UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2007

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

For the transition period from                      to                     

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

(630) 719-7800
(Registrant’s telephone number, including area code)

     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 þ NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

     Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES o NO þ

     As of May 1, 2007, there were 28,940,735 outstanding shares of the issuer’s Common Stock, par value $0.01 per share.

 

 

FTD GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX

Part I. Financial Information
		Item 1.		Financial Statements (unaudited)
				Condensed Consolidated Balance Sheets			2
				Condensed Consolidated Statements of Income and Comprehensive Income			3
				Condensed Consolidated Statements of Cash Flows			4
				Notes to Condensed Consolidated Financial Statements			5
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			23
		Item 4.		Controls and Procedures			23
Part II. Other Information
		Item 1.		Legal Proceedings			24
		Item 1A.		Risk Factors			24
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			24
		Item 6.		Exhibits			24
Signatures							25
Exhibit Index							26
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
Section 906 Certification of CEO and CFO

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FTD GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)

		March 31, 2007				June 30, 2006
ASSETS
Current assets:
Cash and cash equivalents		$	41,379			$	10,954
Accounts receivable, less allowance for doubtful accounts of $5,047 at March 31, 2007 and $4,437 at June 30, 2006			47,649				26,044
Inventories, net			3,998				3,542
Other current assets			9,812				5,985
Total current assets			102,838				46,525
Property and equipment:
Property and equipment, at cost			34,268				25,265
Less accumulated depreciation			9,702				6,051
Property and equipment, net			24,566				19,214
Other assets:
Computer software, net			13,509				10,577
Other noncurrent assets			21,172				21,405
Intangible assets, less accumulated amortization of $8,345 at March 31, 2007 and $5,993 at June 30, 2006			14,228				14,780
Trademarks			186,504				121,577
Goodwill			416,567				336,659
Total other assets			651,980				504,998
Total assets		$	779,384			$	570,737
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	69,700			$	45,273
Notes payable			22,829				—
Other accrued liabilities			32,054				24,083
Current maturities of long-term debt			1,430				1,125
Dividends payable			4,699				—
Total current liabilities			130,712				70,481
Senior secured credit facility			140,820				48,875
Senior subordinated notes			170,117				170,117
Post-retirement benefits, accrued pension obligations and other liabilities			5,066				2,368
Deferred income taxes			83,116				61,160
Stockholders’ equity:
Common stock: $0.01 par value, 75,000,000 shares authorized; 29,482,182 shares issued as of March 31, 2007 and June 30, 2006			295				295
Additional paid-in capital			232,865				233,362
Retained earnings (accumulated deficit)			14,912				(1,554	)
Accumulated other comprehensive income			6,675				200
Treasury stock, at cost, 541,447 shares as of March 31, 2007 and 1,504,480 shares as of June 30, 2006			(5,194	)			(14,567	)
Total stockholders’ equity			249,553				217,736
Total liabilities and stockholders’ equity		$	779,384			$	570,737

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Revenues:
Products		$	143,483			$	95,736			$	333,184			$	232,925
Services			39,416				32,849				110,026				90,714
Total revenues			182,899				128,585				443,210				323,639
Costs of products sold and services provided:
Products			108,168				69,637				248,714				167,292
Services			3,435				4,326				12,630				13,651
Total costs of products sold and services provided			111,603				73,963				261,344				180,943
Gross profit:
Products			35,315				26,099				84,470				65,633
Services			35,981				28,523				97,396				77,063
Total gross profit			71,296				54,622				181,866				142,696
Operating expenses:
Advertising and selling			27,348				22,743				68,767				62,284
General and administrative			21,498				15,048				58,262				38,444
Total operating expenses			48,846				37,791				127,029				100,728
Income from operations			22,450				16,831				54,837				41,968
Other income and expenses:
Interest income			(489	)			(233	)			(1,126	)			(528	)
Interest expense			6,444				4,829				21,679				14,596
Other expense (income), net			570				(118	)			(725	)			(206	)
Total other expenses, net			6,525				4,478				19,828				13,862
Income before income tax			15,925				12,353				35,009				28,106
Income tax expense			6,310				4,932				13,844				11,357
Net income		$	9,615			$	7,421			$	21,165			$	16,749
Other comprehensive income:
Foreign currency translation adjustments			88				12				6,475				142
Comprehensive income		$	9,703			$	7,433			$	27,640			$	16,891
Net income per common share — basic		$	0.34			$	0.26			$	0.75			$	0.58
Net income per common share — diluted		$	0.32			$	0.26			$	0.72			$	0.56
Weighted average common shares outstanding:
Basic			28,462				28,111				28,343				28,989
Diluted			29,827				29,031				29,510				30,025
Cash dividends declared per common share		$	0.1625			$	—			$	0.1625			$	—

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

		Nine Months Ended
		March 31,
		2007				2006
Cash flows from operating activities:
Net income		$	21,165			$	16,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			10,890				7,740
Gain from sale of business and related transaction			—				(991	)
Stock-based compensation expense			1,451				458
Amortization and write off of deferred financing costs			2,512				1,204
Provision for doubtful accounts			2,088				2,589
Deferred income taxes			2,706				500
All other, net of acquisition			(3,419	)			(7,519	)
Net cash provided by operating activities			37,393				20,730
Cash flows from investing activities:
Acquisition of business, net of cash acquired			(96,717	)			—
Capital expenditures			(6,027	)			(7,370	)
Proceeds from sale of business			—				3,500
Net cash used in investing activities			(102,744	)			(3,870	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of financing costs			148,536				—
Repayments of long-term debt			(57,750	)			(11,096	)
Excess tax benefit from stock-based compensation			1,904				217
Proceeds from exercise of stock options			2,315				209
Purchase of company stock			—				(14,999	)
Net cash provided by (used in) financing activities			95,005				(25,669	)
Effect of foreign exchange rate changes on cash and cash equivalents			771				142
Net increase (decrease) in cash and cash equivalents			30,425				(8,667	)
Cash and cash equivalents at beginning of period			10,954				8,890
Cash and cash equivalents at end of period		$	41,379			$	223
Supplemental disclosures of cash flow information
Cash paid for:
Interest		$	20,994			$	16,131
Income taxes, net		$	13,356			$	4,570
Non-cash disclosure:
Issuance of notes payable associated with the purchase of Interflora Holdings Limited		$	23,313
Issuance of treasury stock associated with the purchase of Interflora Holdings Limited		$	3,206
Issuance of notes receivable associated with the sale of Renaissance						$	1,805

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

FTD Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Description of the Business

Basis of Presentation

     These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments consisting only of normal recurring adjustments, unless otherwise noted herein, necessary to present fairly the results of operations, financial position and cash flows have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in FTD Group, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2006. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

     As used in this Form 10-Q, the term “Company” refers to FTD Group, Inc. and its consolidated subsidiaries, including FTD, Inc. taken as a whole. FTD, Inc. is a Delaware corporation that commenced operations in 1994 and includes the operations of its principal operating subsidiaries, Florists’ Transworld Delivery, Inc., (“FTD” or the “Operating Company”), FTD.COM, INC. (“FTD.COM”) and Interflora British Unit.

     On July 31, 2006, the Company completed its acquisition of Interflora Holdings Limited (“Interflora”), the parent company of Interflora British Unit, a U.K. based provider of floral-related products and services to consumers and retail floral locations in the U.K. and the Republic of Ireland. Refer to Note 4 below. As a result of the Interflora acquisition, the Company also acquired majority control of Interflora, Inc. Interflora, Inc. is an international clearinghouse for flowers-by-wire order exchanges between its members. The results of operations associated with Interflora and Interflora, Inc. are included in a new international segment.

     All intercompany accounts and transactions have been eliminated in consolidation.

     Certain amounts reported within total revenues and costs of products sold and services provided have been reclassified between products and services in the fiscal year 2006 financial statements to conform to current year presentation. Such reclassifications primarily related to service fees in the consumer segment and did not affect reported total revenues or costs of products sold and services provided.

Recently Issued Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106 and 132(R), (“SFAS 158”), effective for the Company’s fiscal year ending June 30, 2007. SFAS 158 requires the balance sheet recognition of the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability along with a corresponding after-tax adjustment to accumulated other comprehensive income included in stockholders’ equity. The Company does not expect the adoption of SFAS 158 to have a material effect on the Company’s consolidated financial statements.

     In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“SFAS 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109 and prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken or expected to be taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the Company’s fiscal year ending June 30, 2008, with early adoption

permitted. The Company is currently evaluating the impact the adoption of FIN 48 will have on the Company’s consolidated financial statements.

Note 2. Secondary Offering

     On March 12, 2007, the Company closed its underwritten secondary public offering of 6,000,000 shares of common stock. The underwriters exercised in full their over-allotment option for an additional 900,000 shares of common stock at the public offering price of $17.50 per share, less underwriting discounts. Of the shares sold, 6,285,900 shares were sold by affiliates of Leonard Green & Partners, L.P. and 614,100 shares were sold by members of management. As a result of the transaction, the total ownership of affiliates of Leonard Green & Partners, L.P. was reduced from 54.9% to 32.8% and therefore the Company is no longer a “controlled company” as defined under New York Stock Exchange regulations.

     In conjunction with the offering, the Company realized $1.7 million in proceeds from the exercise of stock options by members of management and incurred $0.8 million in offering related costs. These offering related costs have been recorded in other expense (income), net within the Condensed Consolidated Statements of Income and Comprehensive Income.

Note 3. Dividend Declared

     On February 20, 2007, the Company’s Board of Directors approved a dividend policy and declared its first quarterly cash dividend of $0.1625 per share. The dividend was paid on April 2, 2007 to stockholders of record as of the close of business on March 19, 2007. On an annual basis, the cash dividend is expected to be $0.65 per share. While the Company intends to continue to pay quarterly dividends, the declaration and payment of dividends is subject to the determination of the Board of Directors and continued compliance with the requirements of the Company’s 2006 Credit Agreement and the indenture governing the 7.75% Senior Subordinated Notes, among other considerations.

Note 4. Acquisition of Interflora Holdings Limited

     On July 31, 2006, in connection with the Company’s international expansion strategy, the Company completed the acquisition of Interflora for a purchase price of approximately $122.8 million (£66 million) plus transaction related costs totaling $2.3 million. Approximately $98.6 million of the acquisition price was paid in cash at closing and $1.9 million of cash was acquired in connection with the purchase. The consideration included approximately $23.3 million (£12.5 million) of notes payable, of which $21.6 million (£11.6 million) will be paid in May 2007 and the remainder, $1.7 million (£0.9 million), is expected be paid in the first half of fiscal 2008. The remainder of the purchase price ($3.2 million) was funded through the issuance of 216,374 shares of common stock (consisting of treasury shares) to certain senior managers of Interflora. The Company financed the acquisition with a new senior secured credit facility consisting of a $150.0 million term loan and a $75.0 million revolving credit facility. The proceeds from the new facility were also used to repay the Company’s existing term loan. Refer to Note 6 below. In addition, the Company entered into foreign currency forward exchange contracts totaling £61.8 million to hedge the acquisition cost. A contract in the amount of £51.0 million was settled on July 28, 2006 and resulted in a gain of $1.4 million, which has been recorded in other income, net within the Condensed Consolidated Statements of Income and Comprehensive Income. The remaining forward contracts include a contract for £10 million, expected to be settled during the fourth quarter of fiscal year 2007 and a contract for £0.8 million, expected to be settled during the first quarter of fiscal year 2009. The settlement of these contracts coincide with the due dates of the notes payable related to the acquisition of Interflora. For the three-month and nine-month periods ended March 31, 2007, other expense (income), net included $0.1 million and $1.4 million of income, respectively, related to the mark-to-market adjustments on these forward contracts and the related notes payable.

     Financial results for Interflora are included herein beginning August 1, 2006. The pro forma information below presents the results of operations as if the acquisition occurred on July 1, 2005 (in thousands, except per share amounts). Pro forma financial information related to Interflora, Inc. has not been included herein, as the operating results of Interflora, Inc. are not considered material to the Company’s operating results.

		Three Months Ended				Nine Months Ended
		March 31,				March 31,
		2006				2007				2006
Proforma revenues		$	170,405			$	453,863			$	417,976
Proforma income from operations		$	20,615			$	55,712			$	50,008
Proforma net income		$	8,798			$	21,335			$	19,105
Proforma net income per share — basic		$	0.31			$	0.75			$	0.65
Proforma net income per share — diluted		$	0.30			$	0.72			$	0.63

     The allocation of the acquisition cost, which is substantially complete, is shown in the table below (in thousands). Such allocation will be finalized when remaining fair value adjustments are completed.

Goodwill		$	76,024
Trademark			61,764
Computer software			4,372
Land and building			2,942
Other intangible assets (customer list)			1,711
Deferred tax liability			(20,464	)
Other assets acquired and liabilities assumed, net			(1,211	)
Total preliminary allocation of acquisition cost		$	125,138

     Goodwill and trademark assets are considered indefinite lived and therefore will not be subject to amortization. Computer software will be amortized over 5 years; the customer list will be amortized over 3 years.

     The Company implemented a deferred compensation plan for certain members of Interflora management. Under the terms of the plan, participants will be paid a cash bonus upon achieving a specified annual earnings target if such target is achieved in any annual period within the next seven years. The maximum payout under such plan is £2.9 million. During the three-month and nine-month periods ended March 31, 2007, the Company recorded $0.3 million and $0.9 million of expense, respectively, related to this deferred compensation plan.

Note 5. Goodwill and Other Intangibles

     Goodwill resulting from the Interflora acquisition will be reported as part of the international segment.

     The changes in the carrying amount of goodwill, trademark and amortizable intangible assets, the related accumulated amortization as of March 31, 2007 and estimated amortization expense are as follows (in thousands):

		Consumer				Florist				International
		Segment				Segment				Segment				Total
Goodwill:
Balance at June 30, 2006		$	178,141			$	158,518			$	—			$	336,659
Acquisition of Interflora			—				—				76,024				76,024
Impact of foreign exchange			—				—				3,884				3,884
Balance at March 31, 2007		$	178,141			$	158,518			$	79,908			$	416,567
Trademark:
Balance at June 30, 2006		$	67,842			$	53,735			$	—			$	121,577
Acquisition of Interflora			—				—				61,764				61,764
Impact of foreign exchange			—				—				3,163				3,163
Balance at March 31, 2007		$	67,842			$	53,735			$	64,927			$	186,504

		March 31, 2007												June 30, 2006
		Gross Carrying				Accumulated				Net				Gross Carrying				Accumulated				Net
		Amount				Amortization				Carrying Amount				Amount				Amortization				Carrying Amount
Amortizable Intangible Assets:
Customer lists		$	14,636			$	8,267			$	6,369			$	12,836			$	5,940			$	6,896
Non-compete agreements			100				78				22				100				53				47
Total		$	14,736			$	8,345			$	6,391			$	12,936			$	5,993			$	6,943

     Also included within Intangible Assets on the balance sheet is a URL asset, valued at $7.8 million, which is an indefinite lived asset.

Estimated amortization expense (in thousands):
For the remaining three-month period ending June 30, 2007		$	800
For the year ending June 30, 2008		$	3,181
For the year ending June 30, 2009		$	2,333
For the year ending June 30, 2010		$	77

     Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually. The annual assessment occurs in the fourth quarter of each year. All intangible assets are tested for impairment if events or circumstances indicate the carrying value may not be recoverable.

Note 6. Financing Arrangements

     On July 28, 2006, in connection with the Interflora acquisition, FTD, Inc. entered into a new senior secured credit facility consisting of a $150.0 million term loan and a $75.0 million revolving credit facility (the “2006 Credit Agreement”). Borrowings under the 2006 Credit Agreement bear interest based on a margin over, at FTD, Inc.’s option, either the base rate or the London Bank Offered Rate (“LIBOR”). The applicable margin for borrowings varies based on the Company’s consolidated leverage ratio, as defined in the 2006 Credit Agreement. The weighted average interest rate at March 31, 2007 on the term loan was 7.36%. The Credit Agreement also requires the Company to pay commitment fees on the unused portion of the revolving credit facility. Commitment fees totaled $0.1 million and $0.2 million for the three-month and nine-month periods ended March 31, 2007, respectively. The 2006 Credit Agreement also includes covenants that, among other things, require that FTD, Inc. maintain a ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (subject to certain adjustments) of no more than 5.75 to 1.00 and a fixed charge ratio of no less than 1.30 to 1.00. Such ratios adjust quarterly in accordance with the terms of the 2006 Credit Agreement. FTD, Inc. was in compliance with all debt covenants as of March 31, 2007.

     On February 20, 2007, the Board of Directors of the Company approved, and the Company entered into, an amendment to the 2006 Credit Agreement, which, among other things, amended certain restrictions to allow the Company to make certain restricted junior payments, including dividend payments.

     The 2006 Credit Agreement imposes various restrictions on the Company, including restrictions that limit FTD, Inc.’s ability to incur liens or encumbrances, make investments or acquisitions, incur additional debt, enter into sale

leaseback transactions, incur certain contingent liabilities, make certain restricted junior payments and other similar distributions, enter into mergers, consolidations and similar combinations, sell assets or engage in similar transfers, amend certain material agreements, including the indenture governing the 7.75% Senior Subordinated Notes (the “Notes”), make capital expenditures and engage in transactions with affiliates.

     In conjunction with the Company’s completion of a going private transaction on February 24, 2004, FTD, Inc. entered into a senior secured credit facility (the “2004 Credit Agreement”). There was $50.0 million in outstanding debt at June 30, 2006 under the 2004 Credit Agreement, which was subsequently paid off on July 28, 2006. As a result of repaying amounts borrowed under the 2004 Credit Agreement, the Company wrote off $1.8 million of deferred financing costs, net of accumulated amortization, during the first quarter of fiscal year 2007. This expense is recorded in interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. In connection with the 2006 Credit Agreement, the Company incurred $1.5 million of deferred financing costs, which were allocated, pro rata, to the six-year revolving credit facility and the seven-year term loan and are being amortized using the effective interest method.

     At March 31, 2007, the Company had $142.3 million outstanding under the 2006 Credit Agreement and $26.0 million in outstanding letters of credit, $24.5 million of which related to the notes payable from the acquisition of Interflora, and, as a result, the revolving credit facility had availability of approximately $49.0 million.

Note 7. Net Income Per Common Share

     The computations of basic and diluted net income per common share for the three-month and nine-month periods ended March 31, 2007 and 2006 are as follows (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Net income		$	9,615			$	7,421			$	21,165			$	16,749
Weighted average common shares outstanding — basic			28,462				28,111				28,343				28,989
Effect of dilutive securities — stock options			1,365				920				1,167				1,036
Weighted average common shares outstanding — diluted			29,827				29,031				29,510				30,025
Net income per share of Common Stock — basic		$	0.34			$	0.26			$	0.75			$	0.58
Net income per share of Common Stock — diluted		$	0.32			$	0.26			$	0.72			$	0.56

     For the three-month period ended March 31, 2007 all outstanding stock options were included in the computation of diluted earnings per share because the average market price of the Company’s Common Stock during the period was greater than the exercise price of the options. For the nine-month period ended March 31, 2007, there were 12,500 outstanding stock options which were not included in the computation of diluted earnings per share because their effect was anti-dilutive. For the three-month and nine-month periods ended March 31, 2006, there were 212,500 and 195,000 outstanding stock options, respectively, which were not included in the computation of diluted earnings per share because their effect was anti-dilutive.

Note 8. Pension and Other Post-Retirement Benefit Plans

     The Company’s defined benefit pension plan and post-retirement benefit plan relate to a limited number of employees and retirees. Such plans were frozen in 1997. The table below provides the components of pension expense for the defined benefit plan for the three-month and nine-month periods ended March 31, 2007 and 2006 (in thousands):

		Salaried Employees’ Pension Plan
		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Service cost		$	13			$	13			$	39			$	41
Interest cost			26				28				78				83
Expected return on assets			(23	)			(22	)			(69	)			(67	)
Amortization			1				9				3				27
Net periodic benefit cost		$	17			$	28			$	51			$	84

     The following table provides the components of net periodic post-retirement benefit costs for the three-month and nine-month periods ended March 31, 2007 and 2006 (in thousands):

		Retiree Medical Plan
		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2007				2006				2007				2006
Interest cost		$	22			$	20			$	66			$	60
Net periodic benefit cost		$	22			$	20			$	66			$	60

Note 9. Stock-Based Compensation

     The Company adopted SFAS 123 (R), Share-Based Payment (“SFAS 123 (R)”) on July 1, 2005 using the modified prospective method and Black-Scholes as the option valuation model. No stock options were granted during the three-month period ended March 31, 2007. The Company granted 1,380,217 options during the nine-month period ended March 31, 2007 to various employees and directors of the Company. During the three-month and nine-month periods ended March 31, 2006, the Company granted 35,000 and 97,500 options, respectively. Outstanding non-qualified stock options have an expiration date ten years from the date of grant and begin vesting as early as the date of grant, dependent upon the individual agreements. All stock options were granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant.

     During the three-month and nine-month periods ended March 31, 2007 and 2006, 39,000 and 155,666 and 18,667 and 169,334 options, respectively, were forfeited. During the nine-month period ended March 31, 2007, 746,659 options were exercised, 605,879 of which were exercised during the quarter ended March 31, 2007. Of the 605,879 options exercised during the three-month period ended March 31, 2007, 549,373 were exercised as part of the secondary offering discussed in Note 2. The Company reissued shares of Treasury Stock in connection with the exercise of all vested stock options during the three-month and nine-month periods ended March 31, 2007. During the nine-month period ended March 31, 2006, the Company issued 30,391 shares of Common Stock in connection with the exercise of vested stock options. In addition, during the three-month and nine-month periods ended March 31, 2006, the Company reissued 8,408 and 39,520 shares, respectively, of Treasury Stock in connection with the exercise of vested stock options.

     Stock-based compensation expense was $0.5 million and $1.5 million, and $0.2 million and $0.5 million for the three-month and nine-month periods ended March 31, 2007, and 2006, respectively. Stock-based compensation expense in any period may not be indicative of the expense for the entire fiscal year.

Note 10. Commitments and Contingencies

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

Note 11. Segment Information

     For purposes of managing the Company, management reviews segment financial performance to the operating income level for each of its reportable segments. As such, interest income, interest expense and tax expense are reviewed on a consolidated corporate basis. Revenue and expenses earned and charged between segments are eliminated in consolidation.

     The consumer segment is an Internet and telephone marketer of flowers and specialty gifts, which sells products directly to consumers primarily through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number.

     The florist segment includes all services and products sold to FTD members and other retail locations offering floral products. Services include clearinghouse, membership, technology access and support and online services. Products include containers, technology systems and fresh flowers.

     The international segment is primarily comprised of Interflora, which has both a florist business and consumer business. Interflora provides products and services to enable its members to send and deliver floral orders and is also an Internet and telephone marketer of flowers and specialty gift items to consumers, operating primarily through the www.interflora.co.uk Web site as well as toll-free telephone numbers.

     The corporate segment includes costs related to corporate headquarters, including accounting, executive, legal, facilities, information technology and credit and collections. Costs related to facilities, information technology and credit and collections are allocated to the consumer and florist segments.

     Of the Company’s assets totaling $779.4 million at March 31, 2007, the assets of the Company’s consumer segment totaled approximately $266.0 million, the assets of the Company’s international segment totaled $197.2 million and the assets of the Company’s florist segment and corporate headquarters totaled $316.2 million.

     The following tables report the Company’s operating results by reportable segment for the three-month and nine-month periods ended March 31, 2007 and 2006:

		Three Months Ended March 31,
		2007												2006
		Gross Segment				Eliminations				Consolidated				Gross Segment				Eliminations				Consolidated
										(in thousands)
Revenues:
Consumer segment		$	84,642			$	(4,426	)		$	80,216			$	80,883			$	(5,203	)		$	75,680
Florist segment			49,290				(167	)			49,123				52,979				(74	)			52,905
International segment			53,476				84				53,560				—				—				—
Total			187,408				(4,509	)			182,899				133,862				(5,277	)			128,585
Cost of Products Sold and Services Provided:
Consumer segment			57,721				(741	)			56,980				56,156				(747	)			55,409
Florist segment			17,465				(826	)			16,639				18,849				(828	)			18,021
International segment			37,528				(37	)			37,491				—				—				—
Corporate			493				—				493				533				—				533
Total			113,207				(1,604	)			111,603				75,538				(1,575	)			73,963
Gross Profit:
Consumer segment			26,921				(3,685	)			23,236				24,727				(4,456	)			20,271
Florist segment			31,825				659				32,484				34,130				754				34,884
International segment			15,948				121				16,069				—				—				—
Corporate			(493	)			—				(493	)			(533	)			—				(533	)
Total			74,201				(2,905	)			71,296				58,324				(3,702	)			54,622
Advertising and Selling:
Consumer segment			11,346				—				11,346				10,401				—				10,401
Florist segment			14,821				(3,028	)			11,793				16,044				(3,702	)			12,342
International segment			4,292				(83	)			4,209				—				—				—
Total			30,459				(3,111	)			27,348				26,445				(3,702	)			22,743
General and Administrative
Consumer segment			7,311				(786	)			6,525				6,881				(735	)			6,146
Florist segment			2,052				—				2,052				2,377				—				2,377
International segment			6,486				61				6,547				—				—				—
Corporate			5,588				786				6,374				5,790				735				6,525
Total			21,437				61				21,498				15,048				—				15,048
Operating Income (Loss) before Corporate Allocations:
Consumer segment			8,264				(2,899	)			5,365				7,445				(3,721	)			3,724
Florist segment			14,952				3,687				18,639				15,709				4,456				20,165
International segment			5,170				143				5,313				—				—				—
Corporate			(6,081	)			(786	)			(6,867	)			(6,323	)			(735	)			(7,058	)
Total			22,305				145				22,450				16,831				—				16,831
Corporate Allocations:
Consumer segment			1,151				—				1,151				849				—				849
Florist segment			2,284				—				2,284				2,868				—				2,868
International segment			—				—				—				—				—				—
Corporate			(3,435	)			—				(3,435	)			(3,717	)			—				(3,717	)
Total			—				—				—				—				—				—
Operating Income (Loss):
Consumer segment			7,113				(2,899	)			4,214				6,596				(3,721	)			2,875
Florist segment			12,668				3,687				16,355				12,841				4,456				17,297
International segment			5,170				143				5,313				—				—				—
Corporate			(2,646	)			(786	)			(3,432	)			(2,606	)			(735	)			(3,341	)
Total		$	22,305			$	145			$	22,450			$	16,831			$	—			$	16,831
Depreciation and Amortization:
Consumer segment		$	950			$	—			$	950			$	836			$	—			$	836
Florist segment			799				—				799				821				—				821
International segment			1,078				—				1,078				—				—				—
Corporate			862				—				862				967				—				967
Total		$	3,689			$	—			$	3,689			$	2,624			$	—			$	2,624

		Nine Months Ended March 31,
		2007												2006
		Gross Segment				Eliminations				Consolidated				Gross Segment				Eliminations				Consolidated
										(in thousands)
Revenues:
Consumer segment		$	209,451			$	(12,367	)		$	197,084			$	193,836			$	(13,315	)		$	180,521
Florist segment			137,873				(351	)			137,522				143,323				(205	)			143,118
International segment			108,422				182				108,604				—				—				—
Total			455,746				(12,536	)			443,210				337,159				(13,520	)			323,639
Cost of Products Sold and Services Provided:
Consumer segment			142,335				(1,868	)			140,467				134,073				(1,809	)			132,264
Florist segment			46,664				(2,497	)			44,167				49,485				(2,524	)			46,961
International segment			75,280				(77	)			75,203				—				—				—
Corporate			1,507				—				1,507				1,718				—				1,718
Total			265,786				(4,442	)			261,344				185,276				(4,333	)			180,943
Gross Profit:
Consumer segment			67,116				(10,499	)			56,617				59,763				(11,506	)			48,257
Florist segment			91,209				2,146				93,355				93,838				2,319				96,157
International segment			33,142				259				33,401				—				—				—
Corporate			(1,507	)			—				(1,507	)			(1,718	)			—				(1,718	)
Total			189,960				(8,094	)			181,866				151,883				(9,187	)			142,696
Advertising and Selling:
Consumer segment			25,087				—				25,087				22,768				—				22,768
Florist segment			43,395				(8,353	)			35,042				48,703				(9,187	)			39,516
International segment			8,834				(196	)			8,638				—				—				—
Total			77,316				(8,549	)			68,767				71,471				(9,187	)			62,284
General and Administrative
Consumer segment			18,690				(1,940	)			16,750				15,407				(1,785	)			13,622
Florist segment			6,348				—				6,348				5,607				—				5,607
International segment			15,231				318				15,549				—				—				—
Corporate			17,675				1,940				19,615				17,430				1,785				19,215
Total			57,944				318				58,262				38,444				—				38,444
Operating Income (Loss) before Corporate Allocations:
Consumer segment			23,339				(8,559	)			14,780				21,588				(9,721	)			11,867
Florist segment			41,466				10,499				51,965				39,528				11,506				51,034
International segment			9,077				137				9,214				—				—				—
Corporate			(19,182	)			(1,940	)			(21,122	)			(19,148	)			(1,785	)			(20,933	)
Total			54,700				137				54,837				41,968				—				41,968
Corporate Allocations:
Consumer segment			3,021				—				3,021				2,451				—				2,451
Florist segment			7,007				—				7,007				8,364				—				8,364
International segment			—				—				—				—				—				—
Corporate			(10,028	)			—				(10,028	)			(10,815	)			—				(10,815	)
Total			—				—				—				—				—				—
Operating Income (Loss):
Consumer segment			20,318				(8,559	)			11,759				19,137				(9,721	)			9,416
Florist segment			34,459				10,499				44,958				31,164				11,506				42,670
International segment			9,077				137				9,214				—				—				—
Corporate			(9,154	)			(1,940	)			(11,094	)			(8,333	)			(1,785	)			(10,118	)
Total		$	54,700			$	137			$	54,837			$	41,968			$	—			$	41,968
Depreciation and Amortization:
Consumer segment		$	2,883			$	—			$	2,883			$	2,293			$	—			$	2,293
Florist segment			2,430				—				2,430				2,551				—				2,551
International segment			2,783				—				2,783				—				—				—
Corporate			2,794				—				2,794				2,896				—				2,896
Total		$	10,890			$	—			$	10,890			$	7,740			$	—			$	7,740