Quarterly Report


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                        to              
Commission file number 001-35901
 
FTD Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
32-0255852
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
3113 Woodcreek Drive, Downers Grove, Illinois
(Address of principal executive offices)
60515
(Zip Code)
(630) 719-7800
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒
There were 27,546,854 shares of the Registrant’s common stock outstanding as of November 3, 2017 .
 


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FTD COMPANIES, INC.
INDEX TO FORM 10-Q
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
In this document, references to “FTD Companies,” “FTD,” the “Company,” “we,” “us,” and “our” refer to FTD Companies, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

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


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PART I—FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
FTD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
 
 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
27,845

 
$
81,002

Accounts receivable, net of allowances of $4,675 and $4,962 as of September 30, 2017 and December 31, 2016, respectively
 
24,528

 
26,659

Inventories
 
30,827

 
24,996

Prepaid expenses and other current assets
 
10,959

 
13,697

Total current assets
 
94,159

 
146,354

Property and equipment, net
 
42,582

 
57,559

Intangible assets, net
 
234,889

 
272,798

Goodwill
 
426,131

 
463,465

Other assets
 
21,387

 
22,138

Total assets
 
$
819,148

 
$
962,314

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
39,602

 
$
70,254

Accrued liabilities
 
45,309

 
68,274

Accrued compensation
 
12,988

 
19,165

Deferred revenue
 
5,776

 
4,911

Income taxes payable
 
726

 
2,005

Current portion of long-term debt
 
20,000

 
20,000

Total current liabilities
 
124,401

 
184,609

Long-term debt
 
232,326

 
256,306

Deferred tax liabilities, net
 
69,275

 
85,932

Other liabilities
 
6,527

 
7,740

Total liabilities
 
432,529

 
534,587

Commitments and contingencies (Note 14)
 

 

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

 

Common stock, 60,000,000 shares, par value $0.0001, authorized; 29,977,751 and 29,731,189 shares issued as of September 30, 2017 and December 31, 2016, respectively
 
3

 
3

Treasury stock, 2,430,897 shares as of September 30, 2017 and December 31, 2016
 
(65,221
)
 
(65,221
)
Additional paid-in capital
 
702,053

 
694,773

Accumulated deficit
 
(207,771
)
 
(150,191
)
Accumulated other comprehensive loss
 
(42,445
)
 
(51,637
)
Total stockholders’ equity
 
386,619

 
427,727

Total liabilities and stockholders’ equity
 
$
819,148

 
$
962,314

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


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FTD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Products
 
$
131,361

 
$
142,451

 
$
705,553

 
$
737,991

Services
 
29,943

 
30,428

 
100,390

 
103,341

Total revenues
 
161,304

 
172,879

 
805,943

 
841,332

Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenues—products
 
98,895

 
103,653

 
489,704

 
517,811

Cost of revenues—services
 
4,280

 
4,405

 
13,024

 
13,757

Sales and marketing
 
36,450

 
35,012

 
181,570

 
168,885

General and administrative
 
27,656

 
25,980

 
83,450

 
84,113

Amortization of intangible assets
 
3,820

 
15,240

 
11,459

 
45,873

Restructuring and other exit costs
 
1,113

 
612

 
2,057

 
2,230

Impairment of goodwill, intangible assets, and other long-lived assets
 
82,735

 

 
82,735

 

Total operating expenses
 
254,949

 
184,902

 
863,999

 
832,669

Operating income/(loss)
 
(93,645
)
 
(12,023
)
 
(58,056
)
 
8,663

Interest income
 
122

 
135

 
359

 
410

Interest expense
 
(2,721
)
 
(2,429
)
 
(7,671
)
 
(7,273
)
Other income/(expense), net
 
126

 
(9
)
 
324

 
1,804

Income/(loss) before income taxes
 
(96,118
)
 
(14,326
)
 
(65,044
)
 
3,604

Provision for/(benefit from) income taxes
 
(19,799
)
 
(4,057
)
 
(7,464
)
 
347

Net income/(loss)
 
$
(76,319
)
 
$
(10,269
)
 
$
(57,580
)
 
$
3,257

Earnings/(loss) per common share:
 
 
 
 
 
 
 
 
Basic earnings/(loss) per share
 
$
(2.77
)
 
$
(0.37
)
 
$
(2.10
)
 
$
0.12

Diluted earnings/(loss) per share
 
$
(2.77
)
 
$
(0.37
)
 
$
(2.10
)
 
$
0.12

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


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FTD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited, in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income/(loss)
 
$
(76,319
)
 
$
(10,269
)
 
$
(57,580
)
 
$
3,257

Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
Foreign currency translation
 
3,089

 
(2,633
)
 
8,935

 
(13,151
)
Cash flow hedges:
 
 
 
 
 
 
 
 
Changes in net gains on derivatives, net of tax of $55 and $54 for the three months ended September 30, 2017 and 2016, respectively, and $162 and $147 for the nine months ended September 30, 2017 and 2016, respectively
 
85

 
86

 
257

 
236

Other comprehensive income/(loss)
 
3,174

 
(2,547
)
 
9,192

 
(12,915
)
Total comprehensive loss
 
$
(73,145
)
 
$
(12,816
)
 
$
(48,388
)
 
$
(9,658
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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FTD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of December 31, 2016
 
29,731

 
$
3

 
(2,431
)
 
$
(65,221
)
 
$
694,773

 
$
(51,637
)
 
$
(150,191
)
 
$
427,727

Net loss
 

 

 

 

 

 

 
(57,580
)
 
(57,580
)
Other comprehensive income
 

 

 

 

 

 
9,192

 

 
9,192

Stock-based compensation
 

 

 

 

 
8,221

 

 

 
8,221

Vesting of restricted stock units and related repurchases of common stock
 
186

 

 

 

 
(1,983
)
 

 

 
(1,983
)
Issuance of common stock through employee stock purchase plan
 
61

 

 

 

 
1,042

 

 

 
1,042

Balance as of
September 30, 2017
 
29,978

 
$
3

 
(2,431
)
 
$
(65,221
)
 
$
702,053

 
$
(42,445
)
 
$
(207,771
)
 
$
386,619

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


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FTD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income/(loss)
 
$
(57,580
)
 
$
3,257

Adjustments to reconcile net income/(loss) to net cash used for operating activities:
 
 

 
 

Depreciation and amortization
 
27,778

 
63,502

Impairment of goodwill, intangible assets, and other long-lived assets
 
82,735

 

Stock-based compensation
 
8,221

 
10,803

Provision for doubtful accounts receivable
 
1,515

 
2,936

Amortization of debt issuance costs
 
1,020

 
1,020

Impairment of fixed assets
 

 
398

Deferred taxes, net
 
(17,314
)
 
(14,519
)
Gains on life insurance
 

 
(1,583
)
Other, net
 
(95
)
 
76

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
923

 
(1,791
)
Inventories
 
(5,770
)
 
(2,025
)
Prepaid expenses and other assets
 
4,139

 
5,623

Accounts payable and accrued liabilities
 
(62,235
)
 
(71,932
)
Deferred revenue
 
750

 
1,037

Income taxes receivable or payable
 
(1,033
)
 
1,882

Other liabilities
 
(1,198
)
 
(2,284
)
Net cash used for operating activities
 
(18,144
)
 
(3,600
)
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(10,677
)
 
(12,018
)
Proceeds from life insurance
 

 
1,946

Net cash used for investing activities
 
(10,677
)
 
(10,072
)
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term debt
 
90,000

 

Payments on long-term debt
 
(115,000
)
 
(15,000
)
Exercise of stock options and purchases from employee stock plans
 
1,042

 
1,304

Repurchases of common stock withheld for taxes
 
(1,983
)
 
(1,645
)
Repurchases of common stock
 

 
(12,035
)
Net cash used for financing activities
 
(25,941
)
 
(27,376
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
 
1,605

 
(652
)
Change in cash and cash equivalents
 
(53,157
)
 
(41,700
)
Cash and cash equivalents, beginning of period
 
81,002

 
57,892

Cash and cash equivalents, end of period
 
$
27,845

 
$
16,192

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


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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS
Description of Business
FTD Companies, Inc. (together with its subsidiaries, “FTD” or the “Company”), is a premier floral and gifting company with a vision to be the leading and most trusted floral and gifting company in the world. Our mission is to inspire, support, and delight our customers when expressing life’s most important sentiments. We provide floral, specialty foods, gift, and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. Our business uses the highly recognized FTD ® and Interflora ® brands, both supported by the iconic Mercury Man ® logo. While we operate primarily in the United States (“U.S.”) and the United Kingdom (“U.K.”), we have worldwide presence as our Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. Our diversified portfolio of brands also includes ProFlowers ® , ProPlants ® , Shari’s Berries ® , Personal Creations ® , RedEnvelope ® , Flying Flowers ® , Ink Cards , Postagram , and Gifts.com . While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet-dipped berries and other specialty foods, personalized gifts, premium fresh fruit baskets, gift baskets, wine and champagne, jewelry, and spa products.
The principal operating subsidiaries of FTD Companies, Inc. are Florists’ Transworld Delivery, Inc., Provide Commerce, Inc. (“Provide Commerce”), FTD.COM Inc. (“FTD.COM”), and Interflora British Unit (“Interflora”). The operations of the Company include those of its subsidiary, Interflora, Inc., of which one-third is owned by a third party. The Company’s corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego and San Francisco, California; Woodridge, Illinois; Centerbrook, Connecticut; Sleaford, England; and Hyderabad, India; and distribution centers in various locations throughout the U.S.
Basis of Presentation
These condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including those for interim financial information, and with the instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial position and operating results for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The condensed consolidated balance sheet information as of December 31, 2016 was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2016 , but does not include all of the disclosures required by GAAP.
The condensed consolidated financial statements reflect the Company’s historical financial position, results of operations, and cash flows. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make accounting policy elections, estimates, and assumptions that affect a number of reported amounts and related disclosures in the condensed consolidated financial statements. Management bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates and assumptions. The most significant areas of the condensed consolidated financial statements that require management’s judgment include the Company’s revenue recognition, goodwill, indefinite-lived intangible assets and other long-lived assets, allowance for doubtful accounts, income taxes, and legal contingencies.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2016 .

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Accounting Policies
Refer to the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2016 for a discussion of the Company’s accounting policies, as updated below for recently adopted accounting standards.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory—Simplifying the Measurement of Inventory (Topic 330) , which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the guidance in the first quarter of 2017 on a prospective basis, as required, with no impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718) . The amendments in this ASU simplify several aspects of the accounting for stock-based compensation, including the income tax consequences, the accounting for forfeitures, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted the guidance related to the income tax expense requirements in the first quarter of 2017 on a prospective basis. As a result, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete event resulting in recognition of incremental income tax expense of $0.1 million during the three months ended September 30, 2017 and $1.5 million during the nine months ended September 30, 2017 . The Company adopted the provisions related to the classification on the statement of cash flows on a retrospective basis and prior periods have been adjusted to present the excess tax benefits/shortfalls as part of cash flows from operating activities. The result was a decrease in cash flows from operating activities and a corresponding increase in cash flows from financing activities of $0.1 million and $1.5 million , respectively, for the three and nine months ended September 30, 2017 , and a decrease in cash flows from operating activities and a corresponding increase in cash flows from financing activities of $0.7 million and $0.4 million , respectively, for the three and nine months ended September 30, 2016 . The Company elected not to change its policy on accounting for forfeitures and will continue to recognize expense based on an estimated forfeiture rate. In future periods, the adoption of this update could increase or reduce the Company’s reported income tax expense or benefit and cash flows from operating activities depending on the difference between the future price of the Company’s common stock at vesting or exercise as compared to the grant price.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. This standard was scheduled to be effective for the Company for the fiscal year beginning January 1, 2020 and for interim periods within that fiscal year. Early adoption is permitted for any goodwill impairment test performed on testing dates after January 1, 2017. As the amendments within this ASU are meant to reduce the complexity surrounding the evaluation of the Company’s goodwill for impairment, the Company elected to early adopt this ASU beginning January 1, 2017. The amendments in this ASU have been and will continue to be applied to the Company’s goodwill impairment tests performed on an interim or annual basis, including the interim test which was performed as a result of a decline in the Company’s market capitalization during the third quarter of 2017. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets.”

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, respectively (collectively, “Topic 606”). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In addition, new and enhanced disclosures will be required. The guidance under this topic was deferred by ASU 2015-14 and is now effective for fiscal years and interim periods beginning on or after December 15, 2017, with early adoption permitted as of the original effective date for periods beginning after December 15, 2016. The Company will adopt Topic 606 in the first quarter of 2018. The Company has reached conclusions on key accounting assessments related to the adoption of Topic 606. However, the Company is finalizing its assessment and expects the impact to be immaterial to our consolidated financial statements on an ongoing basis. The Company expects to adopt Topic 606 on a modified retrospective basis with the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings, if any adjustment is necessary.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The updated guidance enhances the reporting model for financial instruments, and includes amendments to address aspects of recognition, measurement, presentation and disclosure.   The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2017. The amendments must be applied prospectively and, although early adoption is permitted for certain measurement enhancements within this amendment, early adoption is not permitted for other aspects updated in this amendment. The Company does not anticipate that the adoption of this update will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This update requires the recognition of certain lease assets and lease liabilities on the balance sheet as well as the disclosure of key information about leasing arrangements. The amendments in this ASU require the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients which may be elected by the Company. The amendments in this ASU will be effective for the Company for fiscal years, and the interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) . This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which guidance is effective, which is a modified-retrospective approach. The Company does not anticipate that this update will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update was issued to address the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Company does not anticipate that the adoption of this update will have a material impact on its consolidated financial statements.

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FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This update was issued to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of terms or conditions of a share-based payment award. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards would require an entity to apply modification accounting under Topic 718. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments will be applied prospectively. The Company does not anticipate that this update will have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities . This update seeks to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. For cash flow and net investment hedges as of the adoption date, this ASU requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The amendments in this ASU are effective for the Company’s fiscal year beginning after December 31, 2018, with early adoption permitted. The Company is currently assessing the timing of adoption and the impact of this update on its consolidated financial statements.
2. SEGMENT INFORMATION
The Company reports its business in four reportable segments: Provide Commerce, Consumer, Florist, and International.
Below is a reconciliation of segment revenues to consolidated revenues (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Products revenues:
 
 
 
 
 
 
 
 
Provide Commerce
 
$
54,633

 
$
57,112

 
$
390,192

 
$
390,751

Consumer
 
43,631

 
51,260

 
196,547

 
220,743

Florist
 
8,630

 
10,328

 
37,612

 
38,417

International
 
27,497

 
27,142

 
93,385

 
101,809

Segment products revenues
 
134,391

 
145,842

 
717,736

 
751,720

Services revenues:
 
 
 
 
 
 
 
 
Florist
 
26,035

 
26,277

 
87,649

 
88,538

International
 
3,980

 
4,222

 
13,031

 
15,037

Segment services revenues
 
30,015

 
30,499

 
100,680

 
103,575

Intersegment eliminations
 
(3,102
)
 
(3,462
)
 
(12,473
)
 
(13,963
)
Consolidated revenues
 
$
161,304

 
$
172,879

 
$
805,943

 
$
841,332

    

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Intersegment revenues represent amounts charged from one segment to the other for services provided based on order volume at a set rate per order. Intersegment revenues by segment were as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Intersegment revenues:
 
 
 
 
 
 
 
 
Provide Commerce
 
$
(355
)
 
$
(440
)
 
$
(1,336
)
 
$
(1,707
)
Consumer
 
(2,675
)
 
(2,951
)
 
(10,847
)
 
(12,022
)
Florist
 
(72
)
 
(71
)
 
(290
)
 
(234
)
Total intersegment revenues
 
$
(3,102
)
 
$
(3,462
)
 
$
(12,473
)
 
$
(13,963
)
Geographic revenues from sales to external customers were as follows for the periods presented (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
U.S.
 
$
129,827

 
$
141,515

 
$
699,527

 
$
724,486

U.K.
 
31,477

 
31,364

 
106,416

 
116,846

Consolidated revenues
 
$
161,304

 
$
172,879

 
$
805,943

 
$
841,332

Below is a reconciliation of segment operating income to consolidated operating income and income before income taxes (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Segment operating income/(loss) (a)
 
 
 
 
 
 
 
 
Provide Commerce
 
$
(6,304
)
 
$
(1,847
)
 
$
21,686

 
$
27,406

Consumer
 
3,225

 
5,019

 
15,460

 
22,326

Florist
 
9,552

 
11,362

 
35,757

 
36,722

International
 
3,384

 
3,845

 
11,982

 
15,225

Total segment operating income
 
9,857

 
18,379

 
84,885

 
101,679

Unallocated expenses (b)
 
(11,573
)
 
(9,416
)
 
(32,428
)
 
(29,514
)
Impairment of goodwill, intangible assets, and other long-lived assets
 
(82,735
)
 

 
(82,735
)
 

Depreciation expense and amortization of intangible assets
 
(9,194
)
 
(20,986
)
 
(27,778
)
 
(63,502
)
Operating income/(loss)
 
(93,645
)
 
(12,023
)
 
(58,056
)
 
8,663

Interest expense, net
 
(2,599
)
 
(2,294
)
 
(7,312
)
 
(6,863
)
Other income/(expense), net
 
126

 
(9
)
 
324

 
1,804

Income/(loss) before income taxes
 
$
(96,118
)
 
$
(14,326
)
 
$
(65,044
)
 
$
3,604

 
(a)
Segment operating income/(loss) is operating income/(loss) excluding depreciation, amortization, litigation and dispute settlement charges and gains, transaction and integration costs, restructuring and other exit costs, and impairment of goodwill, intangible assets, and other long-lived assets. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net.

(b)
Unallocated expenses include various corporate costs, such as executive management, corporate finance, and legal costs. In addition, unallocated expenses include stock-based and incentive compensation, restructuring and other exit costs, transaction and integration costs, and litigation and dispute settlement charges and gains.

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3. FINANCING RECEIVABLES
The Company has financing receivables related to equipment sales to its floral network members. The current and noncurrent portions of financing receivables are included in accounts receivable and other assets, respectively, in the condensed consolidated balance sheets. The Company assesses financing receivables individually for balances due from current floral network members and collectively for balances due from terminated floral network members.
Credit quality of financing receivables was as follows (in thousands):
 
 
September 30, 2017
 
December 31, 2016
Current
 
$
10,784

 
$
11,490

Past due
 
869

 
865

Total
 
$
11,653

 
$
12,355

The aging of financing receivables was as follows (in thousands):
 
 
September 30, 2017
 
December 31, 2016
Current
 
$
10,784

 
$
11,490

Past due:
 
 
 
 
1 - 150 days past due
 
182

 
120

151 - 364 days past due
 
181

 
129

365 - 730 days past due
 
187

 
230

731 or more days past due
 
319

 
386

Total
 
$
11,653

 
$
12,355

 
Financing receivables on nonaccrual status as of September 30, 2017 and December 31, 2016 , totaled $0.9 million and $1.0 million , respectively.
The allowance for credit losses and the recorded investment in financing receivables were as follows (in thousands):
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Allowance for credit losses:
 
 
 
 
Balance as of January 1
 
$
846

 
$
706

Provision
 
280

 
131

Write-offs charged against allowance
 
(276
)
 
(66
)
Balance as of September 30
 
$
850

 
$
771

Ending balance collectively evaluated for impairment
 
$
806

 
$
767

Ending balance individually evaluated for impairment
 
$
44

 
$
4

Recorded investments in financing receivables:
 
 
 
 
Balance collectively evaluated for impairment
 
$
943

 
$
861

Balance individually evaluated for impairment
 
$
10,710

 
$
11,571

Individually evaluated impaired loans, including the recorded investment in such loans, the unpaid principal balance, and the allowance related to such loans, each totaled less than $0.1 million as of both September 30, 2017 and December 31, 2016 . The average recorded investment in such loans was less than $0.1 million for both the nine months ended September 30, 2017 and 2016 . Interest income recognized on impaired loans was less than $0.1 million for both the nine months ended September 30, 2017 and 2016 .

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4. TRANSACTIONS WITH RELATED PARTIES
Transactions with Liberty
As of September 30, 2017 , Liberty Interactive Corporation (“Liberty”) owned 37.0% of the issued and outstanding shares of FTD common stock. An Investor Rights Agreement governs certain rights of and restrictions on Liberty in connection with the shares of FTD common stock that Liberty owns.
On April 4, 2017, Liberty and General Communication, Inc. (“GCI”) announced Liberty’s entry into an agreement to acquire GCI, combine GCI with Liberty’s Liberty Ventures tracking stock group and effect a split-off (the “Split-Off”) of Liberty’s interest in the combined company (“GCI Liberty”). In connection with these proposed transactions, Liberty currently intends to transfer its entire equity interest in the Company, and all of its rights, benefits and obligations under the Investor Rights Agreement, to GCI.
On August 28, 2017, Liberty, the Company, GCI, Liberty Interactive LLC and Ventures Holdco, LLC, entered into an assignment and assumption agreement pursuant to which, subject to the completion of the Split-Off and certain other conditions, Liberty will assign, and GCI Liberty will assume, Liberty’s rights, benefits and obligations under the Investor Rights Agreement. Following the consummation of such transactions, GCI Liberty will be entitled to all of Liberty’s rights, benefits and obligations under the Investor Rights Agreement.
The I.S. Group Limited
Interflora holds an equity investment of 20.4% in The I.S. Group Limited (“I.S. Group”). The investment was $1.5 million and $1.4 million , respectively, as of September 30, 2017 and December 31, 2016 , and is included in other assets in the condensed consolidated balance sheets. I.S. Group supplies floral-related products to Interflora’s floral network members in both the U.K. and the Republic of Ireland as well as to other customers. Interflora derives revenues from I.S. Group from (i) the sale of products (sourced from third-party suppliers) to I.S. Group for which revenue is recognized on a gross basis, (ii) commissions on products sold by I.S. Group (sourced from third-party suppliers) to floral network members, and (iii) commissions for acting as a collection agent on behalf of I.S. Group. Revenues related to products sold to and commissions earned from I.S. Group were $0.5 million and $0.5 million for the three months ended September 30, 2017 and 2016 , respectively, and $1.6 million and $1.8 million for the nine months ended September 30, 2017 and 2016 , respectively. In addition, Interflora purchases products from I.S. Group for sale to consumers. The cost of revenues related to products purchased from I.S. Group was $0.1 million and $0.1 million for the three months ended September 30, 2017 and 2016 , respectively, and $0.2 million and $0.4 million for the nine months ended September 30, 2017 and 2016 , respectively. Amounts due from I.S. Group were $0.2 million and $0.3 million as of September 30, 2017 and December 31, 2016 , respectively, and amounts payable to I.S. Group were $0.8 million and $1.2 million as of September 30, 2017 and December 31, 2016 , respectively.
5. GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS
Goodwill is tested for impairment at the reporting unit level. A reporting unit is a business or a group of businesses for which discrete financial information is available and is regularly reviewed by management. An operating segment is made up of one or more reporting units. The Company reports its business operations in four operating and reportable segments: Consumer, Provide Commerce, Florist, and International. Each of the Consumer, Florist, and International segments is a reporting unit. The Provide Commerce segment is comprised of two reporting units, ProFlowers/Gourmet Foods and Personal Creations.

The Company tests goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year at the reporting unit level and on an interim basis if events or substantive changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value (i.e. that a triggering event has occurred). Additionally, the Company evaluates finite-lived intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset groupings may not be recoverable.

Due to a sustained decline in the Company’s market capitalization during the three months ended September 30, 2017, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units, intangible assets, and other long-lived assets. Impairment charges are included in operating expenses in the condensed consolidated statement of operations under the caption impairment of goodwill, intangible assets, and other long-lived assets.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Goodwill
The Company performed a quantitative interim test. In calculating the fair value of the reporting units, the Company used a combination of the market approach and the income approach valuation methodologies. The income approach was used primarily, as management believes that a discounted cash flow approach is the most reliable indicator of the fair values of the businesses. Under the market approach, the guideline company method was used, which focuses on comparing the Company’s risk profile and growth prospects to select reasonably similar companies based on business description, revenue size, markets served, and profitability.

The interim test resulted in the Company’s determination that the fair values of the Florist, International, and Personal Creations reporting units exceeded their carrying values and, therefore, their goodwill was not impaired. The fair values of the Consumer and ProFlowers/Gourmet Foods reporting units were less than their carrying values and, as such, their goodwill was deemed to be impaired. Impairment charges of $16.8 million and $26.8 million , respectively, were recorded during the three months ended September 30, 2017 related to the goodwill of the Consumer and ProFlowers/Gourmet Foods reporting units. These goodwill impairment charges are not deductible for tax purposes. The remaining goodwill balances for the Consumer, Florist, and International reporting units are included in the table below. The remaining goodwill balance for the ProFlowers/Gourmet Foods reporting unit is $94.4 million as of September 30, 2017.

The changes in the net carrying amount of goodwill for the nine months ended September 30, 2017 were as follows (in thousands):
 
 
Provide Commerce
 
Consumer
 
Florist
 
International
 
Total
Goodwill as of December 31, 2016
 
$
147,501

 
$
133,226

 
$
109,651

 
$
73,087

 
$
463,465

Foreign currency translation
 

 

 

 
6,266

 
6,266

Impairment of Goodwill
 
(26,800
)
 
(16,800
)
 

 

 
(43,600
)
Goodwill as of September 30, 2017
 
$
120,701

 
$
116,426

 
$
109,651

 
$
79,353

 
$
426,131

 
In 2016, 2015, and 2008, the Company recorded impairment charges of $84.0 million , $85.0 million , and $116.3 million , respectively. The table above reflects the Company’s December 31, 2016 goodwill balances net of the previously recorded impairment charges. The total accumulated goodwill impairment was $328.9 million as of September 30, 2017.

Intangible Assets

In conjunction with the interim goodwill impairment test, the Company also reviewed its intangible assets for potential impairment. The interim impairment test for the indefinite-lived intangibles was performed by calculating the fair values of the assets using a discounted cash flow approach and comparing the fair value to their respective carrying amounts. This test resulted in the determination that the fair value of the indefinite-lived intangible asset related to the International segment trademark and trade name exceeded its carrying amount of $37.4 million by 7.8% and, therefore, was not impaired. The Consumer and Florist segments share a trademark and trade name and, therefore, share the related indefinite-lived asset. The fair value of this indefinite-lived intangible asset was less than its carrying value and, accordingly, a pre-tax impairment charge of $13.1 million was recorded in the three months ended September 30, 2017. The asset has a total remaining value of $100.0 million as of September 30, 2017. An impairment evaluation of the finite-lived intangible assets was also performed which indicated that the carrying amount of the complete technology intangible asset related to the acquisition of Provide Commerce was not recoverable when compared to the expected undiscounted future cash flows. As such, a pre-tax impairment charge of $16.3 million was recorded during the three months ended September 30, 2017 related to the Provide Commerce segment, leaving no remaining balance related to the complete technology intangible asset.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Intangible assets are primarily related to the acquisition of the Company by United Online, Inc. in August 2008 and the acquisition of Provide Commerce in December 2014 and consist of the following (in thousands):
 
 
September 30, 2017
 
December 31, 2016
 
 
Gross Value (a)
 
Accumulated Amortization
 
Net
 
Gross Value
 
Accumulated Amortization
 
Net
Complete technology
 
$
60,596

 
$
(60,596
)
 
$

 
$
76,486

 
$
(54,705
)
 
$
21,781

Customer contracts and relationships
 
193,519

 
(193,519
)
 

 
192,183

 
(192,183
)
 

Trademarks and trade names:
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
 
120,356

 
(22,864
)
 
97,492

 
120,290

 
(16,817
)
 
103,473

Indefinite-lived (b)
 
137,397

 

 
137,397

 
147,544

 

 
147,544

Total
 
$
511,868

 
$
(276,979
)
 
$
234,889

 
$
536,503

 
$
(263,705
)
 
$
272,798


(a)
Gross value as of September 30, 2017 includes the impairments recorded during the three months ended September 30, 2017 of $16.3 million related to complete technology and $13.1 million related to indefinite-lived trademarks and trade names.
(b)
As indefinite-lived assets are not amortized, the indefinite-lived trademarks and trade names have no associated amortization expense or accumulated amortization.
As of September 30, 2017 , estimated future intangible assets amortization expense for each of the next five years and thereafter was as follows (in thousands):
For the Year Ended
Future Amortization Expense
2017 (remainder of the year)
$
2,005

2018
8,020

2019
8,020

2020
8,012

2021
8,008

Thereafter
63,427

Total
$
97,492

Other Long-Lived Assets
Also in conjunction with the interim goodwill impairment test, the Company performed an impairment evaluation of its other long-lived assets by comparing the expected undiscounted future cash flows to the carrying amounts of the assets. The result of this evaluation was that the carrying amounts of some property and equipment associated with the Provide Commerce segment were not recoverable. Based on the Company’s assessment of the fair value of this asset group using a discounted cash flow analysis, the Company determined that the carrying value of this asset group exceeded the fair value and, as a result, a $9.7 million pre-tax impairment charge was recorded during the three months ended September 30, 2017.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Property and equipment consisted of the following (in thousands):
 
 
September 30, 2017 (a)
 
December 31, 2016
Land and improvements
 
$
1,581

 
$
1,565

Buildings and improvements
 
16,319

 
16,080

Leasehold improvements
 
13,453

 
16,290

Equipment
 
16,493

 
14,771

Computer equipment
 
25,868

 
26,633

Computer software
 
62,721

 
61,332

Furniture and fixtures
 
3,861

 
3,310

 
 
140,296

 
139,981

Accumulated depreciation
 
(97,714
)
 
(82,422
)
Total
 
$
42,582

 
$
57,559

 
(a)
The impairment charges of $9.7 million recorded during the three months ended September 30, 2017 are reflected as reductions in the gross balances as of September 30, 2017.
Depreciation expense, including the amortization of leasehold improvements, was $5.4 million and $5.7 million for the three months ended September 30, 2017 and 2016 , respectively, and $16.3 million and $17.6 million for the nine months ended September 30, 2017 and 2016 , respectively.
6. FINANCING ARRANGEMENTS
Credit Agreement
On September 19, 2014, FTD Companies, Inc. entered into a credit agreement (the “Credit Agreement”) with Interflora, certain wholly owned domestic subsidiaries of FTD Companies, Inc. party thereto as guarantors, the financial institutions party thereto from time to time, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of America, N.A., as administrative agent for the lenders. The Credit Agreement provided for a term loan in an aggregate principal amount of $200 million , the proceeds of which were used to repay a portion of outstanding revolving loans, and also provided for a $350 million revolving credit facility. On December 31, 2014, the Company borrowed $120 million under the revolving credit facility to fund the cash portion of the acquisition purchase price of Provide Commerce.
The obligations under the Credit Agreement are guaranteed by certain of FTD Companies, Inc.’s wholly owned domestic subsidiaries (together with FTD Companies, Inc., the “U.S. Loan Parties”). In addition, the obligations under the Credit Agreement are secured by a lien on substantially all of the assets of the U.S. Loan Parties, including a pledge of all of the outstanding capital stock of certain direct subsidiaries of the U.S. Loan Parties (except with respect to foreign subsidiaries and certain domestic subsidiaries whose assets consist primarily of foreign subsidiary equity interests, in which case such pledge is limited to 66% of the outstanding capital stock).
The interest rates applicable to borrowings under the Credit Agreement are based on either LIBOR plus a margin ranging from 1.50% per annum to 2.50% per annum, or a base rate plus a margin ranging from 0.50% per annum to 1.50% per annum, calculated according to the Company’s net leverage ratio. As of September 30, 2017 , the base rate margin was 0.75% per annum and the LIBOR margin was 1.75% per annum. In addition, the Company pays a commitment fee ranging from 0.20% per annum to 0.40% per annum on the unused portion of the revolving credit facility. The stated interest rates (based on LIBOR ) as of September 30, 2017 under the term loan and the revolving credit facility were 3.08% and 2.99% , respectively. The effective interest rates as of September 30, 2017 under the term loan and the revolving credit facility were 4.08% and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3.61% , respectively. The effective interest rates include the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees. The commitment fee rate as of September 30, 2017 was 0.25% . The Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, asset sales, and the Company’s ability to incur additional debt and additional liens.
The term loan is subject to amortization payments of $5.0 million per quarter and customary mandatory prepayments under certain conditions. The outstanding balance of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019. As of September 30, 2017 , the future minimum principal payments through the maturity date of the Credit Agreement were as follows (in thousands):
For the Year Ended
 
Future Minimum Principal Payments
2017 (remainder of the year)
 
$
5,000

2018
 
20,000

2019
 
230,000

Total
 
$
255,000

At September 30, 2017 , the remaining borrowing capacity under the Credit Agreement, which was reduced by $2.0 million in outstanding letters of credit, was $238.0 million , subject to certain limitations under covenants contained in the Credit Agreement. After giving effect to the net leverage ratio contained in the Credit Agreement, approximately $74 million was available for additional borrowing as of September 30, 2017 based on 3.25 times the total of Adjusted EBITDA (as defined in the Credit Agreement) for the last twelve months.
The changes in the Company’s debt balances for the nine months ended September 30, 2017 were as follows (in thousands):
 
 
December 31, 2016
 
Draw Down of Debt
 
Repayments of Debt
 
September 30, 2017
 Credit Agreement:
 
 

 
 
 
 

 
 

Revolving Credit Facility
 
$
120,000

 
$
90,000

 
$
(100,000
)
 
$
110,000

Term Loan
 
160,000

 

 
(15,000
)
 
145,000

Total Principal Outstanding
 
280,000

 
$
90,000

 
$
(115,000
)
 
255,000

Debt Issuance Costs
 
(3,694
)
 
 
 
 

 
(2,674
)
Total Debt, Net of Debt Issuance Costs
 
$
276,306

 
 
 
 

 
$
252,326

 
7. DERIVATIVE INSTRUMENTS
In March 2012, the Company purchased, for $1.9 million , forward starting interest rate cap instruments based on 3-month LIBOR, effective January 2015 through June 2018. The forward starting interest rate cap instruments have aggregated notional values totaling $130 million . The interest rate cap instruments are designated as cash flow hedges against expected future cash flows attributable to future 3-month LIBOR interest payments on a portion of the outstanding borrowings under the Credit Agreement. The gains or losses on the instruments are reported in other comprehensive income/(loss) to the extent that they are effective and are reclassified into earnings when the cash flows attributable to 3-month LIBOR interest payments are recognized in earnings.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The estimated fair values and notional values of outstanding derivative instruments as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
 
 
 
 
Estimated Fair Value of Derivative Instruments
 
Notional Value of Derivative Instruments
 
 
Balance Sheet Location
 
September 30, 2017
 
December 31, 2016
 
September 30, 2017
 
December 31, 2016
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
Interest rate caps
 
Other assets
 
$

 
$
1

 
$
130,000

 
$
130,000

 
The Company recognized the following losses from derivatives, before tax, in other comprehensive income/(loss) (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Derivatives Designated as Cash Flow Hedging Instruments:
 
 
 
 
 
 
 
 
Interest rate caps
 
$

 
$

 
$
(1
)
 
$
(34
)
The effective portion, before tax effect, of the Company’s interest rate caps designated as cash flow hedging instruments was $0.4 million and $0.8 million as of September 30, 2017 and December 31, 2016 , respectively. As of September 30, 2017 , the remaining effective portion of $0.4 million was expected to be reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated statements of operations within the next twelve months. During each of the three months ended September 30, 2017 and 2016 , $0.1 million was reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated statements of operations. During both the nine months ended September 30, 2017 and 2016 , $0.4 million was reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated statements of operations.
8. FAIR VALUE MEASUREMENTS
The following table presents estimated fair values of financial assets and liabilities and derivative instruments that were required to be measured at fair value on a recurring basis (in thousands):
 
 
September 30, 2017
 
December 31, 2016
 
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
5,394

 
$
5,394

 
$

 
$
13,197

 
$
13,197

 
$

Derivative assets
 

 

 

 
1

 

 
1

Total
 
$
5,394

 
$
5,394

 
$

 
$
13,198

 
$
13,197

 
$
1

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Non-qualified deferred compensation plan
 
$
1,352

 
$

 
$
1,352

 
$
2,371

 
$

 
$
2,371

Total
 
$
1,352

 
$

 
$
1,352

 
$
2,371

 
$

 
$
2,371

Provide Commerce has an executive deferred compensation plan for key management level employees under which such employees could elect to defer receipt of current compensation. This plan is intended to be an unfunded, non-qualified deferred compensation plan that complies with the provisions of section 409A of the Internal Revenue Code. At the time of the acquisition, contributions to the plan were suspended except those relating to any compensation earned but not yet paid as of the same date. The plan assets, which consist primarily of life insurance contracts recorded at their cash surrender value, were $11.7 million and $11.6 million as of September 30, 2017 and December 31, 2016 , respectively, and are included in other assets in the accompanying condensed consolidated balance sheets.

20

Table of Contents                         
FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


During the three months ended September 30, 2017, in conjunction with an interim impairment test of its reporting units, the Company also performed impairment tests of its intangible and other long-lived assets. Based on these tests, the Company determined that the carrying value of certain intangible assets and fixed assets exceeded their fair values as determined using the income approach. Determining fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs, including projected cash flows over the estimated projection period and the discount rate. The resulting $39.1 million non-cash, pre-tax impairment charges (excluding goodwill impairment charges of $43.6 million ) were recorded related to certain intangible assets and fixed assets of the Provide Commerce and Consumer segments. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets” for additional information.
    The Company estimated the fair value of its long-term debt using a discounted cash flow approach that incorporates a market interest yield curve with adjustments for duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimated credit spread. As of September 30, 2017 , the Company estimated its credit spread as 1.0% and 1.6% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 2.5% and 3.1% , respectively. As of December 31, 2016 , the Company estimated its credit spread as 1.4% and 2.0% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 2.8% and 3.4% , respectively. The table below summarizes the carrying amounts and estimated fair values for long-term debt (in thousands):
 
 
September 30, 2017
 
December 31, 2016
 
 
 
 
Level 2
 
 
 
Level 2
 
 
Carrying Amount
 
Estimated Fair Value
 
Carrying Amount
 
Estimated Fair Value
Long-term debt outstanding, including current portion
 
$
255,000

 
$
255,000

 
$
280,000

 
$
280,000

Fair value approximates the carrying amount of financing receivables because such receivables are discounted at a rate comparable to market. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts because of their short-term nature.
9. STOCKHOLDERS’ EQUITY
Common Stock Repurchases
On March 8, 2016, the Company’s board of directors authorized a common stock repurchase program (the “2016 Repurchase Program”) that allows FTD Companies, Inc. to repurchase up to $60 million of its common stock from time to time over a two -year period in both open market and privately negotiated transactions. The Company did not repurchase any shares under this program during the nine months ended September 30, 2017 . As of September 30, 2017 , $44.8 million was available under this program for future purchases.
    
Upon vesting of restricted stock units (“RSUs”) or exercise of stock options, the Company does not collect withholding taxes in cash from employees. Instead, the Company automatically withholds, from the RSUs that vest or stock options that are exercised, the portion of those shares with a fair market value equal to the amount of the minimum statutory withholding taxes due. The withheld shares are accounted for as repurchases of common stock but are not counted against the limits under the 2016 Repurchase Program. The Company then pays the minimum statutory withholding taxes in cash. During the nine months ended September 30, 2017 , 0.3 million RSUs vested for which 0.1 million shares were withheld to cover the minimum statutory withholding taxes of $2.0 million .

21

Table of Contents                         
FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


10. INCENTIVE COMPENSATION PLANS
In June 2017, stockholders approved the FTD Companies, Inc. Third Amended and Restated 2013 Incentive Compensation Plan (as so amended and restated, the “Amended Plan”), which amended and restated in its entirety the FTD Companies, Inc. Amended and Restated 2013 Incentive Compensation Plan, as previously amended June 9, 2015. The Amended Plan provides for the granting of awards to employees and non-employee directors, including stock options, stock appreciation rights, RSUs, and other stock based awards. As of September 30, 2017 , the Company had 3.2 million shares available for issuance under the Amended Plan, which includes additional shares approved by shareholders in June 2017.
During the first quarter of 2017, the Company granted RSUs to certain employees totaling 0.4 million shares. The RSUs granted will generally vest in four equal annual installments. The weighted average fair market value of the underlying stock on the grant date was $23.12 per share.
During the second quarter of 2017, the Company granted RSUs to certain non-employee directors totaling 0.1 million shares. The RSUs granted will vest in one annual installment. The fair market value of the underlying stock on the grant date was $17.70 per share.
During the third quarter of 2017, the Company granted RSUs and stock options to certain management employees totaling 0.1 million shares and 0.4 million , respectively. The RSUs and stock options granted will vest in four annual installments. The fair market value of the underlying stock on the grant date of the RSUs was $13.83 per share. The options were granted with an exercise price of $13.85 . The following assumptions were used to estimate the fair value of the stock options at the grant date:
Risk-free interest rate
1.7
%
Expected term (in years)
4.75

Dividend yield
0.0
%
Expected volatility
34.0
%
In addition, eligible employees of the Company are able to participate in the FTD Companies, Inc. 2015 Employee Stock Purchase Plan (“ESPP Plan”) through which employees may purchase shares of FTD common stock at a purchase price equal to 85% of the lower of (i) the closing market price per share of FTD common stock on the first day of the offering period or (ii) the closing market price per share of FTD common stock on the purchase date. Each offering period has a six-month duration and purchase interval. As of September 30, 2017 , the Company had 0.4 million shares available under the ESPP Plan.
The stock-based compensation expense incurred for all equity plans in the three months ended September 30, 2017 and 2016 and the nine months ended September 30, 2017 and 2016 have been included in the condensed consolidated statements of operations as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Cost of revenues
 
$
62

 
$
45

 
$
196

 
$
111

Sales and marketing
 
848

 
870

 
3,178

 
3,251

General and administrative
 
1,441

 
2,408

 
4,847

 
7,441

Total stock-based compensation expense
 
$
2,351

 
$
3,323

 
$
8,221

 
$
10,803

 

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Table of Contents                         
FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


11. INCOME TAXES
During the three months ended September 30, 2017 , the Company recorded a tax benefit of $19.8 million on a pre-tax loss of $96.1 million , compared to a tax benefit of $4.1 million on a pre-tax loss of $14.3 million for the three months ended September 30, 2016 . The goodwill impairment charges recorded during the three months ended September 30, 2017 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax loss expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates.
During the nine months ended September 30, 2017 , the Company recorded a tax benefit of $7.5 million on a pre-tax loss of $65.0 million , compared to a tax provision of $0.3 million on pre-tax income of $3.6 million for the nine months ended September 30, 2016 . The goodwill impairment charges recorded during the nine months ended September 30, 2017 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax income expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates. In addition, tax deficiencies related to vesting of equity awards increased tax expense by $1.5 million . As noted in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements,” the Company adopted ASU 2016-09 on January 1, 2017. As such, tax deficiencies or excess tax benefits are recorded in the provision for income taxes for the nine months ended September 30, 2017 rather than in additional paid-in capital as was previously required.    
12. EARNINGS/(LOSS) PER SHARE
Certain of the Company’s RSUs are considered participating securities because they contain a non-forfeitable right to dividends irrespective of whether dividends are actually declared or paid or whether the awards ultimately vest. Accordingly, the Company computes earnings/(loss) per share pursuant to the two-class method in accordance with ASC 260, Earnings Per Share.
The following table sets forth the computation of basic and diluted earnings/(loss) per common share (in thousands, except per share amounts):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net income/(loss)
 
$
(76,319
)
 
$
(10,269
)
 
$
(57,580
)
 
$
3,257

Income allocated to participating securities
 

 

 

 
(66
)
Net income/(loss) attributable to common stockholders
 
$
(76,319
)
 
$
(10,269
)
 
$
(57,580
)
 
$
3,191

Denominator:
 
 
 
 
 
 
 
 
Basic average common shares outstanding
 
27,546

 
27,386

 
27,459

 
27,560

Add: Dilutive effect of securities
 

 

 

 
52

Diluted average common shares outstanding
 
27,546

 
27,386

 
27,459

 
27,612

Basic earnings/(loss) per common share
 
$
(2.77
)
 
$
(0.37
)
 
$
(2.10
)
 
$
0.12

Diluted earnings/(loss) per common share
 
$
(2.77
)
 
$
(0.37
)
 
$
(2.10
)
 
$
0.12

The diluted earnings/(loss) per common share computations exclude stock options and RSUs which are antidilutive. Weighted-average antidilutive shares for the three months ended September 30, 2017 and 2016 were 4.2 million and 2.1 million , respectively, and for the nine months ended September 30, 2017 were 3.7 million and 2.3 million , respectively.

23

Table of Contents                         
FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


13. RESTRUCTURING AND OTHER EXIT COSTS
Restructuring and other exit costs were as follows (in thousands):
 
 
Employee Termination Costs
 
Facility Closure Costs
 
Total
Accrued as of December 31, 2016
 
$
8,566

 
$
1,378

 
$
9,944

Charges
 
1,688

 
369

 
2,057

Cash paid
 
(6,043
)
 
(1,096
)
 
(7,139
)
Other – non-cash
 
(3,374
)
 
(12
)
 
(3,386
)
Accrued as of September 30, 2017
 
$
837

 
$
639

 
$
1,476

14. CONTINGENCIES—LEGAL MATTERS
 Commencing on August 19, 2009, the first of a series of putative consumer class action lawsuits was brought against Provide Commerce, Inc. and co-defendant Regent Group, Inc. d/b/a Encore Marketing International (“EMI”). These cases were ultimately consolidated during the next three years into Case No. 09 CV 2094 in the United States District Court for the Southern District of California under the title In re EasySaver Rewards Litigation . Plaintiffs’ claims arise from their online enrollment in subscription based membership programs known as EasySaver Rewards, RedEnvelope Rewards, and Preferred Buyers Pass (collectively, the “Membership Programs”). Plaintiffs claim that after they ordered items from certain of Provide Commerce’s websites, they were presented with an offer to enroll in one of the Membership Programs, each of which is offered and administered by EMI. Plaintiffs purport to represent a nationwide class of consumers allegedly damaged by Provide Commerce’s purported unauthorized or otherwise allegedly improper transferring of billing information to EMI, who then posted allegedly unauthorized charges to their credit or debit card accounts for membership fees for the Membership Programs. In the operative fourth amended complaint, plaintiffs asserted ten claims against Provide Commerce and EMI: (1) breach of contract (against Provide Commerce only); (2) breach of contract (against EMI only); (3) breach of implied covenant of good faith and fair dealing; (4) fraud; (5) violations of the California Consumers Legal Remedies Act; (6) unjust enrichment; (7) violation of the Electronic Funds Transfer Act (against EMI only); (8) invasion of privacy; (9) negligence; and (10) violations of the Unfair Competition Law. Plaintiffs seek damages, attorneys’ fees, and costs. After motion practice regarding the claims asserted and numerous settlement conferences and mediations in an effort to informally resolve the matter, the parties reached an agreement on the high level terms of a settlement on April 9, 2012, conditioned on the parties negotiating and executing a complete written agreement. In the weeks following April 9, 2012, the parties negotiated a formal written settlement agreement (the “Settlement”), which the court preliminarily approved on June 13, 2012. After notice to the purported class and briefing by the parties, the court conducted a final approval hearing (also known as a fairness hearing) on January 28, 2013, but did not rule. On February 4, 2013, the court entered its final order approving the Settlement, granting plaintiffs’ motion for attorneys’ fees, costs, and incentive awards, and overruling objections filed by a single objector. The court entered judgment on the Settlement on February 21, 2013. The objector filed a notice of appeal with the Ninth Circuit Court of Appeals on March 4, 2013. After the completion of briefing, the Ninth Circuit set oral argument for February 2, 2015. However, on January 29, 2015, the Ninth Circuit entered an order deferring argument and resolution of the appeal pending the Ninth Circuit’s decision in a matter captioned Frank v .   Netflix , No. 12 15705+. On March 19, 2015, the Ninth Circuit entered an order vacating the judgment in this matter and remanding it to the district court for further proceedings consistent with its opinion in Frank v.   Netflix issued on February 27, 2015. The district court ordered supplemental briefing on the issue of final Settlement approval on May 21, 2015. After briefing, the district court conducted a hearing on July 27, 2016 and took the matter under submission. On August 9, 2016, the district court entered an order reapproving the Settlement without any changes, and accordingly entered judgment and dismissed the case with prejudice. On September 6, 2016, the objector filed a notice of appeal. On November 22, 2016, plaintiffs filed a motion for summary affirmance of the district court’s judgment, to which the objector responded and filed a cross-motion for sanctions. Plaintiffs’ motion for summary affirmance temporarily stayed briefing on the appeal. On March 2, 2017, the Ninth Circuit denied plaintiffs’ motion for summary affirmance and objector’s cross-motion for sanctions, and reset the briefing schedule. The objector filed his opening brief on May 1, 2017. Thirteen state Attorneys General filed an amicus brief in support of the objector on May 8, 2017. The parties filed their answering briefs on June 30, 2017. Various legal aid organizations filed an amicus brief in support of no party regarding cy pres relief also on June 30, 2017. The objector’s optional reply brief was filed on August 14, 2017. The date for oral argument on the appeal has not yet been set.        
    

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Table of Contents                         
FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company and certain of its current and former officers and directors were named as defendants in a lawsuit in the United States District Court for the Northern District of Illinois, asserting violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder. Plaintiff’s complaint in Winograd v. FTD Companies, Inc. et al. , filed on March 20, 2017, Case No. 1:17-cv-02135, alleged that the Company made false and misleading statements regarding the assessment of cross-border indirect taxes, internal controls over financial reporting, and the acquisition of Provide Commerce from Liberty Interactive Corporation that were revealed as such to the market on March 14, 2017.  Plaintiff purported to bring the lawsuit as a class action representing all those who purchased or otherwise acquired Company securities between March 13, 2015 and March 14, 2017.  On May 26, 2017, Inter-Local Pension Fund GCC/IBT was appointed Lead Plaintiff. On July 25, 2017, the Lead Plaintiff voluntarily dismissed the lawsuit, with prejudice, pursuant to Federal Rule of Civil Procedure 41.
The Company was a nominal defendant in consolidated shareholder derivative suits against its directors and former CEO and CFO in the United States District Court for the Northern District of Illinois, asserting claims for breaches of fiduciary duties, unjust enrichment, and corporate waste.  In Atallah v. Apatoff et al. , Case No. 1:17-cv-02773, filed on April 12, 2017, the plaintiff alleged that the individual defendants caused the Company to issue false and misleading statements regarding the assessment of cross-border indirect taxes, internal controls over financial reporting, and the acquisition of Provide Commerce from Liberty Interactive Corporation that were revealed as such to the market on March 14, 2017. In Palkon v. Berglass et al. , Case No. 1:17-cv-03233, filed on April 28, 2017, the plaintiff additionally alleged that the individual defendants violated Section 14(a) of the Exchange Act, breached their fiduciary duties to the Company, wasted corporate assets, and were unjustly enriched when certain of the defendants negligently issued or caused to be issued false and misleading statements to shareholders in the November 3, 2014 special proxy regarding the acquisition of Provide Commerce from Liberty Interactive Corporation. On June 15, 2017, Atallah and Palkon were consolidated for all purposes, and plaintiffs were ordered to file a consolidated amended complaint by July 31, 2017. On July 31, 2017, plaintiffs voluntarily dismissed the lawsuit, without prejudice, pursuant to Federal Rule of Civil Procedure 41.
There are no assurances that other legal actions or governmental investigations will not be instituted in connection with the Company’s current or former business practices. The Company cannot predict the outcome of governmental investigations or other legal actions or their potential implications for its business.
The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the assessment of the probability of loss or the amount of liability and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. As of both September 30, 2017 and December 31, 2016 , the Company had reserves totaling $3.0 million for estimated losses related to certain legal matters. With respect to other legal matters, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.
15. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth supplemental cash flow disclosures (in thousands):
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Cash paid for interest
 
$
6,261

 
$
5,764

Cash paid for income taxes, net
 
11,132

 
12,688

 

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Table of Contents                 
                        

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FTD Companies, Inc.  (which together with its subsidiaries may be referred to herein as the “Company,” “FTD,” “we,” “us,” or “our”) is a premier floral and gifting company with a vision to be the leading and most trusted floral and gifting company in the world. Our mission is to inspire, support, and delight our customers when expressing life’s most important sentiments. We provide floral, specialty foods, gift, and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. Our business uses the highly recognized FTD ® and Interflora ® brands, both supported by the iconic Mercury Man ® logo. While we operate primarily in the United States (“U.S.”) and the United Kingdom (“U.K.”), we have worldwide presence as our Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. Our diversified portfolio of brands also includes ProFlowers ® , ProPlants ® , Shari’s Berries ® , Personal Creations ® , RedEnvelope ® , Flying Flowers ® , Ink Cards™, Postagram™, and Gifts.com™. While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet-dipped berries and other specialty foods, personalized gifts, gift baskets, wine and champagne, jewelry, and spa products.
Reportable Segments
We report our business operations in four reportable segments: Provide Commerce, Consumer, Florist, and International.
Through our Provide Commerce segment, we are a leading direct marketer of floral and gift products for consumers, including food gifts, personalized gifts, and other gifting products, primarily in the U.S. Our Provide Commerce segment operates primarily through our www.proflowers.com, www.berries.com , www.personalcreations.com, www.proplants.com, and www.gifts.com websites, associated mobile sites and applications, and various telephone numbers. Through our Consumer segment, we are a leading direct marketer of floral and gift products for consumers, primarily in the U.S. Our Consumer segment operates primarily through the www.ftd.com website, associated mobile sites, and the 1-800-SEND-FTD telephone number. Through our Florist segment, we are a leading provider of products and services to our floral network members, including services that enable our floral network members to send, receive, and deliver floral orders. Floral network members include traditional retail florists, as well as other non-florist retail locations, primarily in the U.S. Our Florist segment also provides products and services to other companies in need of floral and gifting solutions. Our International segment consists of Interflora, which operates primarily in the U.K. Interflora is a premier direct marketer of floral and gift products, and operates primarily through the www.interflora.co.uk, and www.flyingflowers.co.uk websites, associated mobile sites and applications, and various telephone numbers. Interflora also provides products and services to floral network members and to other companies in need of floral and gifting solutions.

26

Table of Contents                 
                        

KEY BUSINESS METRICS
We review a number of key business metrics to help us monitor our performance and trends affecting our segments, and to develop forecasts and budgets. These key metrics include the following:
Segment operating income.  Our chief operating decision maker uses segment operating income to evaluate the performance of our business segments and to make decisions about allocating resources among segments. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges and gains, transaction and integration costs, restructuring and other exit costs, and impairment of goodwill and intangible assets. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net. See Note 2—“Segment Information” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment operating income to consolidated operating income and consolidated income before income taxes.
Consumer orders.  We monitor the number of consumer orders for floral, gift, and related products during a given period. Consumer orders are individual units delivered during the period that were originated through our consumer websites, associated mobile sites and applications, and various telephone numbers. The number of consumer orders is not adjusted for non-delivered orders that are refunded on or after the scheduled delivery date. Orders originating with a florist or other retail location for delivery to consumers are not included as part of this number.
Average order value.  We monitor the average value for consumer orders delivered in a given period, which we refer to as the average order value. Average order value represents the average amount received for consumer orders delivered during a period. The average order value of consumer orders within our Provide Commerce, Consumer, and International segments is tracked in their local currency, which is the U.S. Dollar (“USD”) for both the Provide Commerce and Consumer segments and the British Pound (“GBP”) for the International segment. The local currency amounts received for the International segment are then translated into USD at the average currency exchange rate for the period. Average order value includes merchandise revenues and shipping or service fees paid by the consumer, less discounts and refunds (net of refund-related fees charged to floral network members).
Average revenues per member.  We monitor average revenues per member for our floral network members in the Florist segment. Average revenues per member represents the average revenues earned from a member of our floral network during a period. Revenues include services revenues and products revenues, but exclude revenues from sales to non-members. Floral network members include our retail florists and other non-florist retail locations who offer floral and gifting solutions. Average revenues per member is calculated by dividing Florist segment revenues for the period, excluding sales to non-members, by the average number of floral network members for the period.

27

Table of Contents                 
                        

The table below sets forth, for the periods presented, our consolidated revenues, segment revenues, segment operating income, consumer orders, average order values, average revenues per member, and average currency exchange rates.
 
Three Months Ended
September 30,
 
Change
 
Nine Months Ended
September 30,
 
Change
 
2017
 
2016
 
$
 
%
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages, average order values, average revenues per member,
and average currency exchange rates)
Consolidated:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Consolidated revenues
$
161,304

 
$
172,879

 
$
(11,575
)
 
(7
)%
 
$
805,943

 
$
841,332

 
$
(35,389
)
 
(4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provide Commerce:
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Segment revenues (a)
$
54,633

 
$
57,112

 
$
(2,479
)
 
(4
)%
 
$
390,192

 
$
390,751

 
$
(559
)
 
 %
Segment operating income/(loss)
$
(6,304
)
 
$
(1,847
)
 
$
(4,457
)
 
241
 %
 
$
21,686

 
$
27,406

 
$
(5,720
)
 
(21
)%
Consumer orders
1,081

 
1,115

 
(34
)
 
(3
)%
 
7,549

 
7,780

 
(231
)
 
(3
)%
Average order value
$
49.30

 
$
49.78

 
$
(0.48
)
 
(1
)%
 
$
50.98

 
$
49.48

 
$
1.50

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer:
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 

Segment revenues (a)
$
43,631

 
$
51,260

 
$
(7,629
)
 
(15
)%
 
$
196,547

 
$
220,743

 
$
(24,196
)
 
(11
)%
Segment operating income
$
3,225

 
$
5,019

 
$
(1,794
)
 
(36
)%
 
$
15,460

 
$
22,326

 
$
(6,866
)
 
(31
)%
Consumer orders
555

 
645

 
(90
)
 
(14
)%
 
2,588

 
2,890

 
(302
)
 
(10
)%
Average order value
$
73.51

 
$
74.52

 
$
(1.01
)
 
(1
)%
 
$
71.51

 
$
71.99

 
$
(0.48
)