unregistered Sales of Equity  Securities and Use of Proceeds** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item 4.**  | **Submission of Matters to a  Vote of Security Holders** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| ** **                             | **Item  6.** | **Exhibits** | ** ** |
| ** **                             | ** **   | ** ** | ** ** |
| **Signatures**                         | ** **   |
| ** **                             | ** **   | ** ** |
| **Index  of Exhibits**                 | ** **   |
|                                        |              |  |  |  |

 

----

 

**PART I. FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**FTD GROUP, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands, except share amounts)**

 
| ** **                                                                                                                                                     | ** ** | **December 31, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                     | ** ** | **(Unaudited)**       | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                                                                                     |       |                  |       |              |       |
|                                                                                                                                                           |       |                  |       |              |       |
| **Current Assets:**                                                                                                                                            |       |                  |       |              |       |
| Cash and cash equivalents                                                                                                                                      |       | $                     | 14,488     |              | $          | 8,890 |   |
| Accounts receivable, less allowance for  doubtful accounts of $3,586 at December 31, 2005 and $2,521 at June 30, 2005                                          |       | 29,597                |       | 23,419            |       |
| Inventories, net                                                                                                                                               |       | 5,099                 |       | 6,495             |       |
| Deferred income taxes                                                                                                                                          |       | 2,147                 |       | 2,550             |       |
| Prepaid expenses and other current assets                                                                                                                      |       | 4,855                 |       | 7,782             |       |
| **Total current assets**                                                                                                                                       |       | 56,186                |       | 49,136            |       |
|                                                                                                                                                           |       |                  |       |              |       |
| **Property and equipment:**                                                                                                                                    |       |                  |       |              |       |
| Land and improvements                                                                                                                                          |       | 1,380                 |       | 1,380             |       |
| Building and improvements                                                                                                                                      |       | 14,845                |       | 14,291            |       |
| Computer equipment                                                                                                                                             |       | 4,609                 |       | 3,345             |       |
| Furniture and equipment                                                                                                                                        |       | 3,260                 |       | 2,814             |       |
| Total                                                                                                                                                          |       | 24,094                |       | 21,830            |       |
| Less accumulated depreciation                                                                                                                                  |       | 4,766                 |       | 3,790             |       |
| **Property and equipment, net**                                                                                                                                |       | 19,328                |       | 18,040            |       |
|                                                                                                                                                           |       |                  |       |              |       |
| **Other assets:**                                                                                                                                              |       |                  |       |              |       |
| Deferred financing fees, net                                                                                                                                   |       | 7,751                 |       | 8,527             |       |
| Computer software, net                                                                                                                                         |       | 11,179                |       | 11,010            |       |
| Other noncurrent assets                                                                                                                                        |       | 11,863                |       | 8,985             |       |
| Other intangible assets, less accumulated  amortization of $4,693 at December 31, 2005 and $3,393 at June 30, 2005                                             |       | 16,080                |       | 17,380            |       |
| Trademark                                                                                                                                                      |       | 121,577               |       | 121,577           |       |
| Goodwill                                                                                                                                                       |       | 336,659               |       | 336,659           |       |
| **Total other assets**                                                                                                                                         |       | 505,109               |       | 504,138           |       |
| **Total assets**                                                                                                                                               |       | $                     | 580,623    |              | $          | 571,314 |   |
|                                                                                                                                                           |       |                  |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                 | ** ** | ** **            | ** ** | ** **        | ** ** |
|                                                                                                                                                           |       |                  |       |              |       |
| **Current liabilities:**                                                                                                                                       |       |                  |       |              |       |
| Accounts payable                                                                                                                                               |       | $                     | 51,363     |              | $          | 41,498 |   |
| Customer deposits                                                                                                                                              |       | 5,047                 |       | 5,143             |       |
| Unearned income                                                                                                                                                |       | 1,685                 |       | 2,522             |       |
| Accrued interest                                                                                                                                               |       | 5,011                 |       | 4,993             |       |
| Accrued compensation                                                                                                                                           |       | 2,580                 |       | 4,128             |       |
| Other accrued liabilities                                                                                                                                      |       | 5,791                 |       | 5,058             |       |
| Current maturities of long-term debt                                                                                                                           |       | 642                   |       | 1,633             |       |
| **Total current liabilities**                                                                                                                                  |       | 72,119                |       | 64,975            |       |
|                                                                                                                                                           |       |                  |       |              |       |
| Senior secured credit facility                                                                                                                                 |       | 62,386                |       | 67,330            |       |
| Senior subordinated notes                                                                                                                                      |       | 170,117               |       | 170,117           |       |
| Post-retirement benefits and accrued  pension obligations                                                                                                      |       | 2,693                 |       | 2,856             |       |
| Deferred income taxes                                                                                                                                          |       | 60,748                |       | 60,289            |       |
|                                                                                                                                                           |       |                  |       |              |       |
| **Stockholders’ equity:**                                                                                                                                 |       |                  |       |              |       |
| Common stock: $0.01 par value, 75,000,000  shares authorized; 29,482,182 and 29,451,791 shares issued as of December 31,  2005 and June 30, 2005, respectively |       | 295                   |       | 295               |       |
| Additional paid-in capital                                                                                                                                     |       | 233,089               |       | 232,759           |       |
| Accumulated deficit                                                                                                                                            |       | (17,769               | )          | (27,097           | )          |
| Accumulated other comprehensive loss                                                                                                                           |       | (80                   | )          | (210              | )          |
| Treasury stock, at cost, 274,388 shares as  of December 31, 2005                                                                                               |       | (2,975                | )          | —            |       |
| **Total stockholders’ equity**                                                                                                                            |       | 212,560               |       | 205,747           |       |
| **Total liabilities and stockholders’ equity**                                                                                                            |       | $                     | 580,623    |              | $          | 571,314 |   |

 

SEE ACCOMPANYINGNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

 

2

----

 

**FTD GROUP, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME (LOSS)**

**(Unaudited)**

**(In thousands, except per share amounts)**

 
| ** **                                                  | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | ** **                           | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                               |       |                                 |       |                               |       |   |   |   |   |
| Products                                                    |       | $                                    | 63,413     |                               | $          | 62,848 |   | $ | 113,436 |   | $ | 111,972 |   |
| Services                                                    |       | 45,772                               |       | 45,406                             |       | 81,618 |   | 78,353 |   |
| Total revenues                                              |       | 109,185                              |       | 108,254                            |       | 195,054 |   | 190,325 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Costs of Goods Sold and Services Provided:**              |       |                                 |       |                               |       |   |   |   |   |
| Products                                                    |       | 55,652                               |       | 54,621                             |       | 96,284 |   | 95,009 |   |
| Services                                                    |       | 5,470                                |       | 5,069                              |       | 10,696 |   | 9,751 |   |
| Total costs of goods sold and services  provided            |       | 61,122                               |       | 59,690                             |       | 106,980 |   | 104,760 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Gross Profit:**                                           |       |                                 |       |                               |       |   |   |   |   |
| Products                                                    |       | 7,761                                |       | 8,227                              |       | 17,152 |   | 16,963 |   |
| Services                                                    |       | 40,302                               |       | 40,337                             |       | 70,922 |   | 68,602 |   |
| Total gross profit                                          |       | 48,063                               |       | 48,564                             |       | 88,074 |   | 85,565 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Operating Expenses:**                                     |       |                                 |       |                               |       |   |   |   |   |
| Advertising and selling                                     |       | 21,890                               |       | 21,481                             |       | 39,541 |   | 38,185 |   |
| General and administrative                                  |       | 11,467                               |       | 12,694                             |       | 23,396 |   | 25,071 |   |
| Total operating expenses                                    |       | 33,357                               |       | 34,175                             |       | 62,937 |   | 63,256 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income from operations                                      |       | 14,706                               |       | 14,389                             |       | 25,137 |   | 22,309 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Other Income and Expenses:**                              |       |                                 |       |                               |       |   |   |   |   |
| Interest income                                             |       | (129                                 | )          | (91                                | )          | (295 | ) | (167 | ) |
| Interest expense                                            |       | 4,986                                |       | 5,017                              |       | 9,767 |   | 10,034 |   |
| Interest expense on shares subject to  mandatory redemption |       | —                               |       | 5,105                              |       | — |   | 10,048 |   |
| Other expense (income), net                                 |       | (44                                  | )          | (274                               | )          | (88 | ) | (321 | ) |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Total other income and expenses                             |       | 4,813                                |       | 9,757                              |       | 9,384 |   | 19,594 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income before income tax                                    |       | 9,893                                |       | 4,632                              |       | 15,753 |   | 2,715 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Income tax expense                                          |       | 3,992                                |       | 3,876                              |       | 6,425 |   | 5,106 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss)                                           |       | $                                    | 5,901      |                               | $          | 756 |   | $ | 9,328 |   | $ | (2,391 | ) |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Other Comprehensive Income (loss):**                      |       |                                 |       |                               |       |   |   |   |   |
| Foreign currency translation adjustments                    |       | 29                                   |       | 97                                 |       | 130 |   | 184 |   |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Comprehensive income (loss)                                 |       | $                                    | 5,930      |                               | $          | 853 |   | $ | 9,458 |   | $ | (2,207 | ) |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss) per Common Share - basic                  |       | $                                    | 0.20       |                               | $          | 0.06 |   | $ | 0.32 |   | $ | (0.18 | ) |
| Net income (loss) per Common Share -  diluted               |       | $                                    | 0.19       |                               | $          | 0.06 |   | $ | 0.31 |   | $ | (0.18 | ) |
|                                                        |       |                                 |       |                               |       |   |   |   |   |
| **Weighted Average Common Shares Outstanding:**             |       |                                 |       |                               |       |   |   |   |   |
| Basic                                                       |       | 29,404                               |       | 13,609                             |       | 29,429 |   | 13,473 |   |
| Diluted                                                     |       | 30,417                               |       | 13,609                             |       | 30,481 |   | 13,473 |   |

 

SEE ACCOMPANYING NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS.

 

3

----

 

**FTD GROUP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(In thousands)**

 
| ** **                                                                                | ** ** | **Six Months Ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| ** **                                                                                | ** ** | ** **                         | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                                 |       |                               |       |   |   |
| Net income (loss)                                                                         |       | $                                  | 9,328      |   | $ | (2,391 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                               |       |   |   |
| Depreciation                                                                              |       | 2,134                              |       | 2,903 |   |
| Amortization                                                                              |       | 2,982                              |       | 2,712 |   |
| Interest expense on mandatorily redeemable  shares                                        |       | —                             |       | 10,048 |   |
| Gain from sale of business and related  transactions                                      |       | (991                               | )          | — |   |
| Stock-based compensation                                                                  |       | 304                                |       | — |   |
| Amortization and write off of deferred  financing costs                                   |       | 776                                |       | 669 |   |
| Provision for doubtful accounts                                                           |       | 1,769                              |       | 1,971 |   |
| Provision for obsolete inventory                                                          |       | 1,197                              |       | 171 |   |
| Deferred income taxes                                                                     |       | 862                                |       | — |   |
| Increase (decrease) in cash due to changes  in operating assets and liabilities:          |       |                               |       |   |   |
| Accounts receivable                                                                       |       | (9,316                             | )          | (4,806 | ) |
| Inventories                                                                               |       | (2,173                             | )          | (2,123 | ) |
| Prepaid expenses and other                                                                |       | 2,518                              |       | 3,082 |   |
| Other noncurrent assets                                                                   |       | (1,435                             | )          | (2,025 | ) |
| Accounts payable                                                                          |       | 10,315                             |       | 10,890 |   |
| Other accrued liabilities, unearned income,  customer deposits and other                  |       | (2,014                             | )          | 339 |   |
|                                                                                      |       |                               |       |   |   |
| Net cash provided by operating activities                                                 |       | 16,256                             |       | 21,440 |   |
|                                                                                      |       |                               |       |   |   |
| **Cash flows from investing activities:**                                                 |       |                               |       |   |   |
| Capital expenditures                                                                      |       | (5,425                             | )          | (1,906 | ) |
| Proceeds from sale of business                                                            |       | 3,500                              |       | — |   |
| Acquisition                                                                               |       | —                             |       | (3,129 | ) |
|                                                                                      |       |                               |       |   |   |
| Net cash used in investing activities                                                     |       | (1,925                             | )          | (5,035 | ) |
|                                                                                      |       |                               |       |   |   |
| **Cash flows from financing activities:**                                                 |       |                               |       |   |   |
| Repayments of long-term debt                                                              |       | (5,936                             | )          | (425 | ) |
| Purchase of company stock                                                                 |       | (3,307                             | )          | — |   |
| Proceeds from exercise of stock options                                                   |       | 184                                |       | — |   |
| Tax effect of stock option benefit                                                        |       | 196                                |       | — |   |
| Capital contribution                                                                      |       | —                             |       | 827 |   |
| .                                                                                         |       |                               |       |   |   |
| Net cash provided by (used in) financing  activities                                      |       | (8,863                             | )          | 402 |   |
|                                                                                      |       |                               |       |   |   |
| Effect of foreign exchange rate changes on  cash                                          |       | 130                                |       | 184 |   |
|                                                                                      |       |                               |       |   |   |
| Net increase in cash and cash equivalents                                                 |       | 5,598                              |       | 16,991 |   |
|                                                                                      |       |                               |       |   |   |
| Cash and cash equivalents at beginning of  period                                         |       | 8,890                              |       | 2,491 |   |
|                                                                                      |       |                               |       |   |   |
| Cash and cash equivalents at end of period                                                |       | $                                  | 14,488     |   | $ | 19,482 |   |
|                                                                                      |       |                               |       |   |   |
| **Supplemental disclosures of cash flow  information**                                    |       |                               |       |   |   |
| Cash paid for:                                                                            |       |                               |       |   |   |
| Interest                                                                                  |       | $                                  | 8,972      |   | $ | 9,075 |   |
| Income taxes                                                                              |       | $                                  | 2,539      |   | $ | 21 |   |

 

SEE ACCOMPANYING NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS.

 

4

----

 

**FTD Group, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

**Note1.  Description of the Business**

 

FTD Group, Inc.,formerly Mercury Man Holdings Corporation, is a Delaware corporation that wasformed in 2003 by Green Equity Investors IV, L.P. (“Green Equity Investors”), aprivate investment fund affiliated with Leonard Green & Partners,L.P., solely for the purpose of acquiring majority ownership of FTD, Inc. As used in this Form 10-Q, the term the “Company” refers to FTD Group, Inc.,including its wholly-owned subsidiary, FTD, Inc.

 

FTD, Inc. isa Delaware corporation that commenced operations in 1994 and includes theoperations of its principal operating subsidiary, Florists’ Transworld Delivery, Inc.,a Michigan corporation (“FTD” or the “Operating Company”).  The operationsof FTD include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”)and FTD Canada, Inc. (formerly known as Florists’ Transworld DeliveryAssociation of Canada, Ltd.). Substantially all of the Company’s operations are conducted through FTDand its subsidiaries.

 

On December 21,2005, the Company sold substantially all of the assets and certain liabilitiesof Renaissance Greeting Cards, Inc. (“Renaissance”).  See Note 3 for further detail. Prior to thesale, the operations of Renaissance were included in the consolidated financialstatements.

 

The Companyprovides floral-related products and services to consumers and retail florists,as well as other retail locations offering floral products. The Companygenerates its revenue from two segments, the florist segment and the consumersegment.

 

Through itsflorist segment, the Company provides products and services, such as clearinghouseservices, publishing products and services, technology products and servicesand floral shop supplies, to approximately 20,000 FTD members in the U.S. andCanada, and connects approximately 30,000 additional florists throughaffiliated or related organizations in 150 countries outside of North America.

 

The consumersegment is comprised of FTD.COM, an Internet and telephone marketer of flowersand specialty gifts, which sells products directly to consumers primarilythrough the *www.ftd.com* Web site and the 1-800-SEND-FTDtoll-free telephone number.

 

*Seasonality.*  In view of seasonal variations in therevenues and operating results of the Company’s florist and consumer businesssegments, the Company believes that comparisons of its revenues and operatingresults for any period with those of the immediately preceding period, or insome instances, the same period of the preceding fiscal year may be of limitedrelevance in evaluating the Company’s historical performance and predicting theCompany’s future financial performance. The Company’s working capital, cash and short-term borrowings alsofluctuate during the year as a result of the factors set forth below.

 

Revenues andoperating results tend to be lower for the quarter ending September 30because none of the most popular floral and gift holidays, which includeValentine’s Day, Easter, Mother’s Day, Thanksgiving and Christmas, fall withinthat quarter.  In addition, depending onthe year, the popular floral holiday of Easter sometimes falls within thequarter ending March 31 (as it did in fiscal year 2005) and sometimesfalls within the quarter ending June 30 (as it did in fiscal year 2004 andwill in fiscal year 2006).

 

**Note 2.  Basis of Presentation**

 

The accompanyingunaudited consolidated financial statements of the Company have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America for interim financial information and pursuant to the rules andregulations of the SEC, and do not contain all information included in theaudited consolidated financial statements and notes thereto for the fiscal yearended June 30, 2005.  The interimunaudited consolidated financial statements should be read in conjunction withthe financial statements and notes thereto included in the Company’sconsolidated financial statements for the fiscal year ended June 30,2005.  In the opinion of management, theinformation furnished herein reflects all adjustments (consisting only ofnormal,

 

5

----

 

recurring adjustments) necessary for a fairpresentation of the financial position, results of operations and cash flowsfor the interim periods presented.

 

**Note3.  Sale of Renaissance**

 

On December 21,2005, the Company sold substantially all of the assets and certain liabilitiesof Renaissance for cash proceeds of $3.5 million, a $1.7 million promissorynote, payable on December 21, 2007 and a $50,000 payable due December 21,2006, both of which are non-interest bearing. The Company also entered into an agreement with the purchaser making thepurchaser the Company’s sole provider of greeting cards for a period of tenyears.

 

The carryingamounts of the assets and liabilities sold were as follows (in thousands):

 
| Current Assets         |   | $      | 4,316  |   |
|------------------------|--------|--------|--------|--------|
| Property and Equipment |   | 153    |   |
| Other Assets           |   | 297    |   |
| Current Liabilites     |   | (1,251 | )      |
|                   |   | $      | 3,515  |   |

 

The Companyrecognized a gain of $1.0 million as a result of the sale of Renaissance andrelated transactions, net of estimated legal and severance costs of $0.4 million.In accordnace with the Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets to be DisposedOf*, this gain is included within the consolidated statements ofoperations and comprehensive income (loss). The operations of Renaissance, including the gain on the sale, wereincluded within the florist segment.

 

**Note4.  Stock Repurchase**

 

On October 25,2005, the Board of Directors authorized a share repurchase program totaling $30million, effective through September 30, 2007.  These purchases may be made from time to timein both open market and private transactions, dependent upon market and otherconditions.  This repurchase program isexpected to remain in effect through September 30, 2007, unless terminatedearlier by the Board of Directors, or completed. The Company repurchased sharespursuant to a 10b5-1 plan, which generally permits the Company to repurchaseshares at times when it might otherwise be prevented from doing so undercertain securities laws.  Repurchasedshares will be held in treasury pending use for general corporate purposes,including issuances under various employee and director stock plans.

 

FTD, Inc.amended its $135.0 million senior secured credit facility agreement (the “2004Credit Agreement”), effective November 7, 2005, to allow for therepurchases of Common Stock of the Company, subject to a maximum leverage ratioand minimum liquidity requirements. During the three-month period ended December 31, 2005, the Companyrepurchased 305,500 shares of Common Stock for $3.3 million.

 

**Note5.  Net Income (Loss) Per Common Share**

 

The computationsof basic and diluted net income (loss) per common share for the three- andsix-month periods ended December 31, 2005 and 2004 are as follows (inthousands, except per share amounts):

 
| ** **                                             | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                             | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss)                                      |       | $                                    | 5,901      |                               | $          | 756 |   | $ | 9,328 |   | $ | (2,391 | ) |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Weighted average common shares outstanding  - basic    |       | 29,404                               |       | 13,609                             |       | 29,429 |   | 13,473 |   |
| Effect of dilutive securities - stock  options         |       | 1,013                                |       | —                             |       | 1,052 |   | — |   |
| Weighted average common shares outstanding  - diluted  |       | 30,417                               |       | 13,609                             |       | 30,481 |   | 13,473 |   |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss) per share of Common Stock  - basic   |       | $                                    | 0.20       |                               | $          | 0.06 |   | $ | 0.32 |   | $ | (0.18 | ) |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss) per share of Common Stock  - diluted |       | $                                    | 0.19       |                               | $          | 0.06 |   | $ | 0.31 |   | $ | (0.18 | ) |

 

6

----

 

 

For the three- andsix-month periods ended December 31, 2005, there were 175,000 and 100,000of outstanding stock options, respectively, which were not included in thecomputation of diluted earnings per share because the exercise prices of theoptions were greater than the average market prices of the Company’s commonshares during the respective periods. For the period January 1, 2006 through February 8, 2006, theCompany repurchased 1.2 million shares of Common Stock, which would haveimpacted the number of shares outstanding at the end of the period if it hadoccurred during the period presented.

 

**Note 6.Pension and Other Post-Retirement Benefit Plans**

 
| ** **                  | ** ** | **Salaried Employees’ Pension Plan** | ** ** |
|-----------------------------|------------|-------------------------------------------|------------|
| ** **                  | ** ** | **Three Months Ended  December 31,**      | ** ** | **Six Months Ended  December 31,** | ** ** |
| ** **                  | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                  | ** ** | **(in  thousands)**                       | ** ** |
| Service cost                |       | $                                         | 14         |   | $ | — |   | $ | 28 |   | $ | — |   |
| Interest cost               |       | 27                                        |       | 31 |   | 55 |   | 63 |   |
| Expected return on assets   |       | (22                                       | )          | (20 | ) | (45 | ) | (40 | ) |
| Amortization of loss (gain) |       | 9                                         |       | — |   | 18 |   | — |   |
| Net periodic benefit cost   |       | $                                         | 28         |   | $ | 11 |   | $ | 56 |   | $ | 23 |   |

 
| ** **                | ** ** | **Retiree Medical Plan**             | ** ** |
|---------------------------|------------|--------------------------------------|------------|
| ** **                | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
| ** **                | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(in thousands)**                   | ** ** |
| Interest cost             |       | $                                    | 20         |   | $ | 23 |   | $ | 40 |   | $ | 47 |   |
| Net periodic benefit cost |       | $                                    | 20         |   | $ | 23 |   | $ | 40 |   | $ | 47 |   |

 

**Note7.  Stock-Based Compensation**

 

During the three- and six-month periods endedDecember 31, 2005, the Company granted 7,500 options and 62,500 options,respectively, to various employees or directors of the Company.  Outstanding non-qualified stock options havean expiration date ten years from the date of grant and begin vesting as earlyas the date of grant, dependent upon the individual agreements.  All stock options were granted with anexercise price equal to the fair market value on the date of grant.

 

During the three- and six-month periods endedDecember 31, 2005, the Company issued 25,556 and 30,391 shares,respectively, of Common Stock in connection with the exercise of vested stockoptions. In addition, during the three-month period ended December 31,2005, the Company reissued 31,112 shares of Treasury Stock in connection withthe exercise of vested stock options. During the three- and six-month periods ended December 31, 2005,150,667 options were forfeited.

 

Prior to July 1, 2005, the Company accountedfor stock-based compensation programs according to the provisions of AccountingPrinciples Board Opinion (“ABP”) No. 25, *Accountingfor Stock Issued to Employees*, as permitted by Statement ofFinancial Accounting Standards (“SFAS”) No. 123, *Accountingfor Stock-Based Compensation*. Effective July 1, 2005, the Company adopted the fair valuerecognition provisions of FAS 123 (R), *Share-Based Payments*,using the modified prospective transition method and Black-Scholes as theoption valuation model.  Under thattransition method, compensation cost recognized in the three and six monthsended December 31, 2005 included (i) compensation cost for allshare-based payments granted prior to, but not yet vested as of, July 1,2005, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, and (ii) compensation cost forall share-based payments granted subsequent to July 1, 2005, based on thegrant date

 

7

----

 

fair value estimated inaccordance with the provisions of SFAS No. 123 (R).  Results for prior periods have not beenrestated.

 

As a result of adopting FAS 123(R) on July 1,2005, income before income taxes and net income are $139,000 and $84,000 lower,respectively, for the three-month period ended December 31, 2005 and$304,000 and $183,000 lower, respectively, for the six-month period ended December 2005,than if the Company had continued to account for share-based compensation underAPB No. 25.  Basic and diluted earningsper share would have both been $0.20 for the three-month period ended December 31,2005 and $0.32 and $0.31, respectively, for the six-month period ended December 31,2005, if SFAS No. 123(R) had not been adopted, compared to basic earningsper share of $0.20 and diluted earnings per share of $0.19  for the three-month period ended December 31,2005 and compared to basic earnings per share of $0.32 and diluted earnings pershare of $0.31 for the six-month period ended December 31, 2005, asreported.

 

The Company would have recognized additionalcompensation expense, net of tax, of $94,000 and $95,000 related to the Company’sstock options in the three- and six-month periods ended December 31, 2004,respectively, if the expense based on the estimated fair value, as determinedin accordance with SFAS No. 123, of the outstanding stock options of theCompany had been recorded in the consolidated financial statements.  As such, the Company’s net loss would havebeen impacted as shown by the pro forma amounts displayed in the table below(the pro forma disclosures shown are not representative of the future effectson net income (loss)):

 
| ** **                                    | ** **                                                                                                                            | **Three Months Ended  December 31,  2004** | ** ** | **Six Months Ended  December 31,  2004** | ** ** |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|------------|------------------------------------------|------------|
|                                          |                                                                                                                                  |                                       |       |                                     |       |
| Net income (loss), as reported                |                                                                                                                                  | $                                          | 756        |                                     | $          | (2,391 | ) |
| Less:                               | Total  stock-based employee compensation expense determined under fair value based method  for all awards, net of related tax effects |                                       | (94        | )                                        | (95        | ) |
| Pro forma net income (loss)                   |                                                                                                                                  | $                                          | 662        |                                     | $          | (2,486 | ) |
|                                          |                                                                                                                                  |                                       |       |                                     |       |
| Net income (loss) per share of Common  Stock: |                                                                                                                                  |                                       |       |                                     |       |
| Basic - as reported                           |                                                                                                                                  | $                                          | 0.06       |                                     | $          | (0.18 | ) |
| Basic - pro forma                             |                                                                                                                                  | $                                          | 0.05       |                                     | $          | (0.18 | ) |
|                                          |                                                                                                                                  |                                       |       |                                     |       |
| Diluted - as reported                         |                                                                                                                                  | $                                          | 0.06       |                                     | $          | (0.18 | ) |
| Diluted - pro forma                           |                                                                                                                                  | $                                          | 0.05       |                                     | $          | (0.18 | ) |
|                                          |                                                                                                                                  |                                       |       |                                     |       |
| Weighted average shares outstanding:          |                                                                                                                                  |                                       |       |                                     |       |
| Basic                                         |                                                                                                                                  | 13,609                                     |       | 13,473                                   |       |
| Diluted                                       |                                                                                                                                  | 13,609                                     |       | 13,473                                   |       |
|                                               |                                                                                                                                       |                                            |            |                                          |            |  |  |  |

 

The Company’s options granted to employeeseither vest equally each year over an approximate five-year period or vest infull after an approximate seven-year period unless certain performanceacceleration targets are met.  If theperformance targets are met, the vesting of the options will accelerate.  The first performance target was met, so thefirst installment vested on June 30, 2005. If certain additional performance targets are met, the remaining twoinstallments will vest on June 30, 2006 and 2007.

 

The Company’s options granted to independentdirectors vest as early as the date of grant up to two years from the date ofgrant.

 

As a result, the cost recognized during thethree- and six-month periods ended December 31, 2005 and the estimatedcost indicated in the table above for the three- and six-month periods ended December 31,2004 reflect

 

8

----

 

only a partial vesting of suchoptions.  If full vesting were assumed,the costs recognized and the estimated pro forma costs would have been higherthan indicated above.

 

**Note8.  Commitments and Contingencies**

 

The Company is involved in various claims andlawsuits and other matters arising in the normal course of business.  In the opinion of management of the Company,although the outcome of each of these claims and suits is uncertain, theyshould not have a material adverse effect on the Company’s financial condition,liquidity or results of operations.

 

**Note 9.  Segment Information**

 

Operating segments are components of thebusiness for which separate financial information is available that isregularly reviewed by the enterprise’s chief operating decision maker to makedecisions about resources to be allocated to each segment and to assess itsperformance.  Revenue and expenses earnedand charged between segments are recorded at fair value and eliminated inconsolidation.

 

For purposes of managing the Company,management reviews segment financial performance to the operating income levelfor each of its reportable segments.  Assuch, interest income, interest expense and tax expense are recorded on aconsolidated corporate basis.

 

The florist segment includes all products andservices sold to FTD members, encompassing clearinghouse services, publishingproducts and services, technology products and services and floral shopsupplies.  The consumer segmentencompasses sales of floral and specialty gift products, which are soldprimarily to consumers through FTD.COM’s Web site*,www.ftd.com*, or its toll-free telephone number, 1-800-SEND-FTD.

 

The following tables report the Company’soperating results by reportable segment for the three- and six-month periodsended December 31, 2005 and 2004:

 

9

----

 
| ** **                                                  | ** ** | **Three  Months Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **Gross  Segment**                   | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** | **Gross  Segment** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                  | ** ** | **(in  thousands)**                  | ** ** |
| **Revenues:**                                               |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | $                                    | 45,989     |   | $ | (86 | ) | $ | 45,903 |   | $ | 46,157 |   | $ | (48 | ) | $ | 46,109 |   |
| Consumer segment                                            |       | 68,003                               |       | (4,721 | ) | 63,282 |   | 67,097 |   | (4,952 | ) | 62,145 |   |
| Total                                                       |       | 113,992                              |       | (4,807 | ) | 109,185 |   | 113,254 |   | (5,000 | ) | 108,254 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Costs of Goods Sold and Services Provided:**              |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 14,953                               |       | (851 | ) | 14,102 |   | 13,811 |   | (804 | ) | 13,007 |   |
| Consumer segment                                            |       | 47,040                               |       | (643 | ) | 46,397 |   | 46,736 |   | (635 | ) | 46,101 |   |
| Corporate                                                   |       | 623                                  |       | — |   | 623 |   | 582 |   | — |   | 582 |   |
| Total                                                       |       | 62,616                               |       | (1,494 | ) | 61,122 |   | 61,129 |   | (1,439 | ) | 59,690 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Gross Profit:**                                           |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 31,036                               |       | 765 |   | 31,801 |   | 32,346 |   | 756 |   | 33,102 |   |
| Consumer segment                                            |       | 20,963                               |       | (4,078 | ) | 16,885 |   | 20,361 |   | (4,317 | ) | 16,044 |   |
| Corporate                                                   |       | (623                                 | )          | — |   | (623 | ) | (582 | ) | — |   | (582 | ) |
| Total                                                       |       | 51,376                               |       | (3,313 | ) | 48,063 |   | 52,125 |   | (3,561 | ) | 48,564 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Advertising and Selling:**                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Consumer segment                                            |       | 17,368                               |       | (3,313 | ) | 14,055 |   | 17,600 |   | (3,560 | ) | 14,040 |   |
| Total                                                       |       | 7,835                                |       | — |   | 7,835 |   | 7,441 |   | — |   | 7,441 |   |
|                                                        |       | 25,203                               |       | (3,313 | ) | 21,890 |   | 25,041 |   | (3,560 | ) | 21,481 |   |
| **General and Administrative (includes Management  Fees):** |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 946                                  |       | — |   | 946 |   | 2,543 |   | — |   | 2,543 |   |
| Consumer segment                                            |       | 4,871                                |       | (623 | ) | 4,248 |   | 4,742 |   | (615 | ) | 4,127 |   |
| Corporate                                                   |       | 5,650                                |       | 623 |   | 6,273 |   | 5,410 |   | 614 |   | 6,024 |   |
| Total                                                       |       | 11,467                               |       | — |   | 11,467 |   | 12,695 |   | (1 | ) | 12,694 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Income (Loss) before Corporate  Allocations:**  |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 12,722                               |       | 4,078 |   | 16,800 |   | 12,203 |   | 4,316 |   | 16,519 |   |
| Consumer segment                                            |       | 8,257                                |       | (3,455 | ) | 4,802 |   | 8,178 |   | (3,702 | ) | 4,476 |   |
| Corporate                                                   |       | (6,273                               | )          | (623 | ) | (6,896 | ) | (5,992 | ) | (614 | ) | (6,606 | ) |
| Total                                                       |       | 14,706                               |       | — |   | 14,706 |   | 14,389 |   | — |   | 14,389 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Corporate Allocations:**                                  |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 2,683                                |       | — |   | 2,683 |   | 2,984 |   | — |   | 2,984 |   |
| Consumer segment                                            |       | 867                                  |       | — |   | 867 |   | 717 |   | — |   | 717 |   |
| Corporate                                                   |       | (3,550                               | )          | — |   | (3,550 | ) | (3,701 | ) | — |   | (3,701 | ) |
| Total                                                       |       | —                               |       | — |   | — |   | — |   | — |   | — |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Income (Loss):**                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 10,039                               |       | 4,078 |   | 14,117 |   | 9,219 |   | 4,316 |   | 13,535 |   |
| Consumer segment                                            |       | 7,390                                |       | (3,455 | ) | 3,935 |   | 7,461 |   | (3,702 | ) | 3,759 |   |
| Corporate                                                   |       | (2,723                               | )          | (623 | ) | (3,346 | ) | (2,291 | ) | (614 | ) | (2,905 | ) |
| Total                                                       |       | $                                    | 14,706     |   | $ | — |   | $ | 14,706 |   | $ | 14,389 |   | $ | — |   | $ | 14,389 |   |
|                                                        |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Depreciation and Amortization:**                          |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 862                                  |       | $ | — |   | $ | 862 |   | $ | 1,102 |   | $ | — |   | $ | 1,102 |   |
| Consumer segment                                            |       | 840                                  |       | — |   | 840 |   | 598 |   | — |   | 598 |   |
| Corporate                                                   |       | 965                                  |       | — |   | 965 |   | 960 |   | — |   | 960 |   |
| Total                                                       |       | $                                    | 2,667      |   | $ | — |   | $ | 2,667 |   | $ | 2,660 |   | $ | — |   | $ | 2,660 |   |

 

10

----

 
| ** **                                                  | ** ** | **Six  Months Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **Gross  Segment**                 | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** | **Gross  Segment** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                  | ** ** | **(in  thousands)**                | ** ** |
| **Revenues:**                                               |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | $                                  | 90,344     |   | $ | (131 | ) | $ | 90,213 |   | $ | 91,870 |   | $ | (60 | ) | $ | 91,810 |   |
| Consumer segment                                            |       | 112,953                            |       | (8,112 | ) | 104,841 |   | 106,817 |   | (8,302 | ) | 98,515 |   |
| Total                                                       |       | 203,297                            |       | (8,243 | ) | 195,054 |   | 198,687 |   | (8,362 | ) | 190,325 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Costs of Goods Sold and Services Provided:**              |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 30,636                             |       | (1,696 | ) | 28,940 |   | 31,653 |   | (1,518 | ) | 30,135 |   |
| Consumer segment                                            |       | 77,917                             |       | (1,062 | ) | 76,855 |   | 74,457 |   | (1,026 | ) | 73,431 |   |
| Corporate                                                   |       | 1,185                              |       | — |   | 1,185 |   | 1,194 |   | — |   | 1,194 |   |
| Total                                                       |       | 109,738                            |       | (2,758 | ) | 106,980 |   | 107,304 |   | (2,544 | ) | 104,760 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Gross Profit:**                                           |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 59,708                             |       | 1,565 |   | 61,273 |   | 60,217 |   | 1,458 |   | 61,675 |   |
| Consumer segment                                            |       | 35,036                             |       | (7,050 | ) | 27,986 |   | 32,360 |   | (7,276 | ) | 25,084 |   |
| Corporate                                                   |       | (1,185                             | )          | — |   | (1,185 | ) | (1,194 | ) | — |   | (1,194 | ) |
| Total                                                       |       | 93,559                             |       | (5,485 | ) | 88,074 |   | 91,383 |   | (5,818 | ) | 85,565 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Advertising and Selling:**                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Consumer segment                                            |       | 32,659                             |       | (5,485 | ) | 27,174 |   | 33,110 |   | (5,816 | ) | 27,294 |   |
| Total                                                       |       | 12,367                             |       | — |   | 12,367 |   | 10,891 |   | — |   | 10,891 |   |
|                                                        |       | 45,026                             |       | (5,485 | ) | 39,541 |   | 44,001 |   | (5,816 | ) | 38,185 |   |
| **General and Administrative (includes Management  Fees):** |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 3,230                              |       | — |   | 3,230 |   | 5,117 |   | — |   | 5,117 |   |
| Consumer segment                                            |       | 8,526                              |       | (1,050 | ) | 7,476 |   | 8,468 |   | (984 | ) | 7,484 |   |
| Corporate                                                   |       | 11,640                             |       | 1,050 |   | 12,690 |   | 11,488 |   | 982 |   | 12,470 |   |
| Total                                                       |       | 23,396                             |       | — |   | 23,396 |   | 25,073 |   | (2 | ) | 25,071 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Income (Loss) before Corporate  Allocations:**  |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 23,819                             |       | 7,050 |   | 30,869 |   | 21,990 |   | 7,274 |   | 29,264 |   |
| Consumer segment                                            |       | 14,143                             |       | (6,000 | ) | 8,143 |   | 13,001 |   | (6,292 | ) | 6,709 |   |
| Corporate                                                   |       | (12,825                            | )          | (1,050 | ) | (13,875 | ) | (12,682 | ) | (982 | ) | (13,664 | ) |
| Total                                                       |       | 25,137                             |       | — |   | 25,137 |   | 22,309 |   | — |   | 22,309 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Corporate Allocations:**                                  |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 5,496                              |       | — |   | 5,496 |   | 6,009 |   | — |   | 6,009 |   |
| Consumer segment                                            |       | 1,602                              |       | — |   | 1,602 |   | 1,494 |   | — |   | 1,494 |   |
| Corporate                                                   |       | (7,098                             | )          | — |   | (7,098 | ) | (7,503 | ) | — |   | (7,503 | ) |
| Total                                                       |       | —                             |       | — |   | — |   | — |   | — |   | — |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Income (Loss):**                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | 18,323                             |       | 7,050 |   | 25,373 |   | 15,981 |   | 7,274 |   | 23,255 |   |
| Consumer segment                                            |       | 12,541                             |       | (6,000 | ) | 6,541 |   | 11,507 |   | (6,292 | ) | 5,215 |   |
| Corporate                                                   |       | (5,727                             | )          | (1,050 | ) | (6,777 | ) | (5,179 | ) | (982 | ) | (6,161 | ) |
| Total                                                       |       | $                                  | 25,137     |   | $ | — |   | $ | 25,137 |   | $ | 22,309 |   | $ | — |   | $ | 22,309 |   |
|                                                        |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Depreciation and Amortization:**                          |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Florist segment                                             |       | $                                  | 1,730      |   | $ | — |   | $ | 1,730 |   | $ | 2,435 |   | $ | — |   | $ | 2,435 |   |
| Consumer segment                                            |       | 1,457                              |       | — |   | 1,457 |   | 1,249 |   | — |   | 1,249 |   |
| Corporate                                                   |       | 1,929                              |       | — |   | 1,929 |   | 1,931 |   | — |   | 1,931 |   |
| Total                                                       |       | $                                  | 5,116      |   | $ | — |   | $ | 5,116 |   | $ | 5,615 |   | $ | — |   | $ | 5,615 |   |

 

11

----

 

## **Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

The following discussion should be read inconjunction with the consolidated financial statements and notes to thosestatements that appear elsewhere in this Form 10-Q.  The following discussion containsforward-looking statements that reflect the Company’s plans, estimates andbeliefs.  The Company’s actual resultscould differ from those discussed in the forward-looking statements.  Factors that could cause or contribute to anydifferences include, but are not limited to, those discussed under the caption “Forward-LookingInformation” and elsewhere in this Form 10-Q.

 

**Overview**

 

FTD Group, Inc. is a leading provider offloral-related products and services to consumers and retail florists, as wellas other retail locations offering floral products, in the U.S. and Canadianfloral retail market.  The business issupported by the highly recognized FTD brand, which was established in 1910 andenjoys 96% brand recognition among the Company’s target market of U.S.consumers between the ages of 25 and 64, as well as by the Mercury Man logo,which is displayed in approximately 50,000 floral shops, globally.  The Company generates revenue from twobusiness segments, the florist segment and the consumer segment.

 

*Florist Segment.*  The florist segment includes revenueassociated with the services and products provided to FTD members. Thefollowing table sets forth the percentage of revenue in each category of theflorist segment:

 
| ** **                    | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                    | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                          |       |                                 |       |                               |       |   |   |   |   |
| Member Services               |       | 65                                   | %          | 66                                 | %          | 61 | % | 61 | % |
| Mercury Technology            |       | 18                                   | %          | 17                                 | %          | 18 | % | 16 | % |
| Specialty Wholesaling         |       | 17                                   | %          | 17                                 | %          | 21 | % | 23 | % |
|                          |       |                                 |       |                               |       |   |   |   |   |
| Total Florist Segment revenue |       | 100                                  | %          | 100                                | %          | 100 | % | 100 | % |

 

*ConsumerSegment.*  The consumer segmentis comprised of FTD.COM, an Internet and telephone marketer of flowers andspecialty gifts, which sells products directly to consumers primarily throughthe *www.ftd.com* Web site and the 1-800-SEND-FTDtoll-free telephone number. FTD.COM offers same day delivery of floral ordersto nearly 100% of the U.S. and Canadian populations. The majority of orders arefulfilled by the Company’s network of approximately 20,000 FTD members whoadhere to FTD.COM’s quality and service standards.  FTD.COM typically offers over 400 floralarrangements and over 800 specialty gift items, which are delivered via commoncourier, including unarranged boxed flowers, plants, gourmet food gifts,holiday gifts, bath and beauty products, jewelry, wine and gift baskets, driedflowers and stuffed animals.

 

*KeyIndustry Trends.* The Company believes key trends in the floral retail market include theincreasing role of floral direct marketers, particularly those marketing floralproducts over the Internet, which has resulted in increased orders for deliveryto be placed through floral direct marketers versus traditional retailflorists, the advent of retail consumer companies that deliver unarranged boxedflowers via common courier with no involvement of retail florists and theincreased presence of supermarkets and mass merchants, which has reduced thecash and carry floral business for the traditional retail florist. Each ofthese trends are addressed through the florist segment and consumer segmentbusiness strategies.

 

*BusinessStrategy.*  The Company plans tocontinue to expand the product and service offerings of the florist segment,while simplifying pricing strategies and improving sales and servicecapabilities, with the objective of improving product penetration andmaintaining or growing the number of FTD members.  The Company is currently pursuingopportunities to expand its presence in a number of channels that have nothistorically represented a meaningful portion of the Company’s revenues, suchas the supermarket channel and other mass market channels.

 

The Company plans tocontinue to direct consumers to the Internet for their floral and specialtygift purchasing needs, as processing orders over the Internet is a profitableorder generating vehicle and an efficient and convenient ordering method forthe consumer.  The Company also plans topursue growth in additional specialty gift categories and refinement of itsexisting categories as management believes the Company’s direct marketingexpertise and

 

12

----

 

brand strength allowsthe business to attract a wide range of quality specialty giftmanufacturers.  Additionally, the Companyplans to continue expanding the lower-priced floral offerings to meet consumerdemand.  Management believes this is agrowing segment of the market and the Company is expanding its marketing effortsand product offerings targeting this segment. The network of FTD members enables the Company to offer same daydelivery for many of these products, which management believes is a competitiveadvantage over the Company’s competitors who offer delivery on a next day basisthrough common courier.

 

The Company plans torepurchase shares of its Common Stock pursuant to its share repurchase programand reduce its indebtedness with available cash generated from operations.

 

*Seasonality.*  In view of seasonal variations in therevenues and operating results of the Company’s florist and consumer businesssegments, the Company believes that comparisons of its revenues and operatingresults for any period with those of the immediately preceding period or thesame period of the preceding fiscal year may be of limited relevance inevaluating the Company’s historical performance and predicting the Company’sfuture financial performance.  TheCompany’s working capital, cash and short-term borrowings also fluctuate duringthe year as a result of the factors set forth below.

 

Revenues andoperating results tend to be lower for the quarter ending September 30because none of the most popular floral and gift holidays, which includeValentine’s Day, Easter, Mother’s Day, Thanksgiving and Christmas, fall withinthat quarter.  In addition, depending onthe year, the popular floral holiday of Easter sometimes falls within thequarter ending March 31 (as it did in fiscal year 2005) and sometimesfalls within the quarter ending June 30 (as it did in fiscal year 2004 andwill in fiscal year 2006).

 

### **Three Months Ended December 31, 2005  compared to the Three Months Ended December 31,2004**

 

***Total revenues***

 
| ** **       | ** ** | **Three Months Ended  December 31,** | ** ** | ** ** | ** ** |
|------------------|------------|--------------------------------------|------------|------------|------------|
| ** **       | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **       | ** ** | **(in thousands)**                   | ** ** | ** ** | ** ** |
| Florist segment  |       | $                                    | 45,903     |       | $          | 46,109 |   | (0.4 | )% |
| Consumer segment |       | 63,282                               |       | 62,145     |       | 1.8 | % |
| Total revenues   |       | $                                    | 109,185    |       | $          | 108,254 |   | 0.9 | % |
|                  |            |                                      |            |            |            |  |  |  |  |  |  |

 

Revenues increasedby $0.9 million, or 0.9%, to $109.2 million for the three-month period ended December 31,2005, compared to revenues for the three-month period ended December 31,2004 of $108.3 million.  There were norevenues associated with corporate activities.

 

Managementbelieves a key metric in driving revenues for the florist segment is the numberof FTD members that use or purchase services and products provided by theflorist segment, which is partially driven by membership.  Membership as of December 31, 2005 and2004 was approximately 19,500 and 20,000 FTD members, respectively.  Average membership for the three-month periodended December 31, 2005 and 2004 was approximately 19,600 and 19,800 FTDmembers, respectively. Revenues for the florist segment decreased by $0.2million, or 0.4%, to $45.9 million for the three-month period ended December 31,2005, compared to revenues for the three-month period ended December 31,2004 of $46.1 million.  The decrease inrevenues is primarily related to a decrease in directory services revenues aswell as lower sales resulting from the elimination of certain unprofitablespecialty wholesaling products. The decrease was partially offset by anincrease in revenue related to Florists’ Online Web sites, an increase in freshflower sales to FTD members and an increase in technology system sales.

 

Managementbelieves a key metric in driving revenues in the consumer segment is ordervolume.  Order volume increased 2.9% to1,060,000 orders for the three-month period ended December 31, 2005, from1,030,000 orders for the three-month period ended December 31, 2004.Revenues for the consumer segment increased by $1.1 million, or 1.8%, to $63.3million for the three-month period ended December 31, 2005 compared to$62.1 million for the three-month period ended December 31, 2004. Theincrease in revenues is primarily related to an increase in order

 

13

----

 

volume, partially offset by a decrease in averageorder value. Specialty gifts, which include all orders delivered via commoncourier, comprised 37.0% of total order volume for the three-month period endedDecember 31, 2005, compared to 30.4% for the three-month period ended December 31,2004. Internet orders were 89.3% of total orders for the three-month periodended December 31, 2005, compared to 85.0% for the three-month periodended December 31, 2004. Average order value for the three-month periodended December 31, 2005 was $59.33, which was slightly lower than averageorder value of $60.31 for the three-month period ended December 31, 2004.This decrease in average order value is primarily related to an increase insales of the lower priced product offerings.

 

***Total costs of goods sold andservices provided***

 
| ** **                                       | ** ** | **Three Months Ended  December 31,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                       | ** ** | **(in thousands)**                   | ** ** | ** ** | ** ** |
| Florist segment                                  |       | $                                    | 14,102     |       | $          | 13,007 |   | 8.4 | % |
| Consumer segment                                 |       | 46,397                               |       | 46,101     |       | 0.6 | % |
| Corporate                                        |       | 623                                  |       | 582        |       | 7.0 | % |
| Total costs of goods sold and services  provided |       | $                                    | 61,122     |       | $          | 59,690 |   | 2.4 | % |

 

Costs of goodssold and services provided increased by $1.4 million, or 2.4%, to $61.1 millionfor the three-month period ended December 31, 2005, compared to costs ofgoods sold and services provided for the three-month period ended December 31,2004 of $59.7 million. Total gross margin decreased to 44.0% for thethree-month period ended December 31, 2005 from 44.9% for three-monthperiod ended December 31, 2004.

 

Costs of goodssold and services provided associated with the florist segment increased by$1.1 million, or 8.4%, to $14.1 million for three-month period ended December 31,2005, compared to $13.0 million for the three-month period ended December 31,2004. Gross margin for the florist segment decreased to 69.3% for thethree-month period ended December 31, 2005, compared to 71.8% for thethree-month period ended December 31, 2004, primarily due to an increasein sales of the Company’s lower margin product lines, such as its technologysystems, as a percent of total revenues.

 

Costs of goodssold and services provided associated with the consumer segment increased by$0.3 million, or 0.6%, to $46.4 million for the three-month period ended December 31,2005, compared to $46.1 million for the three-month period ended December 31,2004. Gross margin for the consumer segment increased to 26.7% for thethree-month period ended December 31, 2005, compared to 25.8% for thethree-month period ended December 31, 2004, primarily due to an increasein advertising revenue and sales of higher margin specialty gifts. Specialtygifts, which include all orders delivered via common courier, have a lowercombined product and shipping cost as a percent of revenue than floristdelivered orders.

 

Costs of goodssold and services provided related to corporate activities remained consistentat $0.6 million for the three-month period ended December 31, 2005,compared to the three-month period ended December 31, 2004.  These costs are related to the developmentand support of the internal corporate technology platforms.

 

***Advertising and selling costs***

 
| ** **                          | ** ** | **Three Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                          | ** ** | **(in thousands)**                   | ** ** | ** ** | ** ** |
| Florist segment                     |       | $                                    | 14,055     |       | $          | 14,040 |   | 0.1 | % |
| Consumer segment                    |       | 7,835                                |       | 7,441      |       | 5.3 | % |
| Total advertising and selling costs |       | $                                    | 21,890     |       | $          | 21,481 |   | 1.9 | % |

 

Advertising andselling costs increased by $0.4 million, or 1.9%, to $21.9 million for thethree-month period ended December 31, 2005, compared to advertising andselling costs for the three-month period ended December 31, 2004 of $21.5million.  There were no advertising andselling costs related to corporate activities.

 

14

----

 

Advertising andselling costs associated with the florist segment remained relativelyconsistent at $14.1 million for the three-month period ended December 31,2005, compared to $14.0 million for the three-month period ended December 31,2004.

 

Advertising andselling costs associated with the consumer segment increased by $0.4 million,or 5.3%, to $7.8 million for the three-month period ended December 31,2005, compared to $7.4 million for the three-month period ended December 31,2004.  This increase in advertising andselling costs was primarily due to an increase in online advertising expenses,which was primarily related to increased volume and cost per order generatedfrom search-oriented Web sites.

 

***General and administrative costs and management fees***

 
| ** **                                                  | ** ** | **Three Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**                   | ** ** | ** ** | ** ** |
| Florist segment                                             |       | $                                    | 946        |       | $          | 2,543 |   | (62.8 | )% |
| Consumer segment                                            |       | 4,248                                |       | 4,127      |       | 2.9 | % |
| Corporate                                                   |       | 6,273                                |       | 6,024      |       | 4.1 | % |
| Total general and administrative costs and management  fees |       | $                                    | 11,467     |       | $          | 12,694 |   | (9.7 | )% |

 

General andadministrative costs and management fees decreased by $1.2 million, or 9.7%, to$11.5 million for the three-month period ended December 31, 2005, comparedto $12.7 million for the three-month period ended December 31, 2004.

 

General andadministrative costs associated with the florist segment decreased by $1.6million, or 62.8%, to $0.9 million for the three-month period ended December 31,2005, compared to $2.5 million for the three-month period ended December 31,2004. This decrease is primarily due to the $1.0 million gain recognized in thecurrent year period as a result of the sale of substantially all of the assetsand certain liabilities of Renaissance, as well as a reduction in depreciationexpense as certain assets of the florist business have become fully depreciatedand a reduction in administrative expenses due to efficiencies gained in thetechnology installation process.

 

General andadministrative costs associated with the consumer segment remained relativelyconsistent at $4.2 million for the three-month period ended December 31,2005, compared to $4.1 million for the three-month period ended December 31,2004.

 

Corporate generaland administrative costs and management fees increased by $0.3 million, or 4.1%,to $6.3 million for the three-month period ended December 31, 2005,compared to $6.0 million for the three-month period ended December 31,2004. The increase was primarily related to the prior year reimbursement ofdefense costs from the Company’s insurance carrier related to the lawsuit withTeleflora LLC, an increase in public company costs and an increase incompensation expense related to the adoption of FAS 123(R) partially offset bya decrease in expense related to the termination of the Management ServicesAgreement with Leonard Green & Partners, L.P. which occurred duringthe quarter ended March 31, 2005.

 

15

----

 

***Other income and expenses***

 
| ** **                                                  | ** ** | **Three Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**                   | ** ** | ** ** | ** ** |
| Interest income                                             |       | $                                    | (129       | )          | $          | (91 | ) | 41.8 | % |
| Interest expense                                            |       | 4,986                                |       | 5,017      |       | (0.6 | )% |
| Interest expense on shares subject to mandatory  redemption |       | —                               |       | 5,105      |       | (100.0 | )% |
| Other (income) expense, net                                 |       | (44                                  | )          | (274       | )          | (83.9 | )% |
| Total other (income) and expenses                           |       | $                                    | 4,813      |       | $          | 9,757 |   | (50.7 | )% |

 

Interest incomeremained consistent at $0.1 million for the three-month periods ended December 31,2005 and December 31, 2004.

 

Interest expenseremained consistent at $5.0 million for the three-month periods ended December 31,2005 and December 31, 2004. Although the Company reduced the amount ofoutstanding indebtedness in the last twelve months, interest rates haveincreased during this period, which has principally offset any benefit tointerest expense for the current three-month period.

 

The Company’spreferred stock was redeemed in full using the proceeds from its IPO and assuch, there is no interest expense on shares subject to mandatory redemptionfor the three-month period ended December 31, 2005.

 

Other incomedecreased to $44,000 for the three-month period ended December 31, 2005compared to $0.3 million for the three-month period ended December 31,2004.

 

### **Six Months Ended December 31, 2005 compared tothe Six Months Ended December 31, 2004**

 

***Total revenues***

 
| ** **       | ** ** | **Six Months Ended  December 31,** | ** ** | ** ** | ** ** |
|------------------|------------|------------------------------------|------------|------------|------------|
| ** **       | ** ** | **2005**                           | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **       | ** ** | **(in thousands)**                 | ** ** | ** ** | ** ** |
| Florist segment  |       | $                                  | 90,213     |       | $          | 91,810 |   | (1.7 | )% |
| Consumer segment |       | 104,841                            |       | 98,515     |       | 6.4 | % |
| Total revenues   |       | $                                  | 195,054    |       | $          | 190,325 |   | 2.5 | % |

 

Revenues increasedby $4.7 million, or 2.5%, to $195.1 million for the six-month period ended December 31,2005, compared to revenues for the six-month period ended December 31,2004 of $190.3 million.  There were norevenues associated with corporate activities.

 

Management believesa key metric in driving revenues for the florist segment is the number of FTDmembers that use or purchase services and products provided by the floristsegment, which is partially driven by membership.  Average membership for the six-month periodended December 31, 2005 and 2004 was approximately 19,600 and 20,000 FTDmembers, respectively.  Revenues for theflorist segment decreased by $1.6 million, or 1.7%, to $90.2 million for thesix-month period ended December 31, 2005, compared to revenues for thesix-month period ended December 31, 2004 of $91.8 million. The decrease inrevenues is primarily related to a decrease in directory services revenues aswell as lower sales resulting from the elimination of certain specialtywholesaling products which were unprofitable or inventory intensive and notcore to the business. The decrease was partially offset by an increase inrevenues related to Florists’ Online Web sites and revenue related totechnology support and access.

 

Managementbelieves a key metric in driving revenues in the consumer segment is ordervolume. Order volume increased 7.8% to 1,750,000 orders for the six-monthperiod ended December 31, 2005, from 1,620,000 orders for

 

16

----

 

the six-month period ended December 31, 2004.Revenues for the consumer segment increased by $6.3 million, or 6.4%, to $104.8million for the six-month period ended December 31, 2005 compared to $98.5million for the six-month period ended December 31, 2004. The increase inrevenues was primarily related to an increase in order volume, partially offsetby a decrease in average order value. Sales of specialty gifts, which includeall orders delivered via common courier, comprised 36.8% of total order volumefor the six-month period ended December 31, 2005, compared to 27.4% forthe six-month period ended December 31, 2004.  Internet orders were 88.8% of total ordersfor the six-month period ended December 31, 2005, compared to 84.9% forthe six-month period ended December 31, 2004. Average order value for thesix-month period ended December 31, 2005 was $59.71, which was slightlylower than average order value of $60.71 for the six-month period ended December 31,2004. This decrease in average order value is primarily related to an increasein sales of the lower priced product offerings.

 

***Total costs of goods sold andservices provided***

 
| ** **                                       | ** ** | **Six Months Ended  December 31,** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | **2005**                           | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                       | ** ** | **(in thousands)**                 | ** ** | ** ** | ** ** |
| Florist segment                                  |       | $                                  | 28,940     |       | $          | 30,135 |   | (4.0 | )% |
| Consumer segment                                 |       | 76,855                             |       | 73,431     |       | 4.7 | % |
| Corporate                                        |       | 1,185                              |       | 1,194      |       | (0.8 | )% |
| Total costs of goods sold and services  provided |       | $                                  | 106,980    |       | $          | 104,760 |   | 2.1 | % |

 

Costs of goodssold and services provided increased by $2.2 million, or 2.1%, to $107.0million for the six-month period ended December 31, 2005, compared tocosts of goods sold and services provided for the six-month period ended December 31,2004 of $104.8 million.  Total grossmargin increased to 45.2% for the six-month period ended December 31, 2005from 45.0% for six-month period ended December 31, 2004.

 

Costs of goodssold and services provided associated with the florist segment decreased by$1.2 million, or 4.0%, to $28.9 million for six-month period ended December 31,2005, compared to $30.1 million for the six-month period ended December 31,2004.  Gross margin for the floristsegment increased to 67.9% for the six-month period ended December 31,2005, compared to 67.2% for the six-month period ended December 31, 2004,primarily due to the elimination of certain specialty wholesaling productswhich were unprofitable or inventory intensive and not core to the business.

 

Costs of goodssold and services provided associated with the consumer segment increased by$3.5 million, or 4.7%, to $76.9 million for the six-month period ended December 31,2005, compared to $73.4 million for the six-month period ended December 31,2004. Gross margin for the consumer segment increased to 26.7% for thesix-month period ended December 31, 2005, compared to 25.8% for thesix-month period ended December 31, 2004, primarily due to an increase insales of higher margin specialty gifts. Specialty gifts, which include allorders delivered via common courier, have a lower combined product and shippingcost as a percent of revenue compared to florist delivered orders.

 

Costs of goodssold and services provided related to corporate activities remained consistentat $1.2 million for the six-month periods ended December 31, 2005 and December 31,2004.  These costs are related to thedevelopment and support of the internal corporate technology platforms.

 

***Advertising and selling costs***

 
| ** **                          | ** ** | **Six Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2005**                           | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                          | ** ** | **(in thousands)**                 | ** ** | ** ** | ** ** |
| Florist segment                     |       | $                                  | 27,174     |       | $          | 27,294 |   | (0.4 | )% |
| Consumer segment                    |       | 12,367                             |       | 10,891     |       | 13.6 | % |
| Total advertising and selling costs |       | $                                  | 39,541     |       | $          | 38,185 |   | 3.6 | % |
|                                     |            |                                    |            |            |            |  |  |  |  |  |

 

17

----

 

 

Advertising andselling costs increased by $1.3 million, or 3.6%, to $39.5 million for thesix-month period ended December 31, 2005, compared to advertising andselling costs for the six-month period ended December 31, 2004 of $38.2million.  There were no advertising andselling costs related to corporate activities.

 

Advertising andselling costs associated with the florist segment remained relativelyconsistent at $27.2 million for the three-month period ended December 31,2005, compared to $27.3 million for the three-month period ended December 31,2004.

 

Advertising andselling costs associated with the consumer segment increased by $1.5 million,or 13.6%, to $12.4 million for the six-month period ended December 31,2005, compared to $10.9 million for the six-month period ended December 31,2004.  This increase in advertising andselling costs was primarily due to an increase in online advertising expenses,which was primarily related to increased volume and cost per order generatedfrom search-oriented Web sites.

 

***General and administrative costs and management fees***

 
| ** **                                                  | ** ** | **Six Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **2005**                           | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**                 | ** ** | ** ** | ** ** |
| Florist segment                                             |       | $                                  | 3,230      |       | $          | 5,117 |   | (36.9 | )% |
| Consumer segment                                            |       | 7,476                              |       | 7,484      |       | (0.1 | )% |
| Corporate                                                   |       | 12,690                             |       | 12,470     |       | 1.8 | % |
| Total general and administrative costs and management  fees |       | $                                  | 23,396     |       | $          | 25,071 |   | (6.7 | )% |

 

General andadministrative costs and management fees decreased by $1.7 million, or 6.7%, to$23.4 million for the six-month period ended December 31, 2005, comparedto $25.1 million for the six-month period ended December 31, 2004.

 

General andadministrative costs associated with the florist segment decreased by $1.9million, or 36.9%, to $3.2 million for the six-month period ended December 31,2005, compared to $5.1 million for the six-month period ended December 31,2004.  The decrease in general and administrativecosts for the florist segment is primarily due to the $1.0 million gainrecognized in the current year period as a result of the sale of substantiallyall of the assets and certain liabilities of Renaissance, as well as areduction in depreciation expense as certain assets of the florist business havebecome fully depreciated.

 

General andadministrative costs associated with the consumer segment remained consistentat $7.5 million for the six-month periods ended December 31, 2005 and December 31,2004.

 

Corporate generaland administrative costs and management fees increased by $0.2 million, or1.8%, to $12.7 million for the six-month period ended December 31, 2005,compared to $12.5 million for the six-month period ended December 31,2004. The increase was primarily related to the prior year reimbursement ofdefense costs from the Company’s insurance carrier related to the lawsuit withTeleflora LLC, an increase in public company costs and an increase incompensation expense related to the implementation of FAS 123(R) partiallyoffset by a decrease in expense related to the termination of the ManagementServices Agreement with Leonard Green & Partners, L.P. which occurredduring the quarter ended March 31, 2005.

 

18

----

 

***Other income and expenses***

 
| ** **                                                  | ** ** | **Six Months Ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | **2005**                           | ** ** | **2004**   | ** ** | **% Change** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**                 | ** ** | ** ** | ** ** |
| Interest income                                             |       | $                                  | (295       | )          | $          | (167 | ) | 76.6 | % |
| Interest expense                                            |       | 9,767                              |       | 10,034     |       | (2.7 | )% |
| Interest expense on shares subject to mandatory  redemption |       | —                             |       | 10,048     |       | (100.0 | )% |
| Other (income) expense, net                                 |       | (88                                | )          | (321       | )          | (72.6 | )% |
| Total other (income) and expenses                           |       | $                                  | 9,384      |       | $          | 19,594 |   | (52.1 | )% |

 

Interest incomeincreased $0.1 million, to $0.3 million for the six-month period ended December 31,2005, compared to $0.2 million for the six-month period ended December 31,2004.  The increase is primarily due tohigher interest rates obtained on available cash balances during the currentyear period.

 

Interest expensedecreased $0.3 million, to $9.8 million for the six-month period ended December 31,2005, compared to $10.0 million for the six-month period ended December 31,2004.  The decrease is due to a loweramount of outstanding indebtedness during the current year period, partiallyoffset by higher interest rates in the current year period.

 

The Company’spreferred stock was redeemed in full using the proceeds from its IPO and assuch, there is no interest expense on shares subject to mandatory redemptionfor the six-month period ended December 31, 2005.

 

Other incomedecreased to $0.1 million for the six-month period ended December 31, 2005compared to $0.3 million for the six-month period ended December 31, 2004.

 

**Liquidityand Capital Resources**

 

Cash and cashequivalents increased by $5.6 million to $14.5 million at December 31,2005 from $8.9 million at June 30, 2005.

 

Cash provided byoperating activities was $16.3 million for the six-month period ended December 31,2005. There was a decrease in cash relating to changes in operating assets andliabilities of $2.1 million, primarily relating to the payment of fiscal year2005 bonuses, which occurred during the first quarter of fiscal 2006. Thedecrease in cash relating to changes in operating assets and liabilities isoffset by net income, the gain from the sale of Renaissance and non-cash itemsof $10.0 million including depreciation, amortization, provisions for doubtfulaccounts and obsolete inventory, stock based compensation, amortization andwrite-off of deferred financing costs and deferred income taxes.

 

Cash used ininvesting activities was $1.9 million for the six-month period ended December 31,2005, which related to $5.4 million of capital expenditures, primarily relatedto a new call center which was opened in October 2005 and other technologydevelopments and improvements, partially offset by the proceeds from the saleof Renaissance.

 

Cash used infinancing activities was $8.9 million for the six-month period ended December 31,2005, which primarily consisted of repayments of long-term debt and therepurchase of Company’s Common Stock.

 

The Company’sprincipal sources of liquidity are cash from operations and funds available forborrowing under the 2004 Credit Agreement. The 2004 Credit Agreement originallyprovided for aggregate borrowings of up to $135.0 million and consisted of afive-year $50.0 million revolving credit facility and a seven-year $85.0million term loan, which was used in connection with the Company’s completionof a going private transaction on February 24, 2004. As the Company makesprincipal repayments on the term loan, the balance of the term loan ispermanently reduced. As of December 31, 2005 the balance of term loan was$63.0 million. A portion of the revolving credit facility is available as aletter of credit sub-facility and as a swing-line facility. Borrowings underthe revolving credit facility are used to finance working capital, capitalexpenditures, acquisitions, certain expenses associated

 

19

----

 

with the bank credit facilities and letter of creditneeds. The revolving credit facility included $1.9 million in letters of creditoutstanding and had availability of $48.1 million at December 31, 2005.

 

On October 25, 2005 the Board of Directors authorized a share repurchase program totaling $30 million, effective through September 30, 2007. These purchases may be made from time to time in both open market and private transactions, dependent upon market and other conditions.  This repurchase program is expected to remain in effect through September 30, 2007, unless terminated earlier by the Board of Directors, or completed. The Company has repurchased shares pursuant to a 10b5-1 plan, which generally permits the Company to repurchase shares at times when it might otherwise be prevented from doing so under certain securities laws. Repurchased shares will be held in treasury pending use for general corporate purposes, including issuances under various employee and director stock plans. FTD, Inc. amended the 2004 Credit Agreement, effective November 7, 2005, to allow for the repurchases of Common Stock of the Company, subject to a maximum leverage ratio and minimum liquidity requirements. During the three-month period ended December 31, 2005, the Company repurchased 305,500 shares of Common Stock for $3.3 million. For the period January 1, 2006 through February 8, 2006, the Company repurchased 1.2 million shares of Common Stock.

 

The 2004 Credit Agreement includes covenantsthat, among other things, required that as of December 31, 2005, FTD, Inc.maintain a ratio of consolidated earnings before interest, taxes, depreciationand amortization (subject to certain adjustments) to consolidated interestexpense, a fixed charge coverage ratio and a leverage ratio.  FTD, Inc. was in compliance with alldebt covenants as of December 31, 2005. The debt covenant ratios aredetailed below:

 
| ** **                 | ** ** | **Actual Ratio  as of December 31, 2005** | ** ** | **Required Ratio  as of December 31, 2005** | ** ** |
|----------------------------|------------|-------------------------------------------|------------|---------------------------------------------|------------|
| Interest  Expense Coverage |       | 3.37                                      |       | 2.20 minimum                                |       |
| Fixed Charge  Coverage     |       | 3.09                                      |       | 1.50 minimum                                |       |
| Leverage                   |       | 3.45                                      |       | 5.50 maximum                                |       |

 

Debt covenant targets are adjusted quarterlyin accordance with the terms of the 2004 Credit Agreement.

 

In addition to its debt service obligations,the Company’s remaining liquidity requirements are primarily for workingcapital needs and capital expenditures. The Company believes, based on currentcircumstances, that its existing and future cash flows from operations,together with borrowings under the 2004 Credit Agreement, will be sufficient tofund its working capital needs, capital expenditures and to make interest andprincipal payments as they become due under the terms of the 2004 CreditAgreement for the foreseeable future.

 

### **Critical Accounting Policies and Estimates**

 

The Company’s consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.

 

On an on-going basis, management evaluatesits 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 andjudgments on historical experience and on various other factors that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities. Actual results may differ from these estimates under differentassumptions or conditions.

 

See the information concerning the Company’scritical accounting policies included under Management’s Discussion andAnalysis of Financial Condition and Results of Operations in the Company’s AnnualReport on Form 10-K for the fiscal year ended June 30, 2005 as filedwith the SEC.

 

20

----

 

## **Recently IssuedAccounting Pronouncements**

 

From time to time, the Staff of the SECcommunicates its interpretations of accounting rules and regulations.  The manner by which these views arecommunicated varies by topic. While these communications represent the views ofthe Staff, they do not carry the authority of law or regulation. Nonetheless,the practical effect of these communications is that changes in the Staff’sviews from time to time can impact the accounting and reporting policies ofpublic companies.

 

### **Forward-Looking Information**

 

This quarterly report on Form 10-Qcontains various “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995 regarding the Company’s outlook,anticipated revenue growth and profitability; the anticipated benefits ofinvestments in new products, programs and offerings; and opportunities andtrends within both the consumer and florist segments, including opportunitiesto expand these businesses and capitalize on growth opportunities or increasepenetration of service offerings. These forward-looking statements are based onmanagement’s current expectations, assumptions, estimates and projections aboutthe Company and its industry.  Investorsare cautioned that actual results could differ from those anticipated by theforward-looking statements as a result of: the Company’s ability to acquire andretain FTD members and continued recognition by members of the value of theCompany’s products and services; the acceptance by members of the new ormodified service offerings recently introduced; the Company’s ability to selladditional products and services to members; the Company’s ability to expandexisting marketing programs and secure new marketing programs within theconsumer segment; the success of the Company’s marketing campaigns; the abilityto retain customers and maintain average order value within the consumersegment; the existence of failures in the Mercury Network or the Company’sconsumer segment systems; competition from existing and potential newcompetitors; levels of discretionary consumer purchases of flowers andspecialty gifts; the Company’s ability to manage or reduce its level ofexpenses within both the consumer and florist segments; actual growth rates forthe markets in which the Company competes compared with forecasted growthrates; the Company’s ability to increase capacity and introduce enhancements toits Web sites; and the Company’s ability to integrate additional partners oracquisitions, if any are identified. These factors, along with other potential risks and uncertainties, arediscussed in the Company’s reports and other documents filed with the SEC.

 

## **Item3.  Quantitative and QualitativeDisclosures About Market Risk**

 

The Company’s exposure to interest rate riskis primarily the result of borrowings under its bank credit facilities.  At December 31, 2005, $63.0 million ofdebt was outstanding under the 2004 Credit Agreement.  Borrowings under the 2004 Credit Agreementare secured by first priority security interests in, and mortgages on,substantially all of the Company’s tangible and intangible assets. The Company’sresults of operations are affected by changes in market interest rates on theseborrowings. A 1% increase in the interest rate would result in additionalannual interest expense of $630,000.

 

The Company will continue to monitor changingeconomic conditions.  Based on currentcircumstances, the Company does not expect a substantial increase in costs or amaterial adverse effect on cash flows as a result of changing interest rates.

 

The Company is also exposed to foreigncurrency exchange rate risk with respect to the Canadian dollar and the Euro.The resulting foreign currency translation exchange adjustments are included inthe other comprehensive income (loss) caption and foreign currency transactionexchange adjustments are included in other income and expense on theconsolidated statements of operations and comprehensive income (loss) and werenot material for the three- and six-month periods ended December 31, 2005and 2004. The Company does not expect to be materially affected by foreigncurrency exchange rate fluctuations in the future, as the transactionsdenominated in Canadian dollars and Euros are not material to the Company’sconsolidated financial statements. Therefore, the Company does not currentlyenter into derivative financial instruments as hedges against foreign currencyfluctuations of the Canadian dollar or Euro.

 

**Item 4.Controls and Procedures**

 

The Companymaintains a set of disclosure controls and procedures designed to ensure thatinformation required to be disclosed by the Company in reports that it files orsubmits under the Securities Exchange Act of

 

21

----

 

1934is recorded, processed, summarized and reported within the time periodsspecified in SEC rules and forms and that such information is accumulatedand communicated to the Company’s management, including its Chief ExecutiveOfficer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allowfor timely decisions regarding required disclosure. In designing and evaluatingthe disclosure controls and procedures, management recognizes that any controlsand procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply judgment in evaluating the cost-benefitrelationship of possible controls and procedures. As of December 31, 2005,an evaluation was carried out under the supervision and with the participationof the Company’s management, including the CEO and CFO. Based on thisevaluation, the CEO and CFO have concluded that the Company’s disclosurecontrols and procedures were effective at the reasonable assurance level.

 

There have been no significant changes in the Company’s internal controlsover financial reporting during the Company’s most recent fiscal quarter thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal controls over financial reporting.

 

22

----

 

**PART II.  OTHER INFORMATION**

 

### **Item 1.  Legal Proceedings**

 

The Company isinvolved in various claims and lawsuits and other matters arising in the normalcourse of business.  In the opinion ofmanagement of the Company, although the outcome of these claims and suits areuncertain, they should not have a material adverse effect on the Company’sfinancial condition, liquidity or results of operations.

 

### **Item2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

**Issuer Purchases of Equity Securities**

 

The following table sets forth information inconnection with purchases made by, or on behalf of, the Company, of shares ofthe Company’s common stock during the quarterly period ended December 31,2005.

 
| **Period**                                            | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of  Shares Purchased  as Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Maximum Number (or  Approximate Dollar  Value)  of Shares that May Yet  Be Purchased  Under the Plans or  Programs** | ** **   |
|-------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|--------------|
| October 1, 2005 through October 31,  2005   |       | —                                  |       | —                              |       | —                                                                                          |       | $                                                                                                                           | 30.0 million |   |
| November 1, 2005 through  November 30, 2005 |       | 80,300                                  |       | $                                   | 10.82      |                                                                                            | 80,300     |                                                                                                                        | $            | 29.1 million |   |
| December 1, 2005 through  December 31, 2005 |       | 225,200                                 |       | $                                   | 10.83      |                                                                                            | 305,500    |                                                                                                                        | $            | 26.6 million |   |

 

On October 25, 2005, the Board ofDirectors authorized a share repurchase program totaling $30 million, effectivethrough September 30, 2007. These purchases may be made from time to timein both open market and private transactions, dependent upon market and otherconditions.

 

23

----

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

(a)                                  TheAnnual Meeting of the Stockholders was held on November 17, 2005.

 

(b)                                 Atthe Annual Meeting of Stockholders, the stockholders voted to elect sevendirectors to the Board of Directors of the Company to serve for a term of oneyear. The votes for the director nominees were as follows:

 
| **Director Nominee** | ** ** | **For**    | ** ** | **Withhold** | ** ** |
|----------------------|------------|------------|------------|--------------|------------|
| Peter J. Nolan       |       | 22,223,033 |       | 4,507,807    |       |
| Robert S. Apatoff    |       | 22,254,173 |       | 4,476,667    |       |
| Adam M. Aron         |       | 22,916,896 |       | 3,813,944    |       |
| John R. Baumer       |       | 22,131,310 |       | 4,599,530    |       |
| Timothy J. Flynn     |       | 22,223,033 |       | 4,507,807    |       |
| Ted C. Nark          |       | 26,028,288 |       | 702,552      |       |
| Michael J. Soenen    |       | 22,317,157 |       | 4,413,683    |       |

 

(c)                                  Theresults of stockholder voting on Proposal 2 were as follows:

 

Proposal 2 – The ratification of theappointment of Ernst & Young LLP as the Company’s independentregistered public accounting firm for the fiscal year ending June 30,2006.

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 26,720,471 |       | 6,270       |       | 4,100       |       |

 

**Item 6.    Exhibits**

 
| 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 1350  Certifications.                                                                           |

 

24

----

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1933, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                         |   |   FTD Group, Inc.                                                                                           |
|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|
|                         |   |                                                                                                                       |
| Date: February 10, 2006 | By:    |   /S/ CARRIE A. WOLFE                                                                                            |
|                         |   |   Carrie A. Wolfe    Chief Financial Officer    (Principal Financial and Accounting Officer) |

 

25

----

 

**EXHIBIT INDEX**

 
| **Exhibit Number** | ** ** | **Description of Document**                                                                                  |
|-------------------------|------------|--------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                         |
| 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 1350  Certifications.                                                                           |

 

26

----